Problem Set 5 (Chapters 16 & 17) Flashcards
Which of the following is true regarding advertising in a perfectly competitive market
a.a firm can benefit by advertising the benefits of their individual product
b.a firm can gain market power by advertising their product
c.the firms can benefit by collectively advertising their product at the market level
d.all of the above
C
A monopolistically competitive firm sells a ______ product
a.homogenous
b.differentiated
c.perfectly elastic
d.unprofitable
B
The 4 firm concentration ratio measures
a.the percentage of total output in a market supplied by the four largest firms
b.the percentage of market share of the top firm in a market versus the next three largest firms
c.the profit level of the four firms with highest profit in an industry
d.the degree of advertising spent by the four largest firms in the industry
A
If the cereal market has a 4 firm concentration ratio of 36%, one would conclude it is most likely which type of market structure?
a.monopoly
b.oligopoly
c.monopolistic competition
d.all of the above
C
Why would a firm brand its product?
a.to increase market power
b.to ensure a certain quality to the consumer
c.to increase demand for its product
d.all of the above
D
Which of the following conditions is true for a monopolistically competitive firm at its profit maximizing level of output?
a.P > MC
b.P < MC
c.P = MC
d.P < ATC
A
As more firms enter a monopolistically competitive market
a.profits increase
b.demand in the market will increase
c.demand for each firm in the market will decrease
d.all of the above
C
Which of the following is true about a cartel?
a.a cartel is an example of a Nash equilibrium
b.a cartel is a common form of industry structure found in the U.S.
c.a cartel maximizes the amount of profit in the industry
d.all of the above
C
If the firms in a market successfully organize a cartel, the amount of output produced in the market will be _____ the competitive level and _____ the monopoly level.
a.less than, more than
b.more than, less than
c.less than, equal to
d.equal to, more than
C
Antitrust laws aim to
a.facilitate cooperation among firms in oligopolistic industries
b.encourage mergers to take advantage of economies of scale
c.discourage firms from moving production facilities overseas
d.prevent firms from acting in ways that reduce competition
D
Which federal agency is charged with protecting consumers and promoting competition in markets?
a.Securities and Exchange Commission
b.Environmental Protection Agency
c.Central Intelligence Agency
d.Federal Trade Commission
D
The practice of requiring consumers to purchase two products bundled together is called
a.resale price maintenance
b.predatory pricing
c.tying
d.nashing
C
Requiring consumers to purchase a certain good bundled with the purchase another good could be considered illegal if
a.the firm earns positive economic profits from that sale
b.other firms are not able to sell their product because of the sale of the bundled product
c.consumers like one of the goods more than the other good within the bundle
d.a low income consumer doesn’t have enough money to buy both goods bundled together
B
Which of the following is true regarding the Nash equilibrium concept?
a.firms interacting with each other don’t trust each other
b.once competitors choose a mutual strategy, any change from that strategy will make one worse off
c.once competitors choose a mutual strategy, neither can gain by changing their strategy
d.all of the above
D
If American and United Airlines work together and both charge a high price for airline tickets, they both earn medium profits. If they both charge a low price, they both earn low profits. If one airline sells at a low price while the other sells at a high price, the low priced airline will have the majority of customers and earn a high profit while the high priced airline has few customers and very low profits. Below is a matrix showing the four different outcomes of profit per firm given the combined decisions of either a low or high price for each firm.
Given the matrix above, which combined pricing strategy is the Nash equilibrium and why?
a.where both airlines charge high prices since that is where they’ll both earn highest profits
b.where American charges a high price and United charges a low price because American stockholders can sell their stock and purchase stock in United
c.where American charges a low price and United charges a high price because United stockholders can sell their stock and purchase stock in American
d.where both airlines charge low prices since at this point neither firm can gain by changing their strategy.
D
