Deck 13: Market Power

Question 1

A monopoly has:

A) no close substitutes
B) some close substitutes
C) numerous close substitutes
D) close complements

Answer 1

A

Question 2

A monopoly has:

A) freedom of entry and exit
B) barriers to entry
C) sluggish movement into and out of the industry
D) ability to take advantage of consumers

Answer 2

B

Question 3

The demand curve facing a monopolist is:

A) undefined
B) the horizontal summation of all individual supply curves
C) the horizontal summation of all individual marginal cost curves
D) the market demand curve

Answer 3

D

Question 4

A monopolist can:

A) earns zero economic profits
B) set a price, but is limited by consumer demand
C) set any price that it desires
D) set a price equal to production costs

Question 5

If there are a small number of firms in an industry:

A) price competition will result
B) firms may be able to increase the price above the market price level
C) firms will compete each other out of business
D) firms will enter the industry until numerous firms result

Question 6

Consumers are protected from market power in the US by:

A) good business practices
B) import competition
C) the Sherman antitrust act
D) making careful purchases

Question 7

Burger King has a patent on Whoppers, so it is a:

A) monopolist
B) competitive firm
C) monopolistic competitor
D) oligopolist

Question 8

Monopolists have

A) no market power
B) market power to set a price
C) market power to set demand
D) market power to enhance economic profits to a high level

Question 9

A price maker faces a:

A) elastic demand curve
B) inelastic demand curve
C) downward sloping demand curve
D) horizontal demand curve

Question 10

A monopolist has all except the following:

A) one seller
B) homogenous product
C) barriers to entry
D) unavailability of information

Question 11

A monopolist:

A) can keep other firms out of the industry
B) must allow new entrants into the industry
C) must set price based on costs
D) must set price based on good management practices

Question 12

A monopolist can:

A) set price and quantity of a good
B) set a price and let quantity adjust
C) set the demand curve
D) set up a barrier to entry

Question 13

Monopolists have:

A) unlimited profits
B) unlimited market power
C) unlimited hiring ability
D) limited power over consumer decisions

Question 14

A TR curve is a straight line for:

A) a monopolist
B) a competitive firm
C) all firms
D) no firms

Question 15

A TR curve is an inverted U shape for:

A) a monopolist
B) a competitive firm
C) all firms
D) no firms

Question 16

A natural monopoly is a firm with:

A) high variable costs
B) high total costs
C) a natural barrier to entry
D) high fixed costs

Question 17

A natural monopoly is a:

A) public utility such as electricity
B) a firm with a patent
C) a firm with a legal barrier to entry
D) a firm that is very good at competition

Question 18

Patents are given to firms:

A) to increase profits for failing firms
B) to encourage local economic development
C) as political favors
D) to encourage R&D

Question 19

Locational monopolies:

A) are granted by the government
B) are due to special features that are unique to a specific location
C) do not exist in the real world
D) are movable to new locations

Question 20

Monopolistic competitors:

A) have close, but differentiated products
B) have homogeneous products and barriers to entry
C) have perfect information
D) face perfectly elastic demand curves

Question 21

A firm with a differentiated product:

A) will strive to make the product homogeneous
B) will strive to market the product to consumers
C) will strive to help other firms enter the market
D) will strive to make the product competitive

Question 22

A monopolistic competitor will maximize profits by:

A) setting MR = MC
B) setting ATC = AR
C) setting TR = TC
D) this type of firm will not desire to maximize profits

Question 23

Monopolistic competition has been used to:

A) criticize market economies
B) criticize command economies
C) show evidence that mixed economies should be reformed
D) show that advertising is a positive characteristic of a market economy

Question 24

Monopolisitc competitiors use:

A) neither price nor nonprice competition
B) only price competition
C) nonprice competition to erect barriers to entry
D) nonprice competition to differentiate their product

Question 25

Oligopolists are:

A) rivalrous
B) interdependent
C) both A and B
D) neither A nor B

Question 26

Collusion occurs:

A) in a monopoly
B) when oligopolists act as a single firm
C) when oligopolists act as a competitive firm
D) in competition

Question 27

Collusion is likely to fall apart due to:

A) firms producing less than the agreed quantity
B) firms differentiating their product
C) firms cheating on the collusive agreement by producing too much
D) firms advertising more than the agreement

Question 28

Collusion is:

A) widely practiced in the US
B) used, but not respected, in the US
C) used by competitive firms in the US
D) illegal in the US

Question 29

An example of a cartel is:

A) a motel
B) the automobile industry in the US
C) NAFTA
D) OPEC

Question 30

A monopoly is good for consumers when:

A) competition leads to the competitive price
B) a natural monopoly exists
C) monopolists earn maximum profits
D) competition leads to lower prices

Question 31

Big firms such as Walmart are:

A) bad for consumers due to economies to scale
B) good for consumers due to economies to scale
C) good for consumers due to market power
D) good for competing firms due to market power

Question 32

Economist typically favor:

A) competitive firms
B) monopolistically competitive firms
C) monoplies
D) oligopolies

Question 33

Which firms take price as fixed and given?

