Chapter 11 Flashcards
Which of the following market structures are NOT included in the term imperfect competition?
Monopoly
Perfect competition
What is the market structure where producers are identifiable and they have some control over price?
Imperfect competition
Which of the following are ways a firm might try to differentiate its product?
a distinctive logo
advertising
Which of the following is an example of a brand logo which helps a company differentiate itself from others?
Nike’s swoosh
McDonald’s golden arches
In monopolistic competitive industries, small stores can sometimes compete with larger stores by _____.
having very convenient locations for customers.
What are the two kinds of imperfect competition?
Oligopoly
Monopolistic competition
What kind of market structure exists between perfect competition and monopoly?
Imperfect competition
Product development helps companies differentiate their products.
True
Product differentiation is when the goods sold by the firms in an industry _____.
are seen to have different qualities.
Which of the following are possible ways that firms can communicate to customers that their products are better than others?
Billboards
Television commercials
Hand delivered flyers
True or false: The Nike “swoosh” is an example of a brand logo which helps the company to differentiate itself from others.
True
For a business to secure a convenient store location even if it means higher prices and less selection is a form of ____.
product differentiation
Critics of advertising suggest that if all advertising was eliminated, _____.
people would continue to purchase goods anyway and consumer spending would not be affected
Which of the following market structures are NOT included in the term imperfect competition?
Monopoly
Perfect competition
Critics of advertising see it as being a barrier to entry and that it encourages oligopolies to have _____ tendencies.
Monopoly
Which of the following is NOT an example of a product that differs in its physical attributes?
Storage devices with different prices.
In what way can customers be convinced that a company’s product is better than that of others?
Advertising
Under what circumstance might advertising lead to a reduction in the average cost of production?
If it leads to increased competition and greater customer awareness of prices.
If it expands production such that there are economies of scale
Which of the following are arguments that critics offer to suggest that advertising is wasteful?
Advertising is mostly aimed at persuasion and the benefits from one company’s ads are cancelled out by another company’s ads.
People would continue to purchase goods anyway and consumer spending would not be affected.
Which of the following are ways firms attempt to differentiate their products?
Developing an effective advertising strategy.
Developing a recognizable brand logo.
Engaging in product redevelopment.
Critics see advertising as a potential _____.
barrier to entry
Product ______ is a distinctive characteristic of ______ competition.
differentiation; monopolistic
Product development helps companies differentiate their products.
True
Which of the following is not a characteristic of oligopoly?
Firms have no control over their price.
Under what circumstance might advertising lead to a reduction in the average cost of production?
If it expands production such that there are economies of scale
The four-firm concentration ratio is the percentage ratio of the ______ (one word) of the four largest firms in an industry relative to total industry sales.
four-firm concentration ratio
Which of the following is NOT a way firms attempt to differentiate their products?
Lowering costs by avoiding advertising.
Which of the following best describes monopolistic competition?
A relatively large number of sellers producing differentiated products and in which entry or exit from the industry is quite easy.
A(n) (Enter one word) is a market dominated by a few large producers of an undifferentiated or differentiated product.
oligopoly
Suppose an industry has ten firms. Three of the firms produce 200 units of output each, one produces 150 units, two of the firms produce 75 units each, and four of the firms produce 25 units each. The four-firm concentration ratio for this industry equals ______%.
75
The four-firm concentration ratio is the percentage ratio of the _______ (one word) of the four largest firms in an industry relative to total industry sales.
Sales, output
Which two of the following industries would have high concentration ratios and are considered to be an oligopoly?
Automobile
Soft drink
Which two of the following industries would have low concentration ratios and be considered monopolistically competitive?
Travel agency
Real estate
An industry with a concentration ratio of 52% would be considered an oligopoly.
True
If the total supply in an industry would be affected by the exit of one firm, then that industry would be considered an oligopoly.
True
If the four largest firms in an industry produce 20, 10, 7, and 3 units of output, respectively, and total industry output is 100, then the four-firm concentration ratio equals __%.
40
Which two of the following industries would have high concentration ratios and are considered to be an oligopoly?
Airline
Oil refinery
In monopolistically competitive industries _____.
collusion is unlikely because there is a large number of firms.
Which two of the following industries would have low concentration ratios and are considered to be monopolistically competitive?
Travel agency
Real estate
At what per cent is the concentration ratio benchmark that separates monopolistically competitive markets from oligopolies?
40
Entry to and exit from monopolistically competitive industries is _____.
relatively easy
In some cases an industry could have several large firms and a number of small firms. In classifying this industry as being monopolistically competitive or an oligopoly, what question needs to be asked?
Would the total supply of this industry be seriously affected or not by the exit of the largest company?
Monopolistically competitive firms have _____ control over the price.
Some
A monopolistically competitive market has many _____ firms.
Small
What kind of products do monopolistically competitive firms produce?
