Flashcards and Answers – Micro Final Test
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The term oligopoly indicates: A) many firms and low entry barriers. B) many producers of a differentiated product. C) an industry whose four-firm concentration ratio is low. D) a few firms producing either a differentiated or a homogeneous product and high entry barriers. E) a one-firm industry.
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a few firms producing either a differentiated or a homogeneous product and high entry barriers.
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Which of the following may characterize an oligopoly? A) a few firms. B) high barriers to entry. C) significant market power. D) sticky price. E) all of the above.
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all of the above.
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Crude oil is primarily supplied to the world market by a few Middle Eastern countries. Such a market is an example of a(n): (i) imperfectly competitive market. (ii) monopoly market. (iii) oligopoly market. A) (i) and (ii). B) (ii) and (iii). C) (i) and (iii). D) (ii) only. E) (iii) only.
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(i) and (iii).
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While there are many newspapers in the U.S., each city tends to have only one or two. If newspapers are generally local markets, then newspapers are characterized by a: A) low national concentration and a high Herfindahl-Hirshman Index (HHI) at the local level. B) low national concentration and a low HHI at the local level. C) high national concentration and a high HHI at the local level. D) high national concentration and a low HHI at the local level. E) constant national concentration and a high at the local level.
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low national concentration and a high Herfindahl-Hirshman Index (HHI) at the local level.
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The kinked-demand curve model of oligopoly: A) assumes a firm's rivals will ignore any price change it may initiate. B) low national concentration and a high Herfindahl-Hirshman Index (HHI) at the local level. C) embodies the possibility that changes in unit costs will always change equilibrium price and output. D) assumes a firm's rivals will ignore a price cut but match a price increase. E) assumes a firm's rivals will match any price change it may initiate.
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low national concentration and a high Herfindahl-Hirshman Index (HHI) at the local level.
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How might an oligopolist increase total revenue without changing price? A) reduce marketing efforts. B) reduce costs. C) increase competition among rivals. D) reduce output. E) through nonprice competition.
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through nonprice competition.
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The equilibrium price in a market characterized by oligopoly is: A) same as in perfectly competitive markets, but higher than in monopoly markets. B) lower than in monopoly markets and lower than in perfectly competitive markets. C) lower than in monopoly markets and higher than in perfectly competitive markets. D) higher than in monopoly markets and lower than in perfectly competitive markets. E) higher than in monopoly markets and higher than in perfectly competitive markets.
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lower than in monopoly markets and higher than in perfectly competitive markets.
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Oligopolists should have a mutual interest in coordinating production decisions in order to maximize industry (joint): A) costs. B) profits. C) revenues. D) market share. E) market power.
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profits.
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In oligopoly markets sticky prices are the result of: A) the danger of price-fixing schemes being discovered by the government. B) the industry maintaining increasing level of output in the market. C) the uncertainty of competitor responses to price changes. D) rivals matching price increases, but not decreases. E) all of the above.
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the uncertainty of competitor responses to price changes.
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Pricing and output determination under an oligopoly is more complicated than pricing and output determinations in other industries. The primary reason for the complication is the: A) fewness of firms. B) brand loyalty of consumers. C) mutual interdependence of firms. D) variability of concentration ratios. E) powerful effect of advertising.
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mutual interdependence of firms.
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When strategic interactions are important to pricing and production decisions, a typical firm will: A) set the price of its product equal to marginal cost. B) consider how competing firms might respond to its actions. C) generally operate as if it is a monopolist. D) consider exiting the market. E) consider merger and acquisition..
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consider how competing firms might respond to its actions.
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The prisoners' dilemma is an important game to study because: A) all interactions among firms are represented by this game. B) most games present zero-sum alternatives. C) it demonstrates that non-cooperative outcome never exist. D) strategic decisions faced by prisoners are identical to those faced by firms engaged in competitive agreements. E) it identifies the fundamental difficulty in maintaining cooperative agreements.
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it identifies the fundamental difficulty in maintaining cooperative agreements.
