Question 1

Which of the following is an example of a natural monopoly?

Accepted Answer

A)  a firm whose good has only one close substitute 
B)  a firm whose average total cost falls as output increases 
C)  a firm whose sales exceed the total of its competition 
D)  a firm that owns all of the raw materials it uses 
E)  a firm granted exclusive producing and marketing rights by the government 
A)  a firm whose good has only one close substitute 
B)  a firm whose average total cost falls as output increases 
C)  a firm whose sales exceed the total of its competition 
D)  a firm that owns all of the raw materials it uses 
E)  a firm granted exclusive producing and marketing rights by the government B

Question 2

Does the amusement park Six Flags Over Texas, in Arlington, Texas, share a market with the Texas Rangers pro baseball team, also located in Arlington, Texas? And if so, which one? Explain.

Accepted Answer

It depends on the cross elasticities of demand between the amusement park and the baseball team. If it is high, they do belong to the same market and the market would be entertainment. People may decide on a Sunday morning to take the family out to a ball game or out to the park. They are credible substitutes. What isn't credible is to suggest that they would choose between going to a ball game and going to the dentist.

Question 3

An oligopoly is a market structure in which there are

Accepted Answer

A)  no good substitutes produced within the industry, giving each firm substantial market share 
B)  perfect substitutes produced within the industries, giving each firm only partial market share 
C)  monopolies competing to create monopolistic competition in the short run and oligopoly in the long run 
D)  at least 25 firms producing an identical good 
E)  only a few firms in the industry 
A)  no good substitutes produced within the industry, giving each firm substantial market share 
B)  perfect substitutes produced within the industries, giving each firm only partial market share 
C)  monopolies competing to create monopolistic competition in the short run and oligopoly in the long run 
D)  at least 25 firms producing an identical good 
E)  only a few firms in the industry E

Question 4

Monopolistically competitive firms engage in advertising to increase market share and make demand more inelastic.

Accepted Answer

A) True 
 B)False

Question 5

According to the text, grass mowing, T-shirt production, and potato farming are examples of firms

Accepted Answer

A)  that regularly advertise to increase market share 
B)  whose markets are highly seasonal 
C)  with high production differentiation 
D)  with high brand loyalty 
E)  with no barriers to entry 
A)  that regularly advertise to increase market share 
B)  whose markets are highly seasonal 
C)  with high production differentiation 
D)  with high brand loyalty 
E)  with no barriers to entry

Question 6

The cross elasticity between any two goods that determines whether or not they are in the same market is

Accepted Answer

A)  0 
B)  1 
C)  3 
D)  4 
E)  10 
A)  0 
B)  1 
C)  3 
D)  4 
E)  10

Question 7

Even if the steel industry is an oligopoly, there may be more firms competing with the steel firms than you would think because

Accepted Answer

A)  economies of scale exist 
B)  barriers to entry can be overcome 
C)  firms in other industries producing close substitutes may compete in the markets in which steel firms compete 
D)  economic profit lures other firms into the industry 
E)  there is high product differentiation 
A)  economies of scale exist 
B)  barriers to entry can be overcome 
C)  firms in other industries producing close substitutes may compete in the markets in which steel firms compete 
D)  economic profit lures other firms into the industry 
E)  there is high product differentiation

Question 8

The Bay Area in California is home to the Oakland Athletics and the San Francisco Giants. New York City is home to the Mets and Yankees. Most other cities only have one baseball team, if any at all. What is the best explanation for this phenomenon?

Accepted Answer

A)  Most baseball fans, who are the demanders for baseball games, tend to live in New York and San Francisco. 
B)  Baseball team owners live in large cities, such as New York and San Francisco. 
C)  In most baseball cities-excluding New York, San Francisco, etc.-baseball teams are natural monopolies. 
D)  Only these four teams face downward-sloping demand curves. 
E)  Only these four teams have declining average total costs. 
A)  Most baseball fans, who are the demanders for baseball games, tend to live in New York and San Francisco. 
B)  Baseball team owners live in large cities, such as New York and San Francisco. 
C)  In most baseball cities-excluding New York, San Francisco, etc.-baseball teams are natural monopolies. 
D)  Only these four teams face downward-sloping demand curves. 
E)  Only these four teams have declining average total costs.

