question

A key characteristic of a competitive market is that

answer

Producers sell nearly identical products

question

Which of the following is a characteristic of a competitive market?

answer

Buyers and sellers are price takers

question

Which of the following is not a characteristic of a perfectly competitive marker

answer

Firms have difficulty entering the market.

question

Free entry means that

answer

No legal barriers prevent a firm from entering an industy

question

In a competitive market, no single producer can influence the market price because

answer

Many other sellers are offering a product that is essentially identical

question

Suppose a firm in a competitive market reduces its output by 20%. As a result, the price of its output is likely to

answer

Remain unchanged

question

IF a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

answer

Exactly triple

question

At the profit maximizing level of output,

answer

Marginal revenue equals marginal cost

question

If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then

answer

A one unit increase in output will increase the firm's profit

question

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

answer

A one unit decrease in output will increase the firm's profit

question

When profit maximizing firms in competitive markets are earning profits

answer

New firms will enter the market

question

Which of the following statements best expresses a firm's profit maximizing decision rule

answer

All of the above

question

When price is greater than marginal cost for a firm in a competitive market,

answer

There are opportunities to increase profit by increasing production

question

In the short run, a firm operating in a competitive industry will shut down if price is

answer

Less than average variable cost

question

A competitive firm's short run supply curve is part of which of the following curves

answer

Marginal Cost

question

Which of these curves is the competitive firm's short run supply curve

answer

The marginal cost curve above average variable cost

question

Figure 14-1: The firm's short run supply curve is its marginal cost curve above

answer

$4.50

question

Figure 14-1: The firm should shut down if the market price is

answer

Less than $4.50

question

Figure 14-1: If the market price falls below $4.50, the firm will earn

answer

Negative economic profits in the short run and shut down

question

Figure 14-1: The firm will earn a negative economic profit but remain in business in the short run if the market price is

answer

Less than $6.30 but more than $4.50

question

Figure 14-1: The firm will earn a positive economic profit in the short run if the market price is

answer

Above $6.30

question

Figure 14-1: If the market price is $5.00, the firm will earn

answer

Negative economic profits in the short run but remain in business

question

Figure 14-1: If the market price is $4.00, the firm will earn

answer

Negative economic profits and shut down

question

A firm that shuts down temporarily has to pay

answer

Its fixed cost buy not its variable cost

question

When fixed cost are ignored because they are irrelevant to a business's production decision, they are called

answer

Sunk Cost

question

A sunk cost is one that

answer

Was paid in the past and will not change regardless of the present decision.

question

When economist refer to a production cost hat has already been committed and cannot be recovered, they use the term

answer

Sunk Cost

question

The competitive firm's long run supply curve is that portion of the marginal cost curve that lies above average

answer

Total Cost

question

Which of the following represents the firm's long run condition for exiting a market

answer

Exit if P<ATC

question

Figure 14-10: If there are 500 identical firms in this market, what is the value of Q1

answer

150,000

question

Figure 14-10: If there are 700 identical firms in this market, what is the value of Q2

answer

420,000

question

Entry into a market by new firms will increase the

answer

Supply of the good

question

In the long run, each firm in a competitive industry earns

answer

Zero economic profits

question

The long run supply curve for a competitive industry

answer

May be upward sloping if higher cost firms enter the industry

question

The long run supply curve for a competitive industry may be upward sloping if

answer

Some resource are available only in limited quantities

question

Which of the following represents a firm's short run condition for shutting down

answer

TR<VC

question

Figure 14-5: Firms will be encouraged to enter this market for all prices that exceed

answer

None of the above

question

Figure 14-5: When market price is P2, a profit maximizing firm's losses can be represented by the area

answer

At a market price of P2, the firm has losses, but the reference points in the figure don't identify the losses

question

Figure 14-6: When market price is P3, a profit maximizing firm's total costs

answer

Can be represented by the area P3 x Q2

question

Figure 14-6: Firms will earn positive profits in the short run if the market price

answer

Exceeds P3

question

Figure 14-6: When market price is P3, a profit maximizing firm's profit

answer

Is zero

question

Figure 14-6: Firms will be earn losses in the short run buy will remain in business if the market price