Differentiated
Entry of new firms into monopolistically competitive industries is relatively easy because _____.
there are no significant barriers to entry.
Monopolistically competitive firms typically have a relatively ______ share of the market and consequently ______ control over market price.
small; limited
The demand curve for a monopolistically competitive firm is _____.
downward-sloping
The demand curves for firms in monopolistically competitive industries will become more elastic as _____.
the number of rivals increases and product differentiation grows weaker
Firms in monopolistic competition produce goods with _____.
slightly different characteristics
The graph of a monopolistically competitive firm’s cost curves resembles which of the other market structures?
An oligopoly
A monopoly
A natural monopoly
If producing is preferable to shutting down, a profit-seeking monopolistically competitive firm will produce up to the output at which _____.
MR = MC
Which of the following is a characteristic of a monopolistically competitive industry?
Many small firms
A monopolistically competitive firm’s demand curve is _____.
highly but not perfectly elastic
What will happen in the long run if monopolistically competitive firms make an economic profit?
New firms will enter the marketplace.
Demand for monopolistically competitive firms is _____.
less elastic than demand for firms in perfect competition due to some product differentiation
The graph of a monopolistically competitive firm is very similar to that of a perfectly competitive firm.
True false question.
False
How much will a profit-seeking monopolistically competitive firm produce if producing is preferable to shutting down?
Up to the output at which marginal revenue equals marginal cost
How is economic profit calculated?
By multiplying per-unit profit by the total quantity produced
What kind of profits will encourage new firms to enter a monopolistically competitive industry?
Economic
As new firms enter into the monopolistically competitive market, what will happen to the demand curve that an individual firm faces?
It shifts left and becomes more elastic.
What will happen to the price and quantity of a monopolistically competitive firm after new firms enter the market place?
Price and quantity will both decrease.
In the long run, a typical monopolistically competitive firm will make only _____ profits.
Normal
Product differentiation can help a monopolistic competitive firm make economic profit in the long run.
True
Economic profit for a monopolistically competitive firm can be calculated by multiplying the difference between _____ and average total cost by quantity.
Price
As new firms enter into the monopolistically competitive market, the demand curve that an individual firm faces will shift _____ and become _____.
left; flatter
As new firms enter the monopolistically competitive marketplace, demand will keep shifting left and become more elastic until it _____.
is tangent to the average total cost
Excess capacity can be graphically identified by the gap between _____.
actual output and economic capacity
A monopolistically competitive firm achieves productive efficiency in the long run
False
Monopolistically competitive firms do not achieve allocative efficiency because the ____they charge is higher than their marginal cost.
Price
What is the root of the excess capacity problem?
Product differentiation
When plant and equipment are underused because firms are producing an output which is less than economic capacity this is known as ______
excess capacity
Why are monopolistically competitive firms NOT productively efficient?
They have excess capacity.
Why do monopolistically competitive firms NOT achieve allocative efficiency?
They charge a price higher than marginal cost.
Which of the following industries is NOT likely to exhibit excess capacity in off-peak periods?
Oil refineries
A benefit of monopolistically competitive firms is related to _____.
product variety.
How can entry be blocked in a monopolistically competitive market?
By creating franchises.
A monopolistically competitive firm achieves productive efficiency in the long run
False
Which of the following industries is likely to exhibit excess capacity in off-peak periods?
Gas stations
Professional associations are one method of creating barriers to entry.
True
True or false: The government can NOT create barriers to entry in the marketplace.
False
Which of the following is an advantage to a franchise owner?
Bulk purchasing
How could the government create a barrier to entry in the taxi cab industry?
By restricting the number of licenses issued..
Which of the following are the benefits a firm might enjoy by becoming a franchise owner?
Bulk purchasing
Brand identification
National advertising
How can monopolistically competitive firms make an economic profit in the long run?
By successfully blocking the entry of new firms.
Professional associations try to create a perception that their members are ____ qualified which results in the demand for them to _____.
highly; increase
Which of the following are examples of oligopolies that produce a differentiated product?
household appliances
sporting goods
electronics equipment
How can monopolistically competitive firms make an economic profit in the long run?
By getting the government to create a barrier to entry.
By redefining their industry with product differentiation.
An example of an oligopoly that produces a standardized product is the market for ______.
Cement
Oligopolies have _____.
fewer firms than monopolistic competition
True or false: Firms in an oligopoly industry always produce an identical product.
False
True or false: The lumber industry is an example of a differentiated oligopoly.
False
Barriers to entry into an oligopoly are the same as those to ______
Monopoly
True or false: The steel industry is an example of an undifferentiated oligopoly.
True
Oligopolies will _____ in non-price competition.
usually engage
Firms in an oligopoly may produce _____.
either an identical product or a differentiated product.