Question 9

If cross elasticity between two goods is zero, then the goods are

Accepted Answer

A)  perfect substitutes 
B)  perfect complements 
C)  good but not perfect substitutes 
D)  not considered to be substitutes 
E)  good but not perfect complements 
A)  perfect substitutes 
B)  perfect complements 
C)  good but not perfect substitutes 
D)  not considered to be substitutes 
E)  good but not perfect complements

Question 10

As firms gain market share, industries become more competitive.

Accepted Answer

A) True 
 B)False

Question 11

The number of tomato producers is of no consequence to people who enjoy eating tomatoes.

Accepted Answer

A) True 
 B)False

Question 12

From what you know about the different kind of monopolies, which answer best describes the natural ones?

Accepted Answer

A)  They only exist because the government has established patent laws. 
B)  They can produce services, but not goods. 
C)  The market supports only two or three firms. 
D)  Potential competitors are purchased before they can enter. 
E)  There is a declining ATC throughout the relevant range of production. 
A)  They only exist because the government has established patent laws. 
B)  They can produce services, but not goods. 
C)  The market supports only two or three firms. 
D)  Potential competitors are purchased before they can enter. 
E)  There is a declining ATC throughout the relevant range of production.

Question 13

Having product differentiation means that a firm

Accepted Answer

A)  cannot raise its price without suffering substantial loss of sales 
B)  shifts the demand for the product to the left 
C)  produces a good that is only a close substitute, at best, for the goods produced by other firms in the industry 
D)  produces a good that is a perfect substitute for the goods produced by other firms in the industry 
E)  has no incentive to advertise 
A)  cannot raise its price without suffering substantial loss of sales 
B)  shifts the demand for the product to the left 
C)  produces a good that is only a close substitute, at best, for the goods produced by other firms in the industry 
D)  produces a good that is a perfect substitute for the goods produced by other firms in the industry 
E)  has no incentive to advertise

Question 14

Mutual interdependence implies that

Accepted Answer

A)  all other firms in a monopolistically competitive industry rely on one firm to take leadership in setting price 
B)  monopolistically competitive firms will "follower the leader" allowing the monopoly firm to determine price 
C)  each firm within an oligopoly is affected by what the other firms in the industry do 
D)  all firms in the industry are independent of each other 
E)  all firms in the industry must agree before any price changes occur 
A)  all other firms in a monopolistically competitive industry rely on one firm to take leadership in setting price 
B)  monopolistically competitive firms will "follower the leader" allowing the monopoly firm to determine price 
C)  each firm within an oligopoly is affected by what the other firms in the industry do 
D)  all firms in the industry are independent of each other 
E)  all firms in the industry must agree before any price changes occur

Question 15

Cross elasticity of demand compares the change in the

Accepted Answer

A)  price of one good that is generated by a change in the price of another good 
B)  quantity demanded of one good that is generated by a change in the price of another good 
C)  price of one good that is generated by a change in quantity demanded of another good 
D)  quantity demanded of one good that is generated by a change in the supply of another good 
E)  quantity demanded of one good that is generated by a change in quantity demanded of another good 
A)  price of one good that is generated by a change in the price of another good 
B)  quantity demanded of one good that is generated by a change in the price of another good 
C)  price of one good that is generated by a change in quantity demanded of another good 
D)  quantity demanded of one good that is generated by a change in the supply of another good 
E)  quantity demanded of one good that is generated by a change in quantity demanded of another good

Question 16

Coca-Cola has a secret formula that has never been copied. This is because Coca-Cola

Accepted Answer

A)  is an unbalanced oligopoly 
B)  has a trademark that cannot be copied 
C)  has patent rights on the formula 
D)  has exclusive access to formula information 
E)  is a natural monopoly 
A)  is an unbalanced oligopoly 
B)  has a trademark that cannot be copied 
C)  has patent rights on the formula 
D)  has exclusive access to formula information 
E)  is a natural monopoly

Question 17

-A firm operating as a natural monopoly would be most likely identified by which panel inExhibit J-1?