answer

Is greater than P1 but less than P3

question

Figure 14-6: Firms will shut down in the short run if the market price

answer

Is less than P1

question

Which of the following is not a characteristic of a monopoly

answer

One buyer

question

A monopoly market is characterized by

answer

barriers to entry

question

Which of the following is not a reason for the existence of a monopoly

answer

of scale

question

A firm that is the sole seller of a product without close substitutes is

answer

A monopolist

question

Most markets are not monopolies in the real world because

answer

There are reasonable substitutes for most goods

question

A fundamental source of monopoly market power arises from

answer

barriers to entry

question

Patents, copyrights, and trademarks

answer

All of the above are correct

question

Patents, and copyrights laws encourage

answer

creative activity, research and development

question

Figure 15-1: The shape of the ATC curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the figure

answer

Natural monopoly

question

Figure 15-1: The shape of the average total cost curve in the figure suggests an opportunity for a profit maximizing monopolist to take advantage of

answer

Economies of scale

question

Which of the following is a characteristic of a natural monopoly

answer

Average total cost declines over large regions of output

question

Which of the following is a characteristic of a natural monopoly

answer

All of the above are correct

question

The market demand curve for a monopolist is typically

answer

downward sloping

question

In order to sell more of its product, a monopolist must

answer

lower its price

question

A monopoly firm is a price

answer

maker and has no supply curve

question

For a monopoly firm, which of the following equalities is always true

answer

price = average revenue

question

For a monopoly,

answer

average revenue exceeds marginal revenue

question

Marginal revenue can become negative for

answer

monopoly firms but not for competitive firms

question

A monopolist can sell 200 units of output for $36 per unit. Alternatively, it can sell 201 units for $35.80 per unit. The marginal revenue of the 201st unit of output is

answer

$-4.20

question

Figure 15-3: The demand curve for a monopoly firm is depicted by curve

answer

A

question

Figure 15-3: The marginal revenue curve for a monopoly firm is depicted by curve

answer

B

question

Figure 15-3: The marginal cost curve for a monopoly is depicted by curve

answer

C

question

Figure 15-3: The average total cost curve for a monopoly firm is depicted by curve

answer

D

question

Figure 15-3: Profit will be maximized by charging a price equal to

answer

P4

question

Figure 15-3: If the monopoly firm is currently producing Q3 units of output, then a decrease in output will necessarily cause profit to

answer

Increase as long as the new level of output is at least Q2

question

Figure 15-3: Profit can always be increased by increasing the level of output by one unit if the monopolist is currently operating at

answer

i or ii (Q0 or Q1)

question

Figure 15-3: IF the monopoly firm wants to maximize its profit, it should operate at a level of output equal to

answer

Q2

question

Figure 15-3: A profit maximizing monopoly's total revenue is equal to

answer

P4 x Q2

question

The deadweight loss associated with a monopoly occurs because the monopolist

answer

Produces an output level less than the socially optimal level

question

Monopolies are inefficient because they

answer

iii- restrict output below the socially efficient level of production

question

The social cost of a monopoly is equal to its

answer

dead weight loss

question

Monopolies are socially inefficient because the price they charge is

answer

above marginal cost

question

The socially efficient level of production occurs where the marginal cost curve intersects

answer

demand

question

For a monopoly, the socially efficient level of output occurs where

answer

average revenue equals marginal cost

question

Figure 15-7: What is the socially efficient price and quantity

answer

price = G; quantity = B

question

Figure 15-7: What is the monopoly price and quantity

answer

price = F; quantity = A

question

Figure 15-7: What is the area of deadweight loss

answer

The triangle 1/2[(f-d)x(b-a)]

question

Figure 15-7: What area represents the total surplus lost due to monopoly pricing

answer

The triangle 1/2[(f-d)x(b-a)]

question

When a monopolist is able to sell its product at different prices, it is engaging in

answer

price discrimmination

question

The practice of selling the same goods to different customers at different prices, but with the same marginal cost, is known as

answer

price discrimmination

question

A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it

answer

All of the above are correct

question

Financial aid to college students, quantity discounts, and senior citizen discounts are all examples of

answer

price discrimination

question

Round trip airline tickets are usually cheaper if you stay over a Saturday night before you fly back. What is the reason for this price discrepancy

answer

All of the above are correct

question

Price discrimination explains why ivy league universities often base tuition cost on students

answer

financial resources

question

Perfect price discrimination

answer

eliminates deadweight loss

question

Antitrust laws allow the government to

answer

break up companies or all of the above

question

Which of the following is a characteristic of a monopolistic competition

answer

free entry

question

The market for novels is

answer

monopolistically competitive

question

Which of the following pairs illustrates the two extreme examples of market structures

answer

competition and monopoly

question

A monopolistically competitive industry is characterized by

answer

many firms selling products that are similar but not identical

question

A market structure in which there are many firms selling products that are similar but not identical is known as

