If the four-firm concentration ratio for industry X is 80 recursive analysis. cost-benefit analysis. game theory. normative economics. 2) The term oligopoly indicates: Answer an industry whose four-firm concentration ratio is low. many producers of a differentiated product. a few firms producing either a differentiated or a homogeneous product. a one-firm industry. 3) If the firms in an oligopolistic industry can establish an effective cartel, the resulting output and price will approximate those of: Answer a monopolistically competitive producer. a pure monopoly. a purely competitive producer. an industry with a low four-firm concentration ratio. 4) If competing oligopolists completely ignore oligopolist X's price changes, then X's: Answer demand curve will be less elastic than if the other oligopolists matched X's price changes. demand and marginal revenue curves will coincide. demand curve will be more elastic than if the other oligopolists matched X's price changes. marginal revenue curve will have a vertical gap. 5) Refer to the above diagram where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Alpha and Beta agree to a high-price policy through collusion, the temptation to cheat on that agreement is demonstrated by the fact that: Answer Beta can increase its profit by lowering its price. Both Alpha and Beta can earn even more profits if both agree to a low-price policy. Beta can increase its profit by increasing its price still further. Alpha can increase its profit by reducing its production costs. 6) Oligopolistic firms engage in collusion to: Answer minimize unit costs of production. increase production. realize allocative efficiency, that is, the P = MC level of output. earn greater profits. 7) Refer to the above diagram where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If both firms follow a high-price policy: Answer Beta will realize a $10 million profit and Alpha a $30 million profit. each will realize a $15 million profit. Alpha will realize a $10 million profit and Beta a $30 million profit. each will realize a $20 million profit. 8) The above matrix best illustrates: Answer game theory. product differentiation. the principal-agent problem. price discrimination. 9) An industry having a four-firm concentration ratio of 85 percent: Answer is monopolistically competitive. approximates pure competition. is an oligopoly. is a pure monopoly. 10) If the four-firm concentration ratio for industry X is 80: Answer the four largest firms account for 80 percent of total sales. the four largest firms account for 20 percent of total sales. each of the four largest firms accounts for 20 percent of total sales. the industry is monopolistically competitive. 11) The mutual interdependence that characterizes oligopoly arises because: Answer a small number of firms produce a large proportion of industry output. the demand curves of firms are kinked at the prevailing price. the products of various firms are homogeneous. the products of various firms are differentiated. 12) Game theory: Answer reveals that price-fixing among firms reduces profits. reveals that mergers between rival firms are self-defeating. is best suited for analyzing purely competitive markets. is the analysis of how people (or firms) behave in strategic situations. 13) One would expect that collusion among oligopolistic producers would be easiest to achieve in which of the following cases? Answer a rather large number of firms producing a differentiated product a rather large number of firms producing a homogeneous product a very small number of firms producing a homogeneous product a very small number of firms producing a differentiated product 14) Monopolistic competition and oligopoly are alike in that: Answer the kinked-demand analysis is applicable in both instances. strong mutual interdependence exists among firms in both market models. nonprice competition is common to both. the number of firms is approximately the same in both cases. 15) Refer to the above game theory matrix where the numerical data show the profits resulting from alternative combinations of advertising strategies for Ajax and Acme. Ajax's profits are shown in the upper right part of each cell; Acme's profits are shown in the lower left. Without collusion, the outcome of the game is cell: Answer B. A. C. 16) In comparing the demand curve of a pure monopolist with that of a monopolistically competitive firm, we would expect the monopolistic competitor to have a: Answer perfectly elastic demand curve and the monopolist to have a perfectly inelastic demand curve. demand curve whose elasticity coefficient is 1 at all possible prices. generally more elastic demand curve. generally less elastic demand curve. 17) Monopolistic competition means: Answer a few firms producing a standardized or homogeneous product. a large number of firms producing a standardized or homogeneous product. a market situation where competition is based entirely on product differentiation and advertising. many firms producing differentiated products. 18) In the short-run, a profit-maximizing monopolistically competitive firm sets it price: Answer above marginal cost. equal to marginal revenue. equal to marginal cost. below marginal cost. 19) If all monopolistically competitive firms in the industry have profit circumstances similar to the firm shown above: Answer new firms will enter the industry. some firms will exit the industry. no firms will exit the industry. all firms will exit the industry. 