Preview Of Homework # 5, Eco 157

PREVIEW OF HOMEWORK # 5, ECO 157

1. Monopoly is at the other end of the spectrum from: A) monopolistic competition B) perfect competition C) oligopoly D) none of the above

2. Barriers that prevent the entry of new firms may arise because: A) economies of scale exist over a substantial range of industry demand. B) price exceeds marginal cost. C) marginal revenue is less than average total cost. D) the government protects some firms from competition. E) of both a. and d.

3. Pure monopoly: A) is characterized by single supplier. B) is a market structure in which no close substitute products are available. C) exists when entry and survival of potential competitors is extremely unlikely. D) is characterized by all of the above.

4. Why does the government allow some markets to be monopolized by granting patents? A) to promote a more equal distribution of income B) to correct for negative externalities C) to promote technological progress D) to ensure lower prices for consumers in the short run

5. Many communities have granted monopoly rights to cable companies. This is an example of a monopoly created through: A) government licensing. B) ownership of the cable resources. C) patent protection. D) smart business practices by shrewd entrepreneurs.

6. When a single firm can produce output over the relevant range of demand more efficiently than two or more firms can, because of the existence of economies of scale, we have: A) perfect competition. B) monopolistic competition. C) diseconomies of scale. D) a natural monopoly E) is called a government monopoly. 7. Which of these contributes to the existence of monopoly power? A) the control of critical resources B) legal barriers C) patents D) All of the above contribute to the existence of monopoly power.

8. The DeBeers Diamond Company, which owns most of the South African diamond production, has market power over the diamond trade. This market power was obtained through: A) illegal means. B) control of a scarce resource. C) patent protection. D) government licensing.

9. Based on the table below what is the marginal revenue of the 14th unit of output? Quantity Price 13 $50.00 14 $49.75 15 $49.50 A) $0.25 B) $46.00 C) $46.50 D) $49.75

10. Graphically which of the following is true for a monopoly? A) The marginal revenue curve lies below the demand curve and is steeper than the demand curve. B) The marginal revenue curve lies above the demand curve and is steeper than the demand curve. C) The marginal revenue curve lies below the demand curve and is flatter than the demand curve. D) The marginal revenue curve lies above the demand curve and is flatter than the demand curve. E) none of the above

11. Which of the following best explains why a monopolist's marginal revenue is less than the sale price? A) To sell more units, monopolist must increase the price on all units sold. B) As a monopolist expands output, its average total cost declines. C) When a firm has a monopoly, consumers have no choice other than to pay the price set by the monopolist. D) When a monopolist reduces price in order to sell more units, it must lower the price of some units that could otherwise have been sold at a higher price. 12. A profit-maximizing monopolist will never produce at an output level where: A) demand is elastic. B) it suffers economic losses in the short run. C) demand is inelastic. D) marginal cost is less than average total cost. E) either b. or c. is true.

13. If a firm seeks to maximize total revenue, it should produce the quantity where: A) marginal revenue equals zero. B) elasticity of demand is less than one. C) elasticity of demand is greater than one. D) marginal revenue is maximized. E) average total cost is minimized.

14. A price-taking firm and a monopoly firm are alike in that: A) price equals marginal revenue for both. B) both maximize profits by choosing an output where marginal revenue equals marginal cost. C) price exceeds marginal cost at the profit-maximizing level of output for both. D) in the long run, both earn zero economic profits.

15. In the long run, economic profits are: A) possible both for a monopolist and for a perfectly competitive firm. B) possible for a monopolist but not for a perfectly competitive firm. C) possible for a perfectly competitive firms but not for a monopolist. D) impossible for both a monopolist and for a perfectly competitive firm.

16. In the short run, a monopolist: A) always suffers an economic loss. B) always earns an economic profit. C) always earns a normal rate of return D) may make an economic loss, an economic profit or zero economic profits

17. A monopolist will shut down in the short run if: A) price exceeds marginal revenue. B) price is less than marginal revenue. C) price is less than average total cost. D) total revenue is less than total variable cost. E) total revenue is less than total fixed cost. 18. A monopoly is inefficient because: A) consumers are forced to pay higher prices for products. B) firms are able to earn economic profits. C) the cost of increased production is less than the value that society places on it. D) price exceeds marginal revenue.

19. If an unregulated monopolist operates in a market, then: A) customers will pay higher prices than if the market were competitive. B) customers will purchase fewer units of output than if the market were competitive. C) society will not be allocating its resources efficiently. D) all of the above will occur.