A) monopolies
B) competitive
C) agribusiness
D) monopolistic competitors

Question 34

A monopolist has:

A) market power
B) power to erect barriers to entry
C) power to pass legislation
D) power to control consumers

Question 35

Advertising is most likely to occur in which market structure:

A) competition
B) price takers
C) monopolistic competition
D) monopoly

Question 36

Friendly, nonrivalrous firms are most likely to exist in:

A) competition
B) price makers
C) monopolistic competition
D) monopoly

Question 37

Consumers will prefer:

A) competitive prices in competition
B) differentiated products
C) high quality products
D) not enough information to answer

Question 38

Firms that have market power:

A) should be closed by the government
B) should be regulated by the government
C) should be allowed to operate freely
D) not enough information to answer

Question 39

Competition will always have:

A) P = TC
B) P = MC
C) ATC = AVC
D) all of the other answers

Question 40

A monopolist will set:

A) P and Q
B) P where MR = MC
C) P at a higher price than MR = MC
D) can not set P

Question 41

A monopolistic competitor will set:

A) P and Q
B) P where MR = MC
C) P at a higher price than MR = MC
D) can not set P

Question 42

A competitive firm will set:

A) P and Q
B) P where MR = MC
C) P at a higher price than MR = MC
D) can not set P

Question 43

Which firm will have the lowest price?

A) monopolistic competitor
B) monopoly
C) competitive firm
D) not enough information to answer

Question 44

Which firm will have the highest quality product?

A) monopolistic competitor
B) monopoly
C) competitive firm
D) not enough information to answer

Question 45

In a mixed economy, firms are:

A) all competitive
B) a mixture of all market structures
C) all regulated
D) not enough information to answer

Question 46

Monopolies lead to:

A) labor abuse
B) social strife and inequality
C) higher-than-competitive prices
D) loss of jobs in neighboring communities

Question 47

Oligopolists that get together to strategize are:

A) legal colluders
B) illegal colluders
C) acting as price takers
D) acting as competitive firms

Question 48

Cartels are:

A) more efficient than competitive firms
B) highly reliable and likely to last
C) illegal in the US
D) open to entry by other firms

Question 49

Monopolistic competitors:

A) have differentiated products but no entry
B) have differentiated products with entry
C) have homogeneous products but no entry
D) have homogeneous prouducts with entry

Question 50

Competitive firms:

A) are efficient, but unfriendly
B) are efficient, but result in inequality
C) are efficient, but do not keep up with technology
D) are efficient, and ever-evolving with new technology

Question 51

Is market power a good thing or a bad thing? Explain.

Question 52

What types of firms have market power? Do they use this power? Is it legal? Should it be legal? Explain.

Question 53

Does a monopolist have complete price setting ability? Explain why or why not.

Question 54

Will a monopolist maximize total revenues or profits? Accounting profits or economic profits?

Question 55

Draw the profit-maximizing solution for a monopolist. What are the profit-maximizing conditions for the monopolist? How do they differ from a perfectly competitive firm?

Question 56

Define and explain a natural monopoly. Give an example, and explain how these firms come into existence.

Question 57

Which is a better market structure to be in: monopoly or natural monopoly? Why?

Question 58

What are the defining characteristics of monopolistic competition? Graph a monopolistically competitive firm in the short run and the long run.

Question 59

Define and explain, "nonprice competition" and provide an example.

Question 60

Explain collusion. Is it legal or illegal? Can real-world firms collude? Do they?

Question 61

Use a graph to demonstrate and explain a cartel.

Question 62

Are large firms such as Walmart and Microsoft good or bad for the economy? Explain. Should these huge firms be allowed to exist? Why or why not?

Question 63

Define the terms, "Equilibrium in Dominant Strategy" and "Nash Equilibrium."

Question 64

Explain the difference between "Equilibrium in Dominant Strategy" and "Nash Equilibrium."