Mirco Test 4

which of the following would not be considered a barrier to entry?

Low start-up cost

A monopoly (firm) faces a demand curve that is

The same as the market demand curve

for a monopolist

The marginal revenue curve of lies below the demand curve except for the 1st unit

if a monopolist is earning short- run economic profits

The firms profit will be protected by a barrier to entry in the long run

which barrier of entry results in the creation of natural monopoly

economics of scale

patents and licenses

are legal barriers to entry

which of the following is a result of a monopoly?

output is lower and prices are higher

if a monopoly is earning economic losses in the short run

it should continue to produce the output level at which MR=MC as long as price is greater than AVC

For a monopoly to successfully price discriminate, its customers must

be unable to resell the product

The price discriminating monopolist charges the lowest price to the group that

has the most elastic demand

when comparing monopoly with perfect competition

quantity is lower and price is higher under monopoly

game theory is…

A series of strategic decisions

monopolistic competition is characterized by

many firms, selling differentiated products

one characteristic of oligopoly distinguishes it from all other types of market structures. This unique characteristics is:

there is a interdependence among the firms

a cartel is

a group formally agreeing on a price and output

the automobile industry is

oligopolistic

a monopolistically competitive market is characterized by all the following except

economic profit in the long run

The kinked demand curve is based on the assumption that

rivals will follow a price decrease but not a price increase

which of the following is a way to differentiate products?

All of the above

mutual independence means that

The actions of one firm will cause a reaction by the other firm

firms in a cartel increase profits by

jointly restricting output to raise price

using the price leadership model of pricing, if Firm A is the price leader in a oligopolistic industry…

Firm B will set its price equal to Firm A’s price

Homogeneous products are

identical

the two extremes of the market structure are

perfect competition and monopoly

which of the following industries would be best described as monopolistically competitive

beauty salons

when firms work together in an effort to restrict output and increase price, they are practicing

cartel (collusion)

which of the following is present in both monopoly and oligopoly?

very high barriers to entry

Firm XYZ holds a patent on a profitable drug, Zing. When the patent expires, which of the following will most likely not happen

The price of zing will probably rise

the purpose of advertising is to…

increase demand

whenever there is no barriers of entry in the market, there is a good possibility in the long run economic profits.

False

the demand for a monopolistically competitive firm’s product is usually highly inelastic because there are no close substitutes for the good

False

firms advertise in a effort to increase the demand and increase the inelasticity for demand for their products

True

some economists say that advertising is a waste of resources because it drives up the costs of production without adding to the worth of the product

True

collusion among auto producers is legal in the U.S.

False

Strong economies of scale are natural barriers that prevent new firms from entering market

True

the two pricing methods under game theory are for tit-for-tat and price leadership

false

One potential problem within a cartel is the cartel members may cheat on the agreement

True

OPEC is a example of a cartel

True

product differentiation are physical differences in a firm’s products

True

monopolistic competition is similar to perfect competition because firms in both market structures produce homogeneous products

False

A monopolist is a price maker

True

Price leadership is a form of formal collusion

False

some economists argue that advertising allows firms to expand and therefore take advantages of economics of scale

True

Price leadership examines oligopolistic behavior as a series of strategic decisions

True