Firms in oligopolistic industries are “price makers” because _____.
they are few in number
Which of the following are examples of oligopolies that produce a differentiated product?
sporting goods
household appliances
electronics equipment
When a firm’s actions is dependent on what others firms do, we call this _______
mutual interdependence
Which of the following are NOT barriers to entry?
diseconomies of scale
Which of the following exemplifies mutual interdependence?
Coca Cola introduces a new advertising campaign after Pepsi increases its number of television ads.
Which of the following is NOT a characteristic of an oligopoly industry?
It is dominated by many large firms.
A firm in an oligopolistic market _____.
can set its price to maximize profits
For oligopolies there is a struggle between ____ and ____.
cooperating; competing
What is it called when suppliers make an agreement to set the price of a product or the quantities each will produce?
Collusion
True or false: Colluding firms often cheat even though it is more profitable for them to stick with their agreement.
True
Which of the following exemplifies mutual interdependence?
Air Canada promotes a new seat sale after West Jest cuts its ticket prices.
The study of how one firm reacts to the actions taken by another firm or individual when implementing a strategy is called _____.
game theory
Which of the following led to the American auto industry becoming an oligopoly?
the mutual interdependence of each firm’s decision making
mergers to help gain economies of scale
entry barriers into the auto manufacturing industry
Which one of the following can be illustrated by a payoff matrix?
firms profit from alternative strategies.
It is beneficial for the firms in an oligopoly to cooperate.
True
_____ equilibrium is the situation where each rival firm chooses its own best action given the perceived actions of the other firm.
Nash
Which of the following is NOT one of the lessons learned from competition vs collusion in oligopolistic markets?
Government intervention is necessary in the marketplace.
Why would a firm cheat on a collusive agreement?
To increase its profit
Why are there multiple models of oligopoly in economics?
Mutual interdependence along with the temptation to cheat makes analysis complicated
What is the name for a collection of firms that jointly set prices or production levels?
A cartel
Which of the following is a good example of an open cartel?
OPEC
Which of the following are two of the lessons learned from competition v. collusion in oligopolistic markets?
There is an incentive to cheat on collusive agreements.
Monopoly-like profits can be obtained from collusion.
How is the restriction of oil output represented on a demand and supply graph?
A shift left of supply.
When OPEC restricts supply, revenues will decrease because oil is a product with an elastic demand.
False
In what ways could a collusive agreement divide up the market?
By dividing the market by territories.
By agreeing on output quotas
By agreeing on a list of clients
A ____ is an association of sellers acting in unison.
Cartel
In the 1980’s the supply of oil increased and the demand for oil decreased.
True
Cartels work to the advantage of members only if there is no _____ among the participants.
Cheating
When OPEC first restricted oil output, supply shifted _____ and the price rose significantly since the demand was _____
left; inelastic
True or false: When two rival firms agree to reduce the size of their advertising budgets the most likely outcome will be that both firms will spend more..
True
When OPEC restricted oil output, what happened to revenues?
They increased since demand was inelastic.
Which of the following describe the actions of the leader in a Price Leadership model?
Infrequent changing of prices.
Publicly announcing any change in price.
In the 1980s, high oil prices encouraged other countries to get into the market and at the same time people started buying more fuel efficient cars. These two thing led to a shift ____ of the supply curve and a shift _____ of the demand curve.
right; left
What is correct about the kinked-demand curve graphically?
The portion of the demand curve above the point of the kink is elastic.
The demand for a non-colluding oligopolist facing a kinked-demand curve is ______ above the going price.
Elastic
What explains why an oligopoly firm’s demand curve could be kinked?
Because its rivals will match any price decrease but ignore any price increase.
A type of implicit understanding used by oligopoly firms to coordinate prices without engaging in outright collusion is known as ______.
price leadership
In the _______ model of oligopoly, firms face two demand functions.
kinked-demand
The demand for a non-colluding oligopoly firm facing a kinked-demand curve is _____ below the going price.
Inelastic
A feature of oligopoly markets is that prices are very ____.
Stable
The kinked demand curve theory can explain how prevailing prices are determined.
False
Why do some commentators feel that monopolies are preferable to oligopolies?
Because it is easier for governments to regulate one firm rather than many firms
Which of the following best describes prices in a kinked demand industry?
They are quite stable.
Why are oligopoly firms more likely to fund research and development than are other smaller firms
Because barriers to entry can enable them to recover the cost of research.
Oligopolies, like monopolies do not achieve _____ efficiency.
allocative
productive
Which two of the following are the arguments against the idea that oligopolies are at the leading edge of research and development?
Since it creates a barrier to entry, oligopolies become greedy and complacent.
Oligopolies spend too much time and money on non price competition, such as advertising.
John Kenneth Galbraith postulated that ownership and management of large multinational companies have become divorced.
True
Which basic assumption of market structures did John Kenneth Galbraith challenge?
That firms operate only in a manner to maximize profits.