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Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. The numerical data show profits in millions of dollars. In Exhibit 1, without collusion, the outcome of this game will gravitate to cell: A) A. B) B. C) C. D) D. E) none of the above.
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D.
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In Exhibit 1, with collusion, the outcome of this game will gravitate to cell: A) A. B) B. C) C. D) D. E) none of the above.
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A.
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Oligopolies would like to act like a: A) duopoly, but self-interest often drives them closer to the perfectly competitive outcome. B) competitive firm, but self-interest often drives them closer to the duopoly outcome. C) monopoly, but self-interest often drives them closer to the duopoly outcome. D) monopoly, but self-interest often drives them closer to the perfectly competitive outcome. E) monopolistically competitive form, but self-interest often drives them closer to the duopoly outcome.
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monopoly, but self-interest often drives them closer to the perfectly competitive outcome
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When firms are faced with making strategic choices in order to maximize profit, economists typically use: A) the theory of monopoly to model their behavior. B) the theory of aggressive competition to model their behavior. C) game theory to model their behavior. D) cartel theory to model their behavior. E) the law of diminishing marginal utility to model their behavior.
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game theory to model their behavior.
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Price leadership: A) typically results in greater instability in oligopolistic markets. B) is illegal under the Federal Trade Commission Act. C) is common in perfectly competitive markets. D) permits oligopolistic firms in a given market to coordinate market-wide price changes. E) all of the above.
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permits oligopolistic firms in a given market to coordinate market-wide price changes.
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In order to be successful, a cartel must: A) find a way to encourage members to produce more than they would otherwise produce. B) agree on the total level of production for the cartel, but they need not agree on the amount produced by each member. C) agree on the total level of production and on the amount produced by each member. D) agree on the prices charged by each member, but they need not agree on amounts produced. E) allows each firm to make their own price setting.
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agree on the total level of production and on the amount produced by each member.
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Entry into a market characterized by monopolistic competition: A) is rare because firms have market power. B) is frequent because barriers to entry are low. C) occurs when a firm's demand is everywhere below its long-run average cost curve. D) results from economies of scale. E) occurs when a firm's supply curve is perfectly elastic.
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is frequent because barriers to entry are low.
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Which of the following characterizes monopolistic competition? A) many interdependent firms sell a homogeneous product. B) a few firms produce a particular type of product. C) many firms produce a particular type of product, but each maintains some independent control over its own price. D) a few firms produce all of the market supply of a good. E) a firm that captures significant economies of scale.
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many firms produce a particular type of product, but each maintains some independent control over its own price.
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Which of the following markets would most likely be represented by monopolistic competition? A) the market for corn. B) the market for cable television service. C) the market for #2 wooden pencils. D) the market for cigarette. E) the market for designer clothing.
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the market for designer clothing.
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The demand curve of a monopolistically competitive producer is: A) the same as a pure monopolist as well as a pure competitor. B) more elastic than that of a pure monopolist, but less elastic than that of a pure competitor. C) more elastic than that of either a pure monopolist or a pure competitor. D) less elastic than that of either a pure monopolist or a pure competitor. E) less elastic than that of a pure monopolist, but more elastic than that of a pure competitor.
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more elastic than that of a pure monopolist, but less elastic than that of a pure competitor.
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Consider a monopolistically competitive firm that faces the following demand schedule for its product. The firm has total costs of $60 and a constant marginal cost of $2 per unit. Price ($) 10 9 8 7 6 5 4 3 2 1 Quantity 2 4 6 8 10 12 14 16 18 20 In Exhibit 2, the firm will maximize profit with: A) 6 units of output. B) 9 units of output. C) 10 units of output. D) 13 units of output. E) 15 units of output.
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10 units of output.
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In Exhibit 2, it will likely that: A) firms will enter this market. B) firms will exit this market. C) this market is in short-run equilibrium. D) this market is in long-run equilibrium. E) this firm is operating at efficient scale.
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this market is in long-run equilibrium.
