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A) oranges B) soft drinks C) automobiles D) nuclear power plants 2. An industry that consists of two firms is: A) a duopoly. B) a monopoly. C) a monopsony. D) monopolistic competition. 3. The two theoretical extremes of the market structure spectrum are occupied on one end by perfect competition and on the other end by: A) monopoly. B) duopoly. C) oligopoly. D) monopolistic competition. 4. A monopolistically competitive industry such as baked goods and a perfectly competitive industry like wheat farming are alike in that: A) firms in both types of industries produce identical products. B) firms in both types of industries produce similar but not identical products. C) barriers to entry in both industries are large. D) there are many firms in each industry. 5. Market power in the United States was often gained in the latter part of the nineteenth century by: A) forming trusts. B) the growth of competition. C) international arrangements with Russian and Japanese firms. D) opening up more industries to international trade. 6. One of the earliest actions of antitrust policy was the breakup of: A) the Standard Oil Company. B) Bell Telephone. C) Microsoft. D) IBM. 7. Because of monopoly, consumers typically have: A) more choices. B) larger quantities. C) higher quality. D) higher prices. 8. Which of the following describes a feature shared by both monopolistic competition and perfect competition? A) small number of firms competing in the industry B) no barriers to entry or exit in the long run C) absolute market power D) standardized products
9. In an oligopoly: A) there are many sellers. B) there are no barriers to entry. C) firms recognize their interdependence. D) total surplus is maximized. 10. Monopolistic competition is an industry characterized by: A) a product with no close substitutes. B) a horizontal demand curve. C) a large number of firms. D) barriers to entry and exit. 11. The airline industry often engages in Bertrand behavior. This means that firms often ________ prices until profits ________. A) raise; are maximized B) lower; are maximized C) lower; approach zero D) raise; approach zero 12. Which of the following is not a barrier to entry? A) control of an input essential for production B) government-created barriers such as patents C) a ban on certain kinds of advertising D) the existence of significant economies of scale 13. If the only two firms in an industry openly agree to fix the price or output level, then this is an example of: A) cartel behavior. B) price leadership. C) perfect competition. D) tacit collusion. 14. If a monopolist is producing a quantity that generates MC > MR, then profit: A) is maximized. B) is maximized only if MC = P. C) can be increased by increasing production. D) can be increased by decreasing production. 15. A demand curve that is downward-sloping will ensure that: A) P = ATC. B) P > MR. C) P < MC. D) P = MC. 16. Non-price competition is more prevalent in an oligopoly in which there is (are): A) a Nash equilibrium. B) complex products. C) tacit collusion. D) no product differentiations. 17. In monopolistic competition: A) firms advertise to increase demand for their product. B) entry of new firms shifts the demand curve for existing firms to the right. C) when some firms exit, the demand curve for the firms that remain in the industry shifts to the left. D) firms earn large economic profits in the long run.
18. The owners of gas stations in Bigtown are trying to set up a cartel that will raise the price of gasoline. Which of the following would indicate ìcheatingî? A) All Bigtown gas stations face the same costs. B) There are only a few gas stations in Bigtown. C) One firm decides to increase output beyond the agreed levels. D) The stations vary in terms of the services that they provide. Use the following to answer question 19: Table: Demand for Wooden Stakes
19. (Table: Demand for Wooden Stakes) The table shows the demand for wooden stakes in the town of Sunnyvale. Suppose the marginal cost of producing stakes is zero. The only two firms producing wooden stakes, Spike Inc. and Buffy Co., agree to produce only 50 stakes, with each firm producing only 25. What is Buffy's quantity effect if she cheats on the agreement and produces 30 stakes? A) $10 B) $45 C) $20 D) $9
Use the following to answer question 20: Figure: A Profit-Maximizing Monopoly Firm
20. (Figure: A Profit-Maximizing Monopoly Firm) This profit-maximizing monopoly firm's price per unit is: A) $20. B) $26. C) $29. D) $35. 21. Which of the following would make it difficult for Georgia peach suppliers to collude? A) There are only a few suppliers. B) Each supplier has the same costs. C) Buyers of peaches have a great deal of bargaining power, since peaches are homogeneous. D) There are only a few buyers of peaches. 22. Which of the following is not a reason that oligopolies find it difficult to charge monopoly prices? A) a large number of firms in the industry B) buyers' bargaining power C) differing perceptions on profit levels D) a desire to be fair 23. Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary and Frank decide to form a cartel. Later, Gary summarizes his pricing strategy as, ìI'll cheat on the cartel because regardless of what Frank does; cheating gives me the best payoff.î This is an example of: A) a dominant strategy. B) a tit-for-tat strategy. C) an irrational strategy. D) product differentiation.
24. Why do oligopolies find it difficult to charge monopoly prices? A) a large number of firms in the industry B) complex pricing systems C) buyers' bargaining power D) All are correct choices 25. Which of the following advertising slogans provides information to potential buyers? A) ìCoffee PalaceóStop and smell the coffee!î B) ìKaraoke Maker wants you to just sing it!î C) ìBee's Beachside Restaurant is the only restaurant on the beach for 50 miles.î D) ìThe Happy Hotel has a happy bed for you.î 26. When government engages in price regulation of a monopoly it is: A) letting the free market establish prices. B) allowing the firm to set its own price. C) taking public ownership of the monopoly. D) limiting the price that the firm can charge consumers. 27. In perfect competition, the firm produces the output such that ________, and in monopoly, the firm produces the output such that ________. A) P > MR = MC; P = MR = MC B) P = MR = MC; P < MR = MC C) P = MR = MC; P > MR = MC D) P = MR = MC; P = MR = MC 28. Competition under monopolistic competition means that each firm: A) charges slightly different prices. B) has a pure monopoly. C) maximizes profit where MC = P. D) faces a horizontal demand curve. 29. Suppose a monopoly is producing the level of output where marginal revenue equals marginal cost. If the monopolist reduces output, it: A) can charge a higher price. B) will increase profits. C) will decrease marginal revenue. D) can charge a higher price and it will increase profits. 30. In 1999, a judge declared that Microsoft was a monopolist. Assuming that it is maximizing its profits at its current level of output, we may conclude that if Microsoft were to increase its price, its total revenue would: A) rise. B) fall. C) remain unchanged. D) There is insufficient information to make a determination.
Use the following to answer question 31: Table: Demand for Crude Oil
31. (Table: Demand for Crude Oil) The table shows the demand schedule for crude oil. For simplicity, assume that the cost of producing crude oil is zeroóthe marginal cost of crude oil equals zero. Suppose the crude oil industry is a duopoly and the two firms collude to share the market equally. The two firms are owned by Laverne and Shirley, respectively. In this case, the price of crude oil will be ________, Laverne will produce ________ barrels, Shirley will produce ________barrels, and both Laverne and Shirley will earn economic profits equal to ________. A) $80; 80; $6,400 B) $80; 40; $3,200 C) $60; 50; $3,000 D) $40; 60; $2,400
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. B A A D A A D B C C C C A D B C A C B C C D A D C D C A A B B
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