Question ECO 561 Week 3 Knowledge Check

02 Jun Question ECO 561 Week 3 Knowledge Check

Question
ECO 561 Week 3 Knowledge Check

1. A purely- or perfectly-competitive firm would be characterized by which of the following?

Hint : The different types of firms include pure competition, pure monopoly, monopolistic competition, and oligopoly.

A. Large number of firms, price taker, free entry and exit, and standardized product

B. Large number of firms, price maker, free entry and exit, and a differentiated product

C. Small number of firms, price maker, limited entry and exit, and a standardized product

D. One firm, price maker, limited entry and exit, and a unique product

2. For a purely-competitive firm, price must be

Hint : In a purely competitive firm the revenue received for the first unit is the same as that of the last unit sold, which is the same as that which will be received for the next unit sold.

A. equal to marginal revenue and average revenue

B. greater than marginal revenue and average revenue

C. greater than marginal revenue, and equal to average revenue

D. less than both marginal revenue and average revenue

3. What will excessive or economic profits induce for a firm in any industry structure?

Hint : Instead of thinking of all industry structures at the same time, consider a monopoly industry structure and check if the solution also applies to the other industry structures.

A. entry into the market

B. exit from the market

C. equilibrium in the market

D. greater demand in the market

4. A pure-monopoly firm’s demand curve is also the market demand curve. This kind of firm may successfully engage in price discrimination to increase its total profit if it

Hint : Monopolists have the power to segregate in the market place because of specific characteristics that group. The monopolist is willing to charge a lower price than the profit maximization point.

A. engages in rent-seeking behaviors to prevent possible price challenges from firms in other industries

B. segregates its market into clearly definable groups of consumers with different elasticity of demand, and prevents buyers in one market segment from reselling to buyers in another market segment.

C. determines that consumers are relatively sensitive to price changes along its envisioned range of price differentials (price elastic)

D. determines that demand for its goods or services is relatively insensitive along its envisioned range of differential prices (price inelastic)

5. Oligopolies are characterized by a small number of firms where the top three firms hold the majority of the market. If in an oligopoly market, firm A is almost twice as big as firm B and firm C then

C. firms A, B, and C will tend to use non-price strategies to maintain their profits or market share.

6. In a monopolistic competition industry, if one firm appreciably increased its price from the existing equilibrium price, which of the following outcomes would most likely ensue?

Hint : Typically, in a monopolistic competition industry, if one company increases price, the other company also increases their price to make more revenue in the long term.

A. It would likely suffer a significant decrease in its market share, because its competitors would be unlikely to deviate from the established equilibrium price.

B. The firm would stand to gain much additional revenue if its competitors did not follow suit by raising their prices.

C. Any gain or loss in the firm’s revenue from increasing its price would depend on the price elasticity of demand: The more elastic the demand, the higher the revenue potential from a price increase.

D. It would probably see no change in its revenue position as its competitors would raise their prices accordingly.

7. Which factor characterizes the competitive relationship between firms in an oligopoly market structure?

Hint X Oligopoly is the only market structure in which firms actively watch the behavior of other firms.

A. Total independence of action-reaction

B. Interdependence: what one firm does—in setting prices, determining production levels, investing in R & D, and so forth—can significantly affect other firms’ competitive positions.

C. Despite the relatively small number of oligopoly firms, the action(s) of any one firm have little direct effect on the decisions of its competitors.

D. The common practice of collusive price-setting.

8. Unregulated (natural) monopolies maintain their status through a variety of measures. Whether any particular measure can effectively constrain new firms from entering the market depends on

Hint : In an unregulated (natural) monopoly, no legal barriers to entry exist.

A. proprietary technology, exclusive ownership of resources, or government licenses.

B. the number and size of the firm(s) attempting to enter the market

C. the willingness of suppliers and distributors doing business with the monopoly firm to boycott potential entrants

D. the amount of revenue loss the monopoly is willing to accept to undersell potential competitors

9. Regulated monopolies are empowered by public authority for which specific reason?

Hint : Regulated monopolies are empowered by the government as a means to ensure sufficient resources are devoted to the production of the good.