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The free entry and exit of firms in a monopolistically competitive market guarantees that: A) both economic profits and economic losses can persist in the long run. B) both economic profits and economic losses disappear in the long run. C) economic profits, but not economic losses, can persist in the long run. D) economic losses, but not economic profits, can persist in the long run. E) none of the above.
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both economic profits and economic losses disappear in the long run.
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When a new firm enters a monopolistically competitive market, the individual demand curves faced by all existing firms in that market will: A) shift to the left. B) shift to the right. C) shift in a direction that is unpredictable without further information. D) remain unchanged; however, the supply curve that will shift. E) remain unchanged; however, the marginal revenue curve that will shift.
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shift to the left.
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In Exhibit 3, Panel (a) shows a profit-maximizing monopolistically competitive firm that is: A) earning zero economic profit. B) likely to stay in the market in the long run. C) producing its efficient scale of output. D) not maximizing its profit. E) minimizing average total cost.
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earning zero economic profit.
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In Exhibit 3, which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is doing its best but still losing money? A) Panel (a). B) Panel (b). C) Panel (c). D) Panel (d). E) none of the above.
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Panel (b).
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In Exhibit 4, what price will the monopolistically competitive firm charge in this market? A) $60. B) $70. C) $75. D) $80. E) 100.
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$80.
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In Exhibit 4, how much output will the monopolistically competitive firm produce in this situation? A) 20 units. B) 25 units. C) 40 units. D) 50 units. E) no output, since producing in this situation will result in a loss for the firm.
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20 units.
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In Exhibit 4, how much profit will the monopolistically competitive firm earn in this situation? A) a $10 profit. B) a $20 profit. C) a $100 profit. D) a $200 profit. E) no profit, since monopolistically competitive firms never earn economic profit.
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a $200 profit.
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Since a firm in a monopolistically competitive market faces a: A) downward-sloping demand curve, it will always operate with excess capacity. B) downward-sloping demand curve, it will always operate at its efficient scale. C) perfectly elastic demand curve, it will always operate with excess capacity. D) perfectly inelastic demand curve, it will always operate at efficient scale. E) upward-sloping demand curve, it will always operate at efficient scale.
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downward-sloping demand curve, it will always operate with excess capacity.
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As new firms enter a monopolistically competitive market, profits of existing firms: A) remain the same and product diversity in the market also remains the same. B) rise and product diversity in the market decreases. C) rise and product diversity in the market increases. D) decline and product diversity in the market decreases. E) decline and product diversity in the market increases.
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decline and product diversity in the market increases.
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When monopolistically competitive firms advertise, in the long run: A) they will still earn zero economic profit. B) they can earn positive economic profit by increasing market share. C) the market price must fall. D) the market price must rise. E) none of the above
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they will still earn zero economic profit.
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A monopolistic competitive firm is inefficient because the firm: A) is not maximizing its profit. B) is producing at an output where average total cost is not minimum. C) earns positive economic profit in the long run. D) all of the above. E) none of the above.
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is producing at an output where average total cost is not minimum.
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Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly? A) the monopolistically competitive firm advertises. B) the monopolistically competitive firm produces a quantity of output that falls short of the socially optimal level. C) monopolistic competition features many buyers. D) monopolistic competition features many sellers. E) the monopolistically competitive firm needs strategy to manipulate industry profits.
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monopolistic competition features many sellers.
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Which of the following market structures will have higher output in the long run than monopolistic competition, ceteris paribus? A) monopoly. B) duopoly. C) oligopoly. D) perfect competition. E) all of the above.
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perfect competition.
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Which of the following characterizes the difference between oligopoly and monopolistic competition? A) monopolistically competitive firms face two distinct marginal revenue curves, whereas oligopolists face horizontal ones. B) there are many oligopolists and only a few monopolistically competitive firms. C) monopolistically competitive firms experience zero long-run economic profit, whereas oligopolists may experience positive long-run economic profit. D) monopolistically competitive firms face horizontal demand curves, whereas oligopolists face downward-sloping ones. E) oligopolists are independent of each other, and monopolistically competitive firms are interdependent.
