Deck 3: Market Power and Pricing Strategies

Question 1

Market power is defined as

A)the ability of a firm to charge any price it wants
B)produce and sell as large a quantity as possible at high prices
C)the ability of a seller or buyer to affect the market price of a good or service
D)sell large a quantity at high prices

Answer 1

the ability of a seller or buyer to affect the market price of a good or service

Question 2

Marginal revenue for a monopolist is equal to

A)the increased revenue from the sale of an additional unit less the loss of revenue from selling previous units at a lower price
B)the change in revenue resulting from a one unit change in output
C)the change in revenue divided by the change in output
D)all of the above are applicable

Answer 2

all of the above are applicable

Question 3

For a monopolist, marginal revenue is always less than price because

A)as output increases, the price of all units must fall to sell the additional unit
B)because at lower prices, profit margins fall
C)in order to sell additional quantities, the additional units much be sold at a lower price
D)because monopolist is a price maker

Answer 3

as output increases, the price of all units must fall to sell the additional unit

Question 4

The profit maximizing output level for a monopolist is

A)the output level where price elasticity of demand is ?1 and total revenue is maximized
B)the output level where price elasticity of demand is +1 and total revenue is maximized
C)the output level where marginal revenue equals marginal cost
D)where the difference between price and average total cost is the largest

Question 5

The supply curve for the monopolist

A)does not exist
B)is represented by the marginal cost curve above the average total cost curve
C)is represented by the marginal cost curve above the average variable cost curve
D)is represented by the marginal cost curve above the average cost curve

Question 6

The Lerner Index is a measure of __________

A)perfect competition
B)monopoly power
C)competition
D)market

Question 7

For the monopolist, at the profit maximizing level of output

A)price is greater than marginal cost (p > mc)
B)price is equal to marginal cost (p=mc)
C)price may be greater than or equal to marginal cost,
D)price is less than marginal cost (p

Question 8

A major source of monopoly power in a market is

A)a low market elasticity of demand
B)a high market price elasticity of demand
C)aggressive rivalry between firms in a market
D)the presence of many firms in a market

Question 9

According to economic pricing theory, the basic objective of every pricing strategy

A)is to reduce prices in order to increase consumer surplus and the quantity sold
B)to raise prices in order to reduce consumer surplus
C)sell at a price and quantity where total revenue is maximized
D)to capture consumer surplus and convert it to additional profit for the firm

Question 10

The practice of charging different prices to different consumers for the same goods or services is known as _____

A)product differentiation
B)marketing
C)aggressive selling
D)price discrimination

Question 11

Which of the following statements about industries that are oligopolies is false

A)firms in these industries may attempt to cooperate
B)firms in these industries are interdependent
C)the fact that there is more than one firm in an oligopoly means that there are no barriers to entry
D)an oligopoly with two firms is called a duopoly

Question 12

The price rigidity in an oligopolistic market is explained by _______

A)price discrimination
B)product differentiation
C)bundling
D)kinked demand curve

Question 13

Price discrimination is a strategy in

A)monopoly
B)perfect competition
C)monopolistic competition
D)pure competition

Question 14

Suppose a competitive firm produces 100 units of X for a price of Rs.10 a unit. The firm is employing labour and capital such that the marginal physical product of labour and capital is 20 and 5 and the prices paid to labour and capital are Rs. 60 and Rs. 40 respectively. How would you characterize the firm

A)the firm is in long-run equilibrium
B)the firm is earning excess profits
C)the firm should expand production
D)the firm should contract production

Question 15

That the perfectly competitive firm will pick a combination of inputs where the ratio of each input's marginal product to its price is equal follows from

A)the need to use inputs in fixed proportions
B)the backward bending supply curve of labour
C)cost minimization
D)the attempt to achieve a target rate of return

Question 16

If an additional worker costs you Rs. 15 per hour, and that person can add 25 units of output to the firm, you should hire that person as long as

A)25 remains above rs.15
B)25/rs.15 is greater than zero
C)rs.15/25 is great than zero
D)the value of the marginal product is above rs.15 .............

Question 17

Entry is restricted under:

A)Perfect competition
B)Monopoly
C)Monopolistic competition
D)All of the above

Question 18

Demand curve is perfectly elastic under:

A)Perfect competition
B)Monopoly
C)Monopolistic competition
D)All of the above

Question 19

Demand curve is elastic under:

A)Perfect competition
B)Monopoly
C)Monopolistic competition
D)All of the above

Question 20

Demand curve is inelastic under:

A)Perfect competition
B)Monopoly
C)Monopolistic competition
D)All of the above

Question 21

Differentiated but close substitutes exist under:

A)Perfect competition
B)Monopoly
C)Monopolistic competition
D)All of the above

Question 22

Selling cost is insignificant under:

A)Perfect competition
B)Monopoly
C)Monopolistic competition
D)All of the above

Question 23

Few firms exist under:

A)Perfect competition
B)Oligopoly
C)Monopolistic competition
D)Both perfect and monopolistic competition

Question 24

In which market structure, price and output solution is indeterminate?

A)Oligopoly
B)Monopolistic competition
C)Perfect competition
D)Monopoly