Question Question Points 1. For cartels, as the number of firms (members of the cartel) increases:

04 Jun Question Question Points 1. For cartels, as the number of firms (members of the cartel) increases:

Question
Question Points

1. For cartels, as the number of firms (members of the cartel) increases:

a. the monopoly outcome becomes more likely.

b. the magnitude of the price effect decreases.

c. the more concerned each seller is about its own impact on the market price.

d. the easier it becomes to observe members violating their agreements.

2. An agreement among firms in a market about quantities to produce or prices to charge is called:

a. collusion.

b. a strategic situation.

c. excess capacity.

d. tying.

3. According to one theory, advertising sends a signal to consumers about the quality of the product being offered. An implication of this theory is that:

a. the actual quality of the product is irrelevant.

b. the content of the advertisement is irrelevant.

c. advertising is not in the best interest of society.

d. it is irrational for firms to pay famous people large amounts of money to appear in their advertisements.

4. When a new firm enters a monopolistically competitive market, the individual demand curves faced by all existing firms in that market will:

a. shift to the left.

b. shift to the right.

c. shift in a direction that is unpredictable without further information.

d. remain unchanged. It is the supply curve that will shift.

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5. A benefit of a monopoly is:

a. efficient production.

b. decreasing long run marginal costs.

c. profit that can be invested in research and development.

d. All of the choices apply.

6. In the prisoners’ dilemma game, confessing is a dominant strategy for each of the two prisoners.

a. True

b. False

7. Which of the following statements is correct?

a. When duopoly firms reach a Nash equilibrium, their combined level of output is the monopoly level of output.

b. When oligopoly firms collude, they are behaving as a cartel.

c. In an oligopoly, self-interest drives the market to the competitive outcome.

d. An oligopoly is an example of monopolistic competition.

8. In the long run, monopolistically competitive firms produce where demand equals average total cost.

a. True

b. False

9. The “competition” in monopolistically competitive markets is most likely a result of having many sellers in the market.

a. True

b. False

10. Brand names are rarely used to convey information about product quality.

a. True

b. False

11. Considering the graphs below, which of the following statements is correct?

a. Panel C represents the typical demand curve for a perfectly competitive industry.

b. Panel B represents the typical demand curve for a monopoly.

c. Panel B represents the typical demand curve for a perfectly competitive firm.

d. All of the choices apply.

12. In the case of oligopolistic markets, self-interest makes cooperation difficult and it often leads to an undesirable outcome for the firms that are involved.

a. True

b. False

13. The social cost of a monopoly is equal to its:

a. economic profit.

b. fixed cost.

c. dead weight loss.

d. variable cost.

14. The best solution to the problem of welfare loss from monopoly is public ownership.

a. True

b. False

15. As the number of firms in an oligopoly market:

a. decreases, the price charged by firms likely decreases.

b. decreases, the market approaches the competitive market outcome.

c. increases, the market approaches the competitive market outcome.

d. increases, the market approaches the monopoly outcome.

16. If the output effect from increased production is larger than the price effect, then an oligopolist would increase production.

a. True

b. False

17. In a market that is characterized by imperfect competition:

a. firms are price takers.

b. there are always a large number of firms.

c. there are at least a few firms that compete with one another.

d. the actions of one firm in the market never have any impact on the other firms’ profits.

18. Economists John Kenneth Galbraith and Friedrich Hayek disagreed about the roles of advertising and government. Which of the following is correct?

a. Galbraith thought advertising artificially enhanced consumers’ desires for private goods, while Hayek thought no producer could “determine” consumers’ tastes though advertising.

b. Galbraith believed in enhancing personal freedoms, while Hayek advocated larger government.

c. Galbraith thought advertising was a waste of resources because it did not influence consumers, while Hayek thought advertising was powerful enough to “determine” consumers’ tastes.

d. Galbraith believed that the government should not interfere in markets, while Hayek believed that there was insufficient government regulation of marketing.

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19.

Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe drinking water. Each week Rochelle and Alec work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Rochelle and Alec can pump as much water as they want without cost so that the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, what price will they charge?

a. $25

b. $30

c. $35

d. $40

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20. A profit-maximizing firm in a monopolistically competitive market can earn positive, negative, or zero profits in the short run.

a. True

b. False