1.54 points 20) In the long-run, economic theory predicts that a monopolistically competitive firm will: Answer have excess production capacity. realize all economies of scale. earn an economic profit. equate price and marginal cost. 21) A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from: Answer mutual interdependence in decision making. product differentiation. high entry barriers. the likelihood of collusion. 22) A monopolistically competitive firm's marginal revenue curve: Answer does not exist because the firm is a "price maker." is downsloping and lies below the demand curve. coincides with the demand curve and is parallel to the horizontal axis. is downsloping and coincides with the demand curve. 23) A significant difference between a monopolistically competitive firm and a purely competitive firm is that the: Answer former's demand curve is perfectly inelastic. former sells similar, although not identical, products. former does not seek to maximize profits. latter recognizes that price must be reduced to sell more outpu 24) The larger the number of firms and the smaller the degree of product differentiation the: Answer greater the divergence between the demand and the marginal revenue curves of the monopolistically competitive firm. less elastic is the monopolistically competitive firm's demand curve. larger will be the monopolistically competitive firm's fixed costs. more elastic is the monopolistically competitive firm's demand curve. 25) Other things equal, if more firms enter a monopolistically competitive industry: Answer the demand curves facing existing firms would shift to the right. the demand curves facing existing firms would become less elastic. the demand curves facing existing firms would shift to the left. Losse) 26) Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be: Answer $10. $13. $16. $19. 27) Monopolistic competition resembles pure competition because: Answer in both instances firms will operate at the minimum point on their long-run average total cost curves. both industries entail the production of differentiated products. barriers to entry are either weak or nonexistent. both industries emphasize nonprice competition 28) When a monopolistically competitive firm is in long-run equilibrium: Answer production takes place where ATC is minimized. normal profit is zero and price equals marginal cost. economic profit is zero and price equals marginal cost. marginal revenue equals marginal cost and price equals average total cost. 29) The demand curve of a monopolistically competitive producer is: Answer less elastic than that of a pure monopolist, but more elastic than that of a pure competitor. more elastic than that of either a pure monopolist or a pure competitor. less elastic than that of either a pure monopolist or a pure competitor. more elastic than that of a pure monopolist, but less elastic than that of a pure competitor 30) Excess capacity refers to the: Answer amount by which actual production falls short of the minimum ATC output. fact that most monopolistically competitive firms encounter diseconomies of scale. fact that entry barriers artificially reduce the number of firms in an industry. differential between price and marginal costs which characterizes monopolistically competitive firms. 31) Assume a purely competitive firm is maximizing profit at some output at which long-run average total cost is at a minimum. Then: Answer other firms will enter this industry. there is no tendency for the firm's industry to expand or contract. allocative but not productive efficiency is being achieved. the firm is earning an economic profit. 32) If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to: Answer increase, output to decrease, price to decrease, and profits to decrease. increase, output to increase, price to decrease, and profits to decrease. decrease, output to decrease, price to increase, and profits to increase. increase, output to increase, price to increase, and profits to decrease. 33) Assume that TFC = $5 and the firm cannot produce a fraction of a unit. At the profit-maximizing output the firm's total revenue is: Answer $64. $37. $80. $48. 34) We would expect an industry to expand if firms in that industry are: Answer earning economic profits. earning normal profits. incurring economic losses. earning accounting profits. 35) If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue: Answer will be less than $5. may be either greater or less than $5. will also be $5. will be greater than $5. 36) Which of the following is characteristic of a purely competitive seller's demand curve? Answer It is the same as the market demand curve. Price and marginal revenue are equal at all levels of output. Average revenue is less than price. Its elasticity coefficient is 1 at all levels of output. 37) Marginal revenue for a purely competitive firm: Answer may be either greater or less than price. is equal to price. is less than price. is greater than price 38) A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating: Answer price and marginal revenue. marginal revenue and marginal cost. price and average fixed cost. price and average total cost. 39) A purely competitive seller is: Answer a "price maker." neither a "price maker" nor a "price taker." both a "price maker" and a "price taker." a "price taker." 