Set 10

If you were running a firm in a perfectly competitive industry you would be spending your time making decisions on
1. how much of each input to use .
2. how much to spend on advertising
3. what price to charge.
4. the design of the product.
Market power is
1. a firm's ability to charge any price it likes.
2. a firm's ability to raise price without losing all demand f or its product.
3. a firm's ability to sell any amount of output it desir es at the market-determined price.
4. a firm's ability to monopolise a market completely.
When ______ substitutes exist, a monopolist has ______ power to raise price.
1. more; more
2. fewer; less
3. no; infinite
4. more; less
If a firm has some degree of market power, then output price
1. becomes a decision variable for the firm.
2. is determined by the actions of other firms in the industry.
3. no longer influences the amount demanded of the firm's product.
4. is guaranteed to be above a firm's average cost.
Relative to a competitively organised industry, a monopoly
1. produces less output, charges lower prices and earns economic profits.
2. produces more output, charges higher prices and earns economic profits.
3. produces less output, charges higher prices and earns economic profits.
4. produces less output, charges lower prices and earns only a normal profit.
The cosmetics industry is not considered by economists to be a good example of perfect competition because
1. firms spend a large amount of money on advertising.
2. profit margins are very high for both producers and retailers.
3. there are a very large number of firms in the industry.
4. there are many government health controls on cosmetic products.
If firms can neither enter nor leave an industry, the relevant time period is the
1. long run.
2. immediate run.
3. intermediate run.
4. short run.
In the long run
1. there are no fixed factors of production.
2. all firms must make economic profits.
3. a firm can vary all inputs, but it cannot change the mix of inputs it uses
4. a firm can shut down, but it cannot exit the industry.
A normal rate of profit
1. is the rate of return on investments over the interest rate on risk-free government bonds.
2. is the rate that is just sufficient to keep owners or investors satisfied
3. Means zero return for owners or investors.
4. is the difference between total revenue and total costs.
If Wafa Enterprises is earning a rate of return greater than the return necessary for the business to continue operations, then
1. total costs exceed normal profit.
2. the firm is earning an economic profit .
3. normal profit is zero.
4. total costs exceed total revenue.
Economic profits are
1. the difference between total revenue and total costs.
2. anything greater than the normal opportunity cost of investing.
3. a rate of profit that is just sufficient to keep owners and investors satisfied.
4. the opportunity costs of all inputs.
The slope of the marginal revenue curve is
1. the same as the slope of the demand curve.
2. half as steep as the demand curve.
3. twice as steep as the demand curve.
4. always equal to one.
Suppose we know that a monopolist is maximising her profits. Which of the following is a correct inference? The monopolist has
1. maximised the difference between marginal revenue and marginal cost.
2. maximised its total revenue.
3. equated marginal revenue and marginal cost.
4. set price equal to its average cost.
An industry that realises such large economies of scale in producing its product that single firm production of that good or service is most efficient is called
1. an economies of scale monopoly.
2. a natural monopoly.
3. a government franchise monopoly.
4. a fixed cost monopoly.
How can a government regulate a monopoly firm making supernormal profits so that a “socially optimal” outcome obtains:
1. set the firm’s price (and quantity) corresponding to the point where the MC curve intersects the AC curve from below.
2. set the fir m’s price (and quantity) corresponding to the point where the MC curve intersects the MR curve from below.
3. set the fir m’s price (and quantity) corresponding to the point where the MR curve intersects the AC curve and AC>MR after that point.
4. set the fir m’s price (and quantity) corresponding to the point where the AR curve intersects the MC curve and MC>AR after that point.
Monopolistic competition differs from perfect competition primarily because
1. in perfect competition, firms can differentiate their products.
2. in monopolistic competition, firms can differentiate their products .
3. in monopolistic competition, there are relatively few firms.
4. in perfect competition, there are no barriers to entry.
In monopolistic competition, fir ms achieve some degree of market power
1. by producing differentiated products .
2. because of barriers to entry into the industry.
3. because of barriers to exit from the industry.
4. by virtue of size alone.
A monopolistically competitive firm that is incurring a loss will produce as long as the price that the firm charges is sufficient to cover
1. advertising costs.
2. fixed costs.
3. marginal costs.
4. variable costs.
A fir m in a monopolistically competitive industry
1. must lower price to sell more output.
2. sells a fixed amount of output regardless of price.
3. can sell an infinite amount of output at the market-determined price.
4. must raise price to sell more output.
The “long-run” equilibrium outcomes in monopolistic competition and perfect competition are similar in the sense that under both market structures
1. firms will only earn a normal profit.
2. the efficient output level will be produced in the long run.
3. firms will be producing at minimum average cost.
4. firms realise all economies of scale.
A form of industry structure characterised by a few firms each large enough to influence market price is
1. monopolistic competition.
2. monopoly.
3. perfect competition.
4. oligopoly.
When one firm in the cooking oil market started an advertising campaign that stressed the nutritional value of its cooking oil, all other cooking oil manufacturers started similar advertising campaigns. This suggests that the cooking oil market is
1. monopolistically competitive.
2. oligopolistic.
3. perfectly competitive.
4. indeterminate from this information.
An industry that has a relatively small number of firms that dominate the market is
1. a natural monopoly.
2. a colluding industry.
3. a merged industry.
4. a concentrated industry.
Assume that firms in an oligopoly are currently colluding to set price and output to maximise total industry profit. If the oligopolists are forced to stop colluding, the price charged by the oligopolists will _______ and the total output produced will ________.
1. increase; decrease
2. increase; increase
3. decrease; decrease
4. decrease; increase
A group of firms that gets together to make price and output decisions is called
1. a non-collusive oligopoly.
2. price leadership.
3. a cartel.
4. a concentrated industry.
In which of the following circumstances would a cartel be most likely to work?
1. The coffee market, where the product is standardised and there are a large number of coffee growers.
2. The automobile industry, where there are few producers but there is great product differentiation.
3. The market for copper, where there are very few producers and the product is
  standardised.
4. The fast-food market, where there are a large number of producers but the demand for fast food is inelastic.
A collusive oligopoly (with a dominant price leader) will produce a level of output
1. that would prevail under perfect competition.
2. between that which would prevail under perfect competition and that which a monopolistic competitor would choose in the same industry.
3. between that which would prevail under perfect competition and that which a monopolist would choose in the same industry.
4. equal to what a monopolist would choose in the same industry .
The kinked demand curve model of oligopoly assumes that the price elasticity of demand
1. in response to a price increase is more than the elasticity of demand in response to a price decrease .
2. is constant regardless of whether price increases or decreases.
3. is infinite if price increases and zero if price decreases.
4. in response to a price increase is less than the elasticity of demand in response to a price decrease.
Price discrimination involves
1. firms selling different products at different prices to different consumers.
2. firms selling the same product at different prices to different consumers.
3. consumers discriminating between different sellers on the basis of the different prices they quote for different products.
4. consumers discriminating between different sellers on the basis of the different prices they quote for the same product.
Price discrimination often favours public interest because it
1. allows some products to be produced that would otherwise not be produced in the economy due to the fear of making losses.
2. opens consumption possibilities to consumers that would otherwise not be inaccessible (or unaffordable) if a single price prevailed in the market.
3. allows firms to make supernormal profits which in turn allows them to sustain price wars when breaking into new markets.
4. all of the above
Oligopolistic firms making their price-output decisions keeping in view the current and possible future decisions of their rival firms, is an example of:
1. Strategic interaction
2. Prisoner’s dilemma
3. Price leadership
4. None of the above

Set 10

Quiz