Deck 10: Competition Among the Few

Question 1

Use the following to answer questions :
Figure 10-1
Compared to pricing under perfect competition, which of the areas in Figure 10-1 represents the consumer surplus lost by consumers due to monopoly pricing?

A)DEG.
B)ACG.
C)BCGD.
D)BCED.
E)OFEC.

Answer 1

BCGD.

Question 2

Suppose that two firms, A and B, collude to share maximum profits.If the average cost curve for firm A is higher than the average cost curve for firm B at every output, then

A)firm A should produce nothing.
B)firm A should produce output as long as its marginal cost is less than firm B's.
C)both firms should produce where their marginal costs are equal to some number that exceed marginal revenue.
D)both firms should produce where their marginal costs are precisely equal to marginal revenue.
E)optimal output cannot be determined from the information provided.

Answer 2

both firms should produce where their marginal costs are precisely equal to marginal revenue.

Question 3

Monopoly means:

A)one seller.
B)two sellers.
C)a few sellers.
D)many sellers.
E)none of the above.

Answer 3

one seller.

Question 4

Which of the following signify the degree of control that a single firm or small number of firms have over the price and production decisions in an industry?

A)Market power
B)Market share
C)Market measure
D)Market competition
E)none of the above

Question 5

Which of the following is true in industries characterized by a high degree of product differentiation?

A)Selling costs are likely to be low relative to production costs.
B)Firms are under pressure to produce at maximum capacity.
C)Firms are not likely to emphasize price competition.
D)Relatively small firms are likely to be extremely rare.
E)Firms are likely to emphasize price competition.

Question 6

Use the following to answer questions :
Table 10-1
Table 10-1 indicates a Herfindahl-Hirschman Index of:

A)44.
B)100.
C)2763.
D)2836.
E)none of the above.

Question 7

What are the factors at work in imperfectly competitive markets?

A)economies of scale.
B)costs.
C)barriers to competition.
D)strategic interaction.
E)all of the above

Question 8

Oligopoly means

A)one seller.
B)two sellers.
C)a few sellers.
D)a regulated utility.
E)none of the above.

Question 9

Use the following to answer questions :
Figure 10-1
If the market indicated by Figure 10-1 is perfectly competitive, the level of output and price will be, respectively:

A)F, C.
B)H, C.
C)F, B.
D)H, B.
E)A, I.

Question 10

High concentration in most individual industries is:

A)desirable because it better enables firms to coordinate their activities and policies to best serve the consuming public.
B)desirable because it leads to more intensive competition.
C)undesirable only because it is unfair to small businesspeople.
D)undesirable because it is thought to lead to less effective competition and to inefficient allocation of resources.
E)cannot be deemed desirable or undesirable on the grounds listed above.

Question 11

Collusive oligopoly produces prices and quantities very similar to those produced by:

A)perfect monopoly.
B)monopolistic competition.
C)perfect competition.
D)noncollusive oligopoly.
E)none of the above.

Question 12

A concentration ratio measures:

A)the number of firms in a perfectly competitive industry.
B)the number of products sold in a monopolistically competitive market.
C)the ratio of the total number of firms in the market to the dollar value of industry revenues.
D)the percent of total industry output that is accounted for by the largest firms.
E)none of the above.

Question 13

Use the following to answer questions :
Table 10-1
Table 10-1 indicates a four-firm concentration ratio of:

A)31%.
B)44%.
C)89%.
D)100%.
E)not enough information to tell.

Question 14

Since few firms are able to develop exact curves of cost and revenue, they:

A)are unable to make long-run profits.
B)are oblivious to profit maximization.
C)select the usual 30 percent markup.
D)may achieve long-run profits through trial and error.
E)unilaterally mold consumer tastes for optimum long-run profits.

Question 15

The difference between a concentration ratio and the Herfindahl-Hirschman Index (HHI)as measures of market concentration is that:

A)the concentration ratio captures the degree of monopoly power while the HHI captures the level of advertising for the firms.
B)the concentration ratio places heavier weight on larger firms in the industry.
C)the concentration ratio does not distinguish between an industry with several equal sized firms and an industry with one large dominant firm.
D)the HHI cannot capture the existence of a monopolist.
E)all of the above are true.

