Deck 10: Prices,output,and Strategy: Pure and Monopolistic Competition

Question 1

Uncertainty includes all of the following except ____.

A) unknown effects of deliberate actions
B) incomplete information as to the type of competitor
C) random disturbances
D) unverifiable claims
E) accidents due to weather hazards

Answer 1

D

Question 2

The problems of asymmetric information exchange arise ultimately because

A) one party to the exchange possesses different information than another
B) one party has more information than another
C) one party knows nothing
D) one party cannot independently verify the information of another
E) information is scarce

Answer 2

D

Question 3

Which of the following statements is (are)true concerning a pure competition situation?

A) Its demand curve is represented by a vertical line.
B) Firms must sell at or below market price.
C) Marginal revenue is equal to price.
D) both b and c
E) both a and b

Answer 3

D

Question 4

To escape adverse selection and elicit high quality experience goods buyers can

A) offer price premiums to new firms in the market
B) seek out unbranded goods
C) buy from generic storefronts that have leased temporary space
D) secure warranties from warehouse retailers
E) none of the above

Question 5

In pure competition:

A) the optimal price-output solution occurs at the point where marginal revenue is equal to price
B) a firm's demand curve is represented by a horizontal line
C) a firm is a price-taker since the products of every producer are perfect substitutes for the products of every other producer
D) a and b only
E) a,b,and c

Question 6

All of the following are mechanisms which reduce the adverse selection problem except ____.

A) warranties from established enterprises with non-redeployable assets
B) high interest rates
C) large collateral requirements
D) brand names and product-specific promotions and retail displays
E) higher prices in repeat customer transactions

Question 7

What is the profit maximization point for a firm in a purely competitive environment?

A) The output where P = MC
B) The output where P < MC
C) The output where P > MC
D) The output where MR = MC
E) The output where AVC < P

Question 8

If price exceeds average costs under pure competition,____ firms will enter the industry,supply will ____,and price will be driven ____.

A) more; decrease; down
B) more; decrease; up
C) more; increase; down
D) more; increase; up
E) none of the above

Question 9

In the long-run,firms in a monopolistically competitive industry will

A) earn substantial economic profits
B) tend to just cover costs,including normal profits
C) seek to increase the scale of operations
D) seek to reduce the scale of operations

Question 10

A firm in pure competition would shut down when:

A) price is less than average total cost
B) price is less than average fixed cost
C) price is less than marginal cost
D) price is less than average variable cost

Question 11

Buyers anticipate that the temporary warehouse seller of unbranded computer equipment will

A) deliver high quality products consistent with expectations
B) not attempt to establish any warranty enforcement mechanisms
C) offer several prices and qualities
D) produce only one quality
E) none of the above

Question 12

Asset specificity is largest when

A) value in first best use is large
B) value in second best use is large
C) customers choose their supplier at random
D) very valuable assets are non-redeployable
E) customers are loyal to a particular seller

Question 13

Experience goods are products or services

A) that the customer already knows
B) whose performance is highly unusual
C) whose quality is undetectable when purchased
D) not likely to cause repeat purchases
E) all of the above

Question 14

The main difference between perfect competition and monopolistic competition is:

A) The number of sellers in the market
B) The ease of entry and exit in the industry
C) The degree of information about market price
D) The degree of product differentiation
E) Whether it is the short run or the long run

Question 15

Under asymmetric information,

A) you never get what you pay for
B) you sometimes get cheated
C) you always get cheated
D) at best you get what you pay for
E) sellers make profits in excess of competitive returns

Question 16

Long distance telephone service has become a competitive market.The average cost per call is $0.05 a minute,and it's declining.The likely reason for the declining price for long distance service is:

A) Governmental pressure to lower the price
B) Reduced demand for long distance service
C) Entry into this industry pushes prices down
D) Lower price for a barrel of crude oil
E) Increased cost of providing long distance service

Question 17

All of the following are true for both competition and monopolistic competition in the long run,except one of them.Which is it?

A) P = MC
B) P = AC
C) Economic profits become zero in the long-run
D) The barriers to entry and exit are relatively easy
E) None of the above is an exception

Question 18

In long-run equilibrium,all firms in a pure competition market situation operating under a condition of certainty will have identical costs even though they may use different production and operation techniques.

Question 19

In the short-run for a purely competitive market,a manufacturer will stop production when:

A) the total revenue is less than total costs
B) the contribution to fixed costs is zero or less
C) the price is greater than AVC
D) operating at a loss
E) a and b

Question 20

In the purely competitive case,marginal revenue (MR)is equal to:

A) cost
B) profit
C) price
D) total revenue
E) none of the above

Question 21

The fraudulent delivery of low quality experience goods at high prices is more likely if

A) interest rates decline
B) information about notorious firms is speedily disseminated
C) price premiums for allegedly high quality increase
D) sellers invest in non-transferable reputation
E) none of the above

Question 22

Sunrise Juice Company sells its output in a perfectly competitive market.The firm's total cost function is given in the following schedule: $$\begin{array} { c c } \text { Output } & \text { Total Cost } \\\text { (Units) } & ( \$ ) \\\hline 0 & 50 \\10 & 120 \\20 & 170 \\30 & 210 \\40 & 260 \\50 & 330 \\60 & 430\end{array}$$ Total costs include a "normal" return on the time (labor services)and capital that the owner has invested in the firm.The prevailing market price is $7 per unit. (a) Prepare (i) marginal cost and (ii) average total cost schedules for the firm.
(b) What is the firm's profit maximizing output level?
(c) Is the industry in long-tun equilibrium? Justify your answer.

Question 23

To remain competitive today,many companies commit themselves to:

A) ​continuous improvement processes
B) ​competitive strategic analysis by outside experts
C) ​episodes of strategic planning
D) ​a and c
E) ​b and c

Question 24

A "search good" is:

A) One that depends on how the product behaves over time
B) A product whose quality is only found out over time by finding how durable it is
C) Like a peach that can be examined for flaws
D) Like a used car,since it is easy to determine its inherent quality
E) None of the above

Question 25

An "experience good" is one that:

A) Only an expert can use
B) Has undetectable quality when purchased
C) Can be readily experienced simply by touching or tasting
D) Improves with age,like a fine wine
E) All of the above

Question 26

The market for "lemons" is one in which

A) the rational buyer discounts
B) the seller's product claims are unverifiable at the point of purchase
C) "the bad apples drive out the good"
D) the problem of adverse selection is rampant
E) all of the above

Question 27

The price for used cars is well below the price of new cars of the same general quality.This is an example of:

A) The Degree of Operating Leverage
B) A Lemon's Market
C) Redeployment Assets
D) Cyclical Competition
E) The Unemployment Rate