answer

monopolistic competition

question

For a monopolistically competitive firm

answer

average revenue and prices are the same

question

For a monopolistically competitive firm, at the profit maximizing quantity of output,

answer

price exceeds marginal cost

question

A profit maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market

answer

faces a downward sloping demand curve for its product

question

In a monopolistically competitive industry, a firm's demand curve also represents its

answer

average revenue

question

A monopolistically competitive firm's choice of output level is virtually identical to the choice made by

answer

a monopolist

question

To maximize its profit, a monopolistically competitive firm

answer

chooses its quantity and price, just as a monopoly does

question

The profit maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at which

answer

marginal revenue is equal to marginal cost

question

A profit maximizing firm in a monopolistically competitive market is characterized by which of the following

answer

price exceeds marginal cost

question

Which of the following conditions is characteristic of a monopolistically competitive firm in short run equilibrium

answer

P > MC or All of the above are correct

question

For a profit maximizing monopolistically competitive firm, price exceeds marginal cost in

answer

both the short run and the long run

question

Figure 16-1: The firm's profit maximizing level of output is

answer

12 units

question

Figure 16-1: In order to maximize profit, the firm will charge a price of

answer

$18

question

Figure 16-1: Suppose that average total is $18 when Q=12. What is the profit maximizing price and resulting profit

answer

P=$18, profit=$0

question

Figure 16-1: If the average total cost $15 at the profit maximizing quantity, then the firm's maximum profit is

answer

$36

question

Figure 16-3: The firm in this figure is monopolistically competitive. It illustrates a

answer

short run economic profit

question

In which of the following markets is economic profit driven to zero in the long run

answer

monopolistic competition

question

The free entry and exit of firms in a monopolistically competitive market guarantees that

answer

both economic profits and economic losses disappear in the long run

question

Since a firm in a monopolistically competitive market faces a

answer

downward sloping demand curve, it will always operate with excess capacity

question

When a firm operates with excess capacity

answer

additional production would lower the average total cost

question

Hotels in New York City frequently experience an average vacancy rate of about 20%. This kind of capacity is indicative of what kind of market

answer

monopolistic competition

question

Excess capacity is

answer

an example of the inefficiencies of monopolistically competitive markets

question

Monopolistic competition is considered inefficient because

answer

price exceeds marginal cost

question

Which of the following markets impose deadweight losses on society

answer

ii and iii (monopolistic competition, monopoly)

question

Some firms have incentive to advertise because they sell

answer

differentiated product and charge a price above marginal cost

question

For the economy as a whole, spending on advertising comprises about what percent of total firm revenue

answer

2

question

Firms that sell highly differentiated consumer goods, such as soft drinks, cereal, and dog food, typically spend what percent of their revenues on advertising

answer

10-20

question

Critics of advertising argue that advertising

answer

All of the above

question

Which of the following is commonly cited benefit of advertising

answer

Advertising can be a signal of the quality of a product

question

Defenders of advertising

answer

contend that firms use advertising to provide useful information to consumers

question

The primary claim of defenders of advertising is that it

answer

enhances the information available to consumers

question

Evidence from the market for eyeglasses suggests that advertising leads to

answer

lower prices for consumers

question

Advertising that uses celebrity endorsements is most likely intended to

answer

provide signal of product quality

question

The essence of an oligopolistic market is that there are only a few sellers

answer

True

question

In a competitive market, strategic interactions are among the firms are not important

answer

True

question

A market consist of three firms of similar sizes, each selling a product that is similar but not identical. Which type of market is this?

answer

Oligopoly

question

Which of the following statements about oligopolies is not correct

answer

Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal revenues

question

In the language of game theory, a situation in which each person must consider how others might respond to his or her own actions is called a

answer

strategic situation

question

In general, game theory is the study of

answer

how people behave in strategic situations

question

Game theory is important for understanding which of the following market types

answer

oligopolistic but not perfectly competitive markets

question

A distinguishing feature of an oligopolistic industry is the tension between

answer

cooperation and self interest

question

The simplest type of oligopoly is

answer

duopoly

question

An agreement among firms in a market about quantities to produce or prices to charge is called

answer

collusions

question

An agreement between two duopolist to function as one monopolist usually breaks down because

answer

each duopolist wants a larger share of the market in order to capture more profit

question

As the number of firms in a oligopoly increases, the

answer

price approaches marginal cost, and the quantity approaches the socially efficient level

question

Figure 17-1: If Rochelle and Alec operate as a profit maximizing monopoly in the market for water, what price will they charge