Accepted Answer

A)  Panel 1 
B)  Panel 2 
C)  Panel 3 
D)  Panel 4 
E)  Panel 5 
A)  Panel 1 
B)  Panel 2 
C)  Panel 3 
D)  Panel 4 
E)  Panel 5

Question 18

A patent is a(n)

Accepted Answer

A)  government grant to an innovating firm of monopoly privilege in the production of a good or the use of a technology for a 17-year period 
B)  annual award of monopoly privilege to a firm for the most creative invention of the year 
C)  payment from the government to a firm for the most creative invention of the year 
D)  grant of perpetual monopoly rights to a firm issued by the government 
E)  expression of monopoly power in a monopolistically competitive industry 
A)  government grant to an innovating firm of monopoly privilege in the production of a good or the use of a technology for a 17-year period 
B)  annual award of monopoly privilege to a firm for the most creative invention of the year 
C)  payment from the government to a firm for the most creative invention of the year 
D)  grant of perpetual monopoly rights to a firm issued by the government 
E)  expression of monopoly power in a monopolistically competitive industry

Question 19

Think about cost structures associated with each of the following and decide which is most likely to be a natural monopoly.

Accepted Answer

A)  jewelry manufacturer 
B)  tax-preparation firm 
C)  movie theater 
D)  city bus company 
E)  dry cleaner 
A)  jewelry manufacturer 
B)  tax-preparation firm 
C)  movie theater 
D)  city bus company 
E)  dry cleaner

Question 20

For a market to be considered perfectly competitive, there should be a minimum of 1,000 firms.

Accepted Answer

A) True 
 B)False

Exam 10: Identifying Markets and Market Structures

Which of the following is an example of a natural monopoly?

Does the amusement park Six Flags Over Texas, in Arlington, Texas, share a market with the Texas Rangers pro baseball team, also located in Arlington, Texas? And if so, which one? Explain.

An oligopoly is a market structure in which there are

Monopolistically competitive firms engage in advertising to increase market share and make demand more inelastic.

According to the text, grass mowing, T-shirt production, and potato farming are examples of firms

The cross elasticity between any two goods that determines whether or not they are in the same market is

Even if the steel industry is an oligopoly, there may be more firms competing with the steel firms than you would think because

The Bay Area in California is home to the Oakland Athletics and the San Francisco Giants. New York City is home to the Mets and Yankees. Most other cities only have one baseball team, if any at all. What is the best explanation for this phenomenon?

If cross elasticity between two goods is zero, then the goods are

As firms gain market share, industries become more competitive.

The number of tomato producers is of no consequence to people who enjoy eating tomatoes.

From what you know about the different kind of monopolies, which answer best describes the natural ones?

Having product differentiation means that a firm

Mutual interdependence implies that

Cross elasticity of demand compares the change in the

Coca-Cola has a secret formula that has never been copied. This is because Coca-Cola

-A firm operating as a natural monopoly would be most likely identified by which panel inExhibit J-1?

A patent is a(n)

Think about cost structures associated with each of the following and decide which is most likely to be a natural monopoly.

For a market to be considered perfectly competitive, there should be a minimum of 1,000 firms.

Introduction

Production Possibilities and Opportunity Costs

Demand and Supply

Elasticity

Happiness, Utility, and Consumer Choice

Price Ceilings and Price Floors

Entrepreneurship and Business Ownership

Costs of Production

Maximizing Profit

Price and Output in Monopoly, Monopolistic Competition, and Perfect Competition

Price and Output Determination Under Oligopoly

Antitrust and Regulation

Externalities, Market Failure, and Public Choice

Wage Rates in Competitive Labor Markets

Wages and Employment: Monopsony and Labor Unions

Interest, Rent, and Profit

Income Distribution and Poverty

International Trade

Exchange Rates, Balance of Payments, and International Debt

The Economic Problems of Less-Developed Economies

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