Question 16

The term "strategic interaction" refers to:

A)the link between consumer welfare and industry cost curves.
B)tacit agreements between the producers and the consumers of inputs.
C)the fact that each firm's business strategy depends upon its rival's business behavior.
D)the realization by oligopolists that higher selling prices imply lower sales.
E)all of the above.

Question 17

Use the following to answer questions :
Figure 10-1
If the market indicated by Figure 10-1 is monopolized by one large seller, the level of output and price will be, respectively:

A)F, C.
B)H, C.
C)F, B.
D)H, B.
E)A, I.

Question 18

Oligopoly is a market situation with:

A)the consumers' best interest at heart.
B)no competition.
C)a single buyer.
D)only a few competing sellers.
E)only a few competing buyers.

Question 19

The four-firm concentration ratio measures:

A)how many industries have only four firms.
B)the fraction of the market or industry accounted for by the four largest firms.
C)the fraction of the market or industry accounted for by the four smallest firms.
D)which four firms control the economy.
E)none of the above.

Question 20

When economists urge the federal government to attempt to eliminate monopoly, they do so mainly in order to:

A)prevent the growth of big business.
B)expand public utilities.
C)prevent small firms from decreasing in number.
D)restrain conglomerates.
E)ensure competition.

Question 21

Government regulation of monopolized industries can cause changes in firms':

A)output prices.
B)production costs.
C)level of output.
D)access to markets.
E)all of the above.

Question 22

Bounded rationality is a function of:

A)product homogeneity.
B)strategic interaction.
C)separation of management from ownership.
D)the costs of optimizing behavior.
E)all of the above.

Question 23

"Cost-Plus-Markup" pricing can be seen as the result of:

A)a firm's inability to afford perfect information.
B)obvious market segmentation.
C)collusive oligopoly.
D)a firm's realization that price is below marginal cost.
E)lazy managers who do not bother to do research on market demand.

Question 24

Use the following to answer questions :
Figure 10-3
The imperfect competitor shown in Figure 10-3:

A)could be in a long-run equilibrium situation for monopolistic competition, since P = AC.
B)must be in a long-run equilibrium situation for a monopoly, since P = AC.
C)should shut down, since profits are zero.
D)cannot be in a long-run equilibrium situation for monopolistic competition, since P is not equal to MC.
E)none of the above.

Question 25

Since few firms are able to develop exact curves of cost and revenue:

A)it is countervailing power which determines both unit costs and selling prices, and thus profits.
B)it is very difficult to earn a positive return on the book value of invested capital.
C)they make rough but reasonably informed guesses in setting price.
D)they automatically select the usual 30 percent markup.
E)they proceed in a manner not specified above.

Question 26

Which of the following are examples of price discrimination?

A)a movie theater charges children less for tickets than is charged adults.
B)A pharmacy gives discounts to senior citizens.
C)An airline sets lower prices for passengers who stay over a Saturday night during their travels.
D)The price of a small drink at MacDonalds for senior citizens is zero.
E)All of these are examples of price discrimination.

Question 27

Monopolistic deviation from P = MC means that:

A)nobody can be made better off without making someone else worse off.
B)goods are being produced efficiently.
C)society is better able to achieve its welfare optimum.
D)someone can be made better off without making someone else worse off.
E)none of the above.

Question 28

Price discrimination occurs when:

A)the same product is sold by a firm to different consumers for different prices.
B)consumers sell products to one another.
C)the same product is produced by a firm with different costs of production.
D)a firm charges the same price to consumers with different levels of income.
E)a product has zero production costs.

Question 29

Use the following to answer questions :
Figure 10-3
The imperfect competitor shown in Figure 10-3 should set a profit-maximizing level of output and price at:

A)Q₁ and P₁
B)Q₃ and P₂
C)Q₁ and P₄.
D)Q₂ and P₃
E)Q₃ and P₁.

Question 30

In a cartel model, firms have an incentive to sell more output at equilibrium because price is:

A)greater than average cost.
B)greater than average variable cost.
C)greater than marginal cost.
D)equal to marginal revenue.
E)equal to marginal cost.

Question 31

Which of the following helps cause perfect competition to produce a more efficient allocation of resources than monopoly?