40) Which of the following is not a characteristic of pure competition? Answer no barriers to entry a standardized product price strategies by firms 41) Which of the following industries most closely approximates pure competition? Answer clothing steel agriculture farm implements 42) For a purely competitive firm total revenue: Answer is price times quantity sold. increases by a constant absolute amount as output expands. graphs as a straight upsloping line from the origin. has all of these characteristics 43) Suppose you find that the price of your product is less than minimum AVC. You should: Answer close down because, by producing, your losses will exceed your total fixed costs. minimize your losses by producing where P = MC. maximize your profits by producing where P = MC. close down because total revenue exceeds total variable cost. 44) Refer to the above diagram for a purely competitive producer. If product price is P3: Answer the firm will maximize profit at point d. economic profits will be zero. the firm will earn an economic profit. new firms will enter this industry. 45) Marginal revenue is the: Answer change in total revenue associated with the sale of one more unit of output. change in average revenue associated with the sale of one more unit of output. change in product price associated with the sale of one more unit of output. difference between product price and average total cost. 46) Which of the following statements applies to a purely competitive producer? Answer Its product is slightly different from those of its competitors. It will not advertise its product. In long-run equilibrium it will earn an economic profit. Its product will have a brand name. 47) Refer to the above short-run data. The shape of the total cost curve reflects: Answer increasing and diminishing returns. economies and diseconomies of scale. the law of rising fixed costs. diminishing opportunity costs. 48) Refer to the above diagram for a purely competitive producer. The firm's short-run supply curve is: Answer the cd segment and above on the MC curve. the bcd segment and above on the MC curve. not shown. the abcd segment and above on the MC curve. 49) If the firm's minimum average variable cost is $10 and it cannot produce a fraction of a unit, the firm's profit-maximizing level of output would be: Answer 4. 3. 5. 2. 50) Refer to the above short-run data. Total fixed cost for this firm is: Answer $300. about $67. $100. $200. 51) Pure monopoly means: Answer a standardized product being produced by many firms. any market in which the demand curve to the firm is downsloping. a large number of firms producing a differentiated product. a single firm producing a product for which there are no close substitutes. 52) Refer to the above data for a nondiscriminating monopolist. This firm will maximize its profit by producing: Answer 4 units. 3 units. 5 units. 6 units. 53) Refer to the above data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's price will exceed its marginal cost by ____ and its average total cost by ____. Answer $20; $27.33 $30; $20.50 $10; $10.40 $24; $27.33 54) Refer to the above diagram. If price is reduced from P1 to P2, total revenue will: Answer decrease by C minus A. increase by A minus C. decrease by A minus C. increase by C minus A 55) Refer to the above data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's total profit will be: Answer zero. $27. $82. $54 56) Price discrimination refers to: Answer the difference between the prices a purely competitive seller and a purely monopolistic seller would charge. selling a given product for different prices at two different points in time. the selling of a given product at different prices that do not reflect cost differences. any price above that which is equal to a minimum average total cost. 57) Refer to the above diagram. Demand is relatively inelastic: Answer at any price below P2. at price P3. in the P2P3 price range. in the P2P4 price rang 58) A natural monopoly occurs when: Answer economies of scale are obtained at relatively low levels of output. long-run average costs rise continuously as output is increased. long-run average costs decline continuously through the range of demand. a firm owns or controls some resource essential to production. 59) Purely competitive firms and pure monopolists are similar in that: Answer the demand curves of both are perfectly elastic. significant entry barriers are common to both. both are price makers. both maximize profit where MR = MC. 60) If the above profit-maximizing monopolist is able to perfectly price discriminate, charging each customer the price associated with each given level of output, how many units will the firm produce? Answer 3 4 2 5 61) Refer to the above data. At its profit-maximizing output, this firm's total revenue will be: Answer $300. $180. $280. $198. 62) Which of the following statements is correct? Answer In seeking the profit-maximizing output the pure monopolist underallocates resources to its production. The pure monopolist will maximize profit by producing at that point on the demand curve where elasticity is zero. Purely monopolistic sellers earn only normal profits in the long run. The pure monopolist maximizes profits by producing that output at which the differential between price and average cost is the greatest. 63) Refer to the above diagram. At the profit-maximizing level of output, total cost will be approximately: Answer $300. $600 $200 $500. 64) When a firm is on the inelastic segment of its demand curve, it can: Answer increase profits by increasing price. decrease total costs by decreasing price. increase total revenue by more than the increase in total cost by increasing price. increase total revenue by reducing price. 65) Which of the following is correct? Answer A purely competitive firm is a "price taker," while a monopolist is a "price maker." Both purely competitive and monopolistic firms are "price takers." Both purely competitive and monopolistic firms are "price makers." A purely competitive firm is a "price maker," while a monopolist is a "price taker."