answer

$30

question

Figure 17-1: If Rochelle and Alec operate as a profit maximizing monopoly in the market for water, how many galloons of water will be produced and sold

answer

600

question

Figure 17-1: If Rochelle and Alec operate as a profit maximizing monopoly in the market for water, how much profit will each of them earn

answer

$9000

question

Figure 17-1: If the market for water were perfectly competitive instead of monopolistic, how many galloons of water would be produced and sold

answer

1,200

question

Figure 17-1: What is the socially efficient quantity of water

answer

1200

question

Figure 17-1: If this market for water were perfectly competitive instead of monopolistic, what price would be charged

answer

$0

question

As the number of firms in an oligopoly increases, the magnitude of the

answer

price effect decreases

question

In markets characterized by oligopoly

answer

the oligopolist earn the highest profit when they cooperate and behave like a monopolist

question

As a group, oligopolist would always be better off if they would act collectively

answer

as a single monopolist

question

A situation in which firms choose their best strategy given the strategies chosen by the other firms in the market is called

answer

a Nash equilibrium

question

Which of theses situations produces the largest profits for oligopolist

answer

the firms reach the monopoly outcome

question

When firms have agreements among themselves on the quantity to produce and price at which to sell, we refer to their form of organization as a

answer

cartel

question

The equilibrium quantity in markets characterized by oligopoly is

answer

higher than in monopoly markets and lower than in perfectly competitive markets.

question

The equilibrium price in markets characterized by oligopoly is

answer

lower than in monopoly and higher than in perfectly competitive markets

question

A group of firms that act in unison to maximize collective profits is called a

answer

cartel

question

Once a cartel is formed, the market is in effect served by

answer

a monopoly

question

An oligopolist will increase production if the output effect is

answer

greater than the price effect

question

Oligopolies can end up looking like competitive markets if the number of firms is

answer

large and they do not cooperate

question

The theory of oligopoly provides another reason that free trade can benefit all countries because

answer

as the number of firms within given market increases, the price of the good decreases

question

Game theory is necessary for understanding

answer

oligopoly, but is not necessary for understating monopoly or competition

question

The prisoners dilemma provides insights into the

answer

difficulty of maintaining cooperation

question

The likely outcome of the standard prisoners dilemma game is that

answer

both prisoners confess

question

In a game, a dominate strategy is

answer

the best strategy for a player to follow, regardless of the strategies followed by other players

question

Figure 17-1: The dominate strategy for ABC is to

answer

produce high output, and the dominant strategy for XYZ is to produce high output

question

Figure 17-1: If this game is played, then the most likely outcome is that

answer

Both firms produce a high level of output

question

In game theory, a Nash equilibrium

answer

All of the above are correct

question

Figure 17-14: Which of the following statements about this game is true

answer

Up is a dominant strategy for A and Right is a dominant strategy for B

question

Figure 17-14: Which outcome is the Nash equilibrium in this game

answer

Up-Right

question

Figure 17-18: The dominant strategy for firm A is to produce

answer

12 units and the dominant strategy for B is to produce 12 units

question

Figure 17-18: The Nash equilibrium for this game is

answer

12 units of output for firm A and 12 units of output for firm B

question

Figure 17-19: If grocery store 2 sets a low price, what price should grocery store 1 set? and what will grocery store 1 payoff equal

answer

Low price, $500

question

17-9: What is grocery store 1's dominant strategy

answer

Grocery store 1 should always set a low price

question

17-9: What is grocery store 2's dominant strategy

answer

Grocery store 2 should always set a low price

question

17-1: What is the Nash equilibrium of this price setting game?

answer

Low price for both stores

question

17-20: If Maddie chooses to clean, then Nadia will

answer

not clean and Maddie's payoff will be 7

question

17-20: If Maddie chooses not to clean, then Nadia will

answer

not clean, and Nadia's payoff will be 10

question

17-20: If Nadia chooses to clean, then Maddie will

answer

not clean, and Maddie's payoff will be 50

question

17-20: If Nadia chooses to not clean, then Maddie will

answer

not clean, and Maddie's payoff will be 10

question

17-20: What is Nadia's dominant strategy

answer

Nadia should always choose not to clean

question

17-20: What is Maddie's dominant strategy

answer

Maddie should always choose not to clean

question

17-20: What is the Nash equilibrium in this dorm room cleaning game

answer

Nadia don't clean, Maddie don't clean

question

17-2: The dominant strategy for Hector is to

answer

refrain from cleaning, and the dominant strategy for Bart is to refrain from cleaning

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