A)Firms in perfect competition try to minimize cost while monopolies try to maximize profits.
B)Firms in perfect competition try to maximize output while monopolies try to maximize profits.
C)Firms in perfect competition try to set low prices while monopolies try to set high prices.
D)A firm in perfect competition has no control over the market price for its product while monopolies can gain from exploiting the gap between P and MC.
E)None of the above.

Question 32

Use the following to answer questions :
Figure 10-2
Consider Figure 10-2.The perfectly competitive solution would occur at point:

A)B.
B)D.
C)E.
D)F.
E)G.

Question 33

Use the following to answer questions :
Figure 10-2
Consider Figure 10-2.The cartel solution would occur at point:

A)B.
B)E.
C)H.
D)G.
E)none of the above.

Question 34

Use the following to answer questions :
Figure 10-2
By the deadweight loss due to monopoly, we mean the area in Figure 10-2 labeled:

A)PAB.
B)ABCD.
C)FDEQ.
D)PCEB.
E)BDE.

Question 35

The supply curve for a monopolist is always:

A)more elastic than the supply curve for a perfect competitor.
B)less elastic than the supply curve for a perfect competitor.
C)more elastic than the market supply curve for a perfectly competitive industry.
D)steeper that the monopolist's average cost curve in the relevant region.
E)none of the above; the supply curve does not exist for a monopolist.

Question 36

Duopoly means:

A)one seller.
B)two sellers.
C)many sellers.
D)no sellers.
E)none of the above.

Question 37

"Cost-Plus-Markup" pricing:

A)refers to the practice of some businesses of setting prices for their products by adding some percentage markup to an estimate of their marginal cost.
B)is used by firms because they are unable to make reliable estimates of their rivals' sales.
C)refers to the fact that businesses make profits only when prices are higher than average costs.
D)is the name that businesses give to what the economist calls "maximizing profits through equating marginal cost and marginal revenue."
E)is adopted, in part, because of the difficulty of estimating marginal revenue and marginal cost.

Question 38

Price and quantity, in monopolistically competitive equilibrium, are indicated by which point in the figure below?

A)M.
B)F.
C)G.
D)E.
E)none of the above.

Question 39

Use the following to answer questions :
Figure 10-3
An imperfect competitor whose cost and demand relations are as given in Figure 10-3:

A)is making losses.
B)is making economic profits.
C)is making no economic profits.
D)should shut down.
E)is none of the above.

Question 40

A cartel may be defined as:

A)a group of firms.
B)a group of monopolies.
C)a group of firms cooperating in regulating production and marketing so as to restrict quantity and fix price.
D)the vesting of the control of different corporations in a single one by the issue of stock of the controlling corporation in place of a majority of the stock of the others.
E)a business interest held by one firm for the benefit of the other.

Question 41

Dominant strategy is the situation that arises when one player has a single best strategy no matter what strategy the other player follows.

Question 42

Practically, a business does not set prices and output by equating marginal cost to marginal revenue because it finds that it can make more profits by setting a high markup on its product.

Question 43

The Sherman Act cured all of the antitrust problems.

Question 44

A secret conversation between the presidents of Bethlehem Steel and USX Steel company to set prices would be an example of:

A)monopoly at work.
B)monopolistic competition at work.
C)collusive oligopolistic behavior.
D)perfect competition arranging one market price.
E)none of the above.

Question 45

How does product differentiation lead to imperfect competition?

A)Each producer colludes with each other.
B)Each producer faces a downward sloping demand schedule.
C)Each producer is guaranteed positive profits.
D)B and C only.
E)None of the above.

Question 46

Deadweight loss refers to the loss of economic welfare arising from distortions in prices and output such as those due to monopoly, as well as those due to taxation, tariffs, or quotas.

Question 47

When economists use the term deadweight loss, what is being lost?

A)Firm's profits.
B)Consumer surplus and perhaps producer surplus.
C)Government tax revenue.
D)Firm's total revenue.
E)All of the above.

Question 48

If free entry into an industry shifts each firm's downward sloping demand curve far enough to the left to eliminate all profits, then most of the so-called wastes of imperfect competition have been eliminated.

Question 49

In strongly decreasing-cost industries, there is little hope for viable perfect competition.