20. The aim of antitrust policy is to: A) provide adequate incentives for inventors and entrepreneurs. B) prevent firms from acquiring or exercising undue market power. C) protect established firms by deterring new entry into industries. D) regulate the prices charged by perfectly competitive firms.

21. What was the first important law regulating monopoly that prohibited "restraint of trade"?

A) Sherman Act B) Robinson-Patman Act C) Cellar-Kefauver Act D) Clayton Act

Which landmark legislation made it illegal to engage in predatory pricing and also prohibited mergers if it led to weakened competition?

A) Sherman Act B) Robinson-Patman Act C) Cellar-Kefauver Act D) Clayton Act 23.

Which piece of legislation forbids most forms of price discrimination?

A) Sherman Act B) Robinson-Patman Act C) Cellar-Kefauver Act D) Clayton Act

U. S. public utilities are often:

A) perfect competitors. B) created through patent protection. C) regulated natural monopolies. D) employee-owned public enterprises.

What would be the impact if the government forced the breakup of a natural monopoly to promote greater competition in an industry?

A) Smaller firms would have a cost advantage over larger firms. B) The price paid by consumers would be unchanged. C) The average cost of producing the good would increase. D) The averge cost of producing the good would decrease. 26. Which of the following is a problem with government regulation of natural monopolies?

A) creation of excessive profits levels B) reduced incentives to cut costs C) decreased number of firms in the market D) lack of influence from special interest groups

If a regulatory commission wishes to allow a firm to earn a normal rate of return, it should set price equal to:

A) marginal revenue. B) marginal cost. C) average total cost. D) average variable cost.

Price discrimination refers to:

A) charging different prices to different groups on the basis of production cost differences. B) charging different prices to different groups without a basis for doing so because of differences in production costs. C) the ability of a firm to charge a price in excess of marginal cost. D) consumer bargain hunting.

When setting prices, the monopolist may choose to charge alternative customers different prices based on:

A) geographical location. B) age. C) income. D) all of the above. 30. A price-discriminating monopolist will tend to charge a lower price to students if it believes that students:

A) have a lower willingness to pay than other demanders. B) have a greater willingness to pay than other demanders. C) have very elastic demand curves. D) have nearly vertical demand curves.

Monopolistic competition is more similar to monopoly than any other industry model.

A) True B) False

Monopolistic competition, like perfect competition, is a market structure in which firms can easily enter and leave the industry.

A) True B) False

By differentiating their products and promoting brand name loyalty, monopolistically competitive firms can raise prices without losing all their customers.

A) True B) False 34. Monopolistically competitive sellers have some ability to influence the price of their products.

A) True B) False

35. Monopolistically competitive sellers are price takers.

A) True B) False

36. Monopolistic competitors in long-run equilibrium will generally find that they are earning economic profits.

A) True B) False

37. In long-run equilibrium, a monopolistically competitive firm's demand curve will be tangent to its average cost curve.

A) True B) False

38. Unlike purely competitive firms, firms in monopolistic competition will operate with excess capacity even in long-run equilibrium.

A) True B) False

39. In the long run, monopolistically competitive firms typically produce with allocative efficiency.

A) True B) False 40. Although there are certain inefficiencies associated with monopolistic competition, society receives a benefit from monopolistic competition in the form of product variety.

A) True B) False

41. Oligopoly is an industry with a small number of firms producing homogeneous or differentiated goods with minimal barriers to entry.

A) True B) False

42. When making decisions on pricing and other behaviors, oligopolistic firms must take into account the actions of other firms.

A) True B) False

43. The U. S. commercial airline industry is a good example of an oligopolistic market.

A) True B) False

44. Economists consider the breakfast food industry to be an oligopolistic market.

A) True B) False

45. There are significant technological barriers to entry that help make the automobile industry oligopolistic.

A) True B) False

46. The key difference between oligopoly and other market structures is the interdependence among producers.

A) True B) False

47. Large oligopoly firms are often able to take advantage of significant economies of scale. As a result, they can often produce at a lower average total cost than can smaller firms.

A) True B) False

48. A cartel is a group of firms that attempt to collude by coordinating price and output decisions.

A) True B) False

49. Cartels are legal in many countries, including the United States.

A) True B) False

50. Oligopolists may charge a price lower than the profit maximizing price to discourage new firms from entering a market.

A) True B) False