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monopolistically competitive firms experience zero long-run economic profit, whereas oligopolists may experience positive long-run economic profit.
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A similarity between monopoly and monopolistic competition is that, in both market structures: A) strategic interactions among sellers are important. B) there are a small number of sellers. C) sellers are price makers rather than price takers. D) product differentiation is important. E) firms form cartel.
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strategic interactions among sellers are important.
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A similarity between monopoly and monopolistic competition is that, in both market structures: A) strategic interactions among sellers are important. B) there are a small number of sellers. C) sellers are price makers rather than price takers. D) product differentiation is important. E) firms form cartel.
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sellers are price makers rather than price takers.
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In which of the following industry structures is the entry of new firms the most difficult? A) perfect competition. B) monopoly. C) oligopoly. D) monopolistic competition. E) all of the above.
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monopoly.
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An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product is an example of: A) perfect competition. B) monopoly. C) oligopoly. D) monopolistic competition. E) all of the above.
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monopolistic competition.
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An industry producing a homogeneous product whose four-firm concentration ratio is 76 percent is an example of: A) perfect competition. B) monopoly. C) oligopoly. D) monopolistic competition. E) all of the above.
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oligopoly.
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Which of the following statements is correct? A) purely competitive firms, monopolistically competitive firms, and pure monopolies all earn zero economic profits in the long run. B) purely competitive firms, monopolistically competitive firms, and pure monopolies all earn positive economic profits in the long run. C) in the long run purely competitive firms and monopolistically competitive firms earn zero economic profits, while pure monopolies may or may not earn economic profits. D) monopolistically competitive firms earn zero economic profits in both the short run and the long run. E) monopolist and monopolistic competitive firms earn zero profit in the long run.
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in the long run purely competitive firms and monopolistically competitive firms earn zero economic profits, while pure monopolies may or may not earn economic profits.
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The correct ranking of degree of market power (from highest to lowest) is: A) monopoly, monopolistic competition, perfect competition, oligopoly. B) monopoly, monopolistic competition, oligopoly, perfect competition. C) monopoly, oligopoly, monopolistic competition, perfect competition. D) oligopoly, monopoly, monopolistic competition, perfect competition. E) perfect competition, monopolistic competition, oligopoly, monopoly.
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monopoly, oligopoly, monopolistic competition, perfect competition.
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A major difference between monopoly and monopolistic competition is: A) one maximizes profits by setting MR equal to MC, and the other does not. B) the number of firms in the market. C) one type of firm has market power, and the other does not. D) one has a downward-sloping demand curve, and the other does not. E) none of the above.
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the number of firms in the market.
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Which of the following market structures will have lower prices in the long run than will monopoly, ceteris paribus? A) perfect competition. B) oligopoly. C) monopolistic competition. D) all of the above. E) none of the above
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all of the above.
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Which of the following markets impose deadweight losses on society? (i) Perfect competition (ii) Monopolistic competition (iii) Monopoly A) (i) and (ii) B) (ii) and (iii) C) (i) and (iii) D) (i) only E) (ii) only
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(ii) and (iii)
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Ignoring oligopoly and focusing on the other three market structures, in which of those market structures does a profit-maximizing firm charge a price that exceeds marginal cost? A) monopoly only. B) monopolistic competition only. C) monopoly and monopolistic competition only. D) monopoly, monopolistic competition, and perfect competition. E) the answer cannot be determined without knowing whether the market is in the long run or short run.
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monopoly and monopolistic competition only.
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Both the perfectly competitive firm and the monopolist find that: A) they can sell all they want to at the market price. B) price and marginal revenue are the same. C) price is less than marginal revenue. D) it is best to expand production until the benefits and costs of the last unit produced are equal. E) demand is less than perfectly elastic.
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it is best to expand production until the benefits and costs of the last unit produced are equal.