Question 50

The Clayton Act outlawed tying contracts.

Question 51

For a monopolist at maximum-profit equilibrium with a demand curve of finite elasticity, price is always above marginal cost.

Question 52

Game theory analyzes the ways in which two or more players choose strategies that jointly affect each other.

Question 53

Which of the following are government policies to control the abuses of imperfect competition?

A)Taxes
B)Price controls
C)Regulation
D)Antitrust policy
E)All of the above

Question 54

Which of the following is a reason why a firm may not maximize profits?

A)Firms have limited resources and so must make imperfect decisions.
B)Profit maximizing price and output level is often very difficult to determine.
C)Managers may be more interested in maximizing their salaries, rather than profits.
D)Firms do not know exactly what their marginal revenue and marginal cost curves are.
E)All of the above.

Question 55

The central problem leading to the development of the economics of information is that:

A)firms can appropriate all of the gains to their innovations.
B)information is costly to produce but cheap to reproduce.
C)the demand for computer technology is perfectly inelastic.
D)the supply of computer technology is perfectly inelastic.
E)firms cannot patent information technology.

Question 56

Monopolistic competition features:

A)many buyers and sellers.
B)easy entry and exit.
C)long term economic profits equal to zero.
D)all of the above.
E)none of the above.

Question 57

Which of the following is not true about a collusive oligopoly?

A)It is illegal.
B)It tends to be unstable.
C)It is economically efficient.
D)It faces a downward sloping demand curve.
E)None of the above.

Question 58

The problem leading to the development of the economics of information can be characterized as follows:

A)Variable costs are high but fixed costs are low.
B)Fixed costs equal zero.
C)Marginal costs increase at an increasing rate.
D)Production externatalities lead to lower demand.
E)Fixed costs are high but marginal costs are low.

Question 59

If consumers were willing to sacrifice the differentiation of a product with many producers, then the price of the product could be lower.

Question 60

Bounded rationality means that:

A)firms are profit maximizers.
B)Not-for-profit firms cannot exist in a competitive economy.
C)firms strive to make good decisions, but not always maximizing decisions.
D)firms spend too much money trying to maximize profits.
E)firms are really utility maximizers.

Question 61

The Federal Trade Commission was established in 1954 to prohibit "unfair methods of competition".

Question 62

Many firms practice mark up pricing, since it allows for profit maximization.

Question 63

In a monopolistic competition model, there are a few firms selling slightly differentiated products.

Question 64

To control the actions of imperfect competitors, the United States' government has relied heavily on price controls.

Question 65

Monopolistic competition is inherently inefficient, since, in the long run, each firm enjoys positive economic profits at the expense of the consumer.

Question 66

Tying contracts, in which a firm will sell product A only if the purchaser buys product B, are generally legal.

Question 67

Price discrimination, in which a firm sells the same product to different customers at different prices, is illegal.

Question 68

The social loss created by monopoly power depends upon the price elasticity of the monopolist's supply curve.

Question 69

Strategic interaction is a term used to describe the condition in which a firm's business strategy depends upon its competitors' business behavior.

Question 70

The deadweight loss associated with a monopoly results from the production of an output level at which marginal revenue does not equal marginal cost.

Question 71

Although government ownership of monopolies is not common in the United States, it is widely practiced in other countries.

Question 72

If the four-firm concentration ratio in an industry is 89%, we can say that the industry is highly concentrated.

Question 73

Microsoft was divested when it was ruled they violated the Sherman Act.

Question 74

In a collusive oligopoly firms generally exhibit cooperative behavior, while in perfect competition, firms generally exhibit non cooperative behavior.

Question 75

While government regulation tells businesses how they must behave, antitrust policy tells them how they must not behave.

Question 76

The behavior of OPEC in the 1980's proves the relative stability of oligopolies.

Question 77

There is a general consensus in the economics profession that the losses associated with monopolies are minimal, and, therefore, can be ignored.

Question 78

U.S.firms which export goods and services, thus helping our balance of payments, are exempt from antitrust legislation.

Question 79

A concentration ratio measures a monopolist's production costs as a percentage of firm revenues.

Question 80

The AT&T divestiture in 1982 made the telecommunications industry worse.