Test Bank Answers Ch.6 Market Structure 7th Edition - Test Bank | Managerial Economics and Organizational Architecture 7th Edition by James Brickley. DOCX document preview.
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1) There are four structural components to a perfectly competitive market. Which one of the four components is the most important to market operation and why?
2) In this chapter, the discussion on competitive markets tells us that each firm's demand curve is horizontal. Is this not inconsistent with the industry's demand curve, which slopes downward?
3) Why would precommitment contracts, licenses, learning curve effects, and brand advantages protect an established corporation from new competitors?
4) Manifold Manufacturing, a large producer of motorcycle parts, is accused of monopolizing the market for a particular motorcycle part. Why would its legal defense team be so interested in a statistical estimate that the price elasticity of demand for its motorcycle part was 0.62?
5) Always Round Tire is the only producer of tires for the new British import, the Maxi Copper. Demand for a set of four tires is P = 800 - 5Q while the cost incurred by the firm is MC = 15Q. What would be the monopoly price and quantity? What would happen to price and quantity if the market was perfectly competitive (assuming the same costs)?
6) A monopoly's demand curve is P = 200 – 3Q and its MC = $20. How many customers should this company serve? What is the price paid by each customer? What will be the company’s gross revenue in this venture?
7) The market environment heavily influences corporate decision-making ability. Discuss the differences in executive decisions concerning pricing, product design, and advertising between a company that exists in a perfectly competitive market and a company in a monopolistically competitive market.
8) An industry demand curve faced by firms in a duopoly is P = 69 - Q, where Q = Q 1 + Q 2. MC for each firm is 0. How many units should each firm produce? How much money will each firm make?
9) Explain why OPEC cannot always maintain a high price of oil by restricting production?
10) Recently American Airlines started charging $15 for each checked baggage. Why did the company not charge $15 to $20 more per ticket and quietly avoid this publicity?
11) Economists focus on structural aspects of market organization. Which of the following is one of those structural aspects?
A) the small number of buyers and sellers
B) product differentiation
C) the quality of market information at high cost
D) the free entry into and exit from the market conditions
12) While very few markets are “purely competitive” according to the strict economics definition, market analysts often use competition as
A) the benchmark from which to judge other market settings.
B) the standard of an inefficient market structure.
C) an example of a market with poor entry and exit conditions.
D) an example of a market with asymmetric information.
13) In a purely competitive market, a company views its demand curve as
A) completely price insensitive.
B) horizontal (flat).
C) vertical.
D) convex.
14) In a perfectly competitive market, the price faced by a firm is equal to its
A) average variable cost.
B) marginal revenue and average revenue.
C) total cost.
D) average revenue.
15) For a perfectly or purely competitive firm, profit maximization occurs at an output level where
A) MR = MC.
B) MC = ATC.
C) P = AVC.
D) P < AVC.
16) The shutdown condition—the point where the company finds it no longer viable to produce and sell a product—for a competitive firm, in the short run, is where price is
A) less than marginal revenue.
B) less than short-run average total cost.
C) greater than marginal revenue.
D) less than average variable cost.
17) The importance of the marginal cost curve of a company is that it is also the
A) supply curve for its product.
B) demand curve for its product.
C) average cost curve for its product.
D) marginal revenue curve for its product.
18) If a firm operating in a fairly competitive market earns a large economic profit, then, over time,
A) old firms will exit and prices will rise.
B) old firms will exit and prices will fall.
C) new firms will enter and prices will rise.
D) new firms will enter and prices will fall.
19) The market for microcomputers (PCs) is fairly competitive and the products are somewhat homogeneous. Over time, new firms have entered the market to make profit on new configurations of the microcomputer, and profits
A) have risen dramatically.
B) have stayed the same for most firms.
C) have become razor thin for many producers.
D) have not influenced the decisions of the firms.
20) If a competitive firm can sell its product at $1,600 per unit and the marginal cost of the product is MC = 1,100 + 2Q, then the firm will produce
A) 1,084 units.
B) 250 units.
C) 160 units.
D) 1,100 units.
21) Duds is a new laundry detergent trying to break into the market. What might be its big problem?
A) the cost it incurs in getting all its employees insured
B) entry costs in terms of getting shelf space in the retail stores
C) its employment policy
D) its outsourcing policy
22) Under which market structure is a firm's MR curve horizontal?
A) perfect competition
B) monopoly
C) monopolistic competition
D) oligopoly
23) A necessary condition for market power to exist for a particular company in a market is that
A) information must be understood by both buyers and sellers.
B) effective barriers to entry must exist.
C) the number of firms should be over 150.
D) consumers perceive all products as homogeneous.
24) Which of the following is the most important factor influencing the decision of a firm to enter a new market?
A) the effect of the firm’s entry on product prices
B) the effect of the firm’s entry on the interest rate
C) the prevailing tax rate
D) the type of government in power
25) Sometimes an old company in an industry can build a large plant that has lower cost per unit than a potential entrant (newcomer) can duplicate. This is an example of a market
A) weakness based on cost.
B) power based on scale economies.
C) power based on specific assets.
D) weakness based on reputation deficiency.
26) As a source of market power, a precommitment contract is an example of a(n)
A) newcomer advantage.
B) incumbent advantage.
C) incumbent reaction.
D) newcomer reaction.
27) Always Round Tire has been in the tire business since 1963. It has several plants with different levels of technology. Over the years, the company has worked with its employees to figure out how to produce a tire for less. This incumbent advantage the firm has over potential newcomers is the
A) result of scale economies.
B) impact of licenses and patents.
C) clear threat of using its excess capacity.
D) effect of its learning curve.
28) Firm A has been dealing in baby food products for the past 10 years and enjoys a good market share. Suppose a new firm enters the market to capitalize on the increasing demand for such products. However, the products of the new firm fail to attract customers. The failure of the new firm is due to
A) the pioneering brand advantage of the incumbent.
B) the learning curve effect.
C) scale economies.
D) the specific assets owned by the incumbent.
29) A new entrant can deter the brand advantage enjoyed by an existing firm by
A) offering their product at a comparatively lower price.
B) getting licenses and patents for their products.
C) offering government certified products.
D) investing in specific assets.
30) A monopolist's demand curve is P = 10 - 2Q. Thus, the MR is
A) 5 - 2Q.
B) 10 – Q.
C) 10 – 4Q.
D) 5 – Q.
31) For any company operating in a marketplace, the firm attempts to maximize the value of the company's worth by setting the output where
A) costs are lowest.
B) P < AVC.
C) MR = MC.
D) AR = MC.
32) If a firm with monopoly pricing power in the market faces a demand curve of P = 2,000 - 2Q and marginal cost of MC = 1,100 + 2Q, then the firm will produce
A) 542 units.
B) 150 units.
C) 200 units.
D) 900 units.
33) If a firm with monopoly pricing power in the market faces a demand curve of P = 2,000 - 2Q and marginal cost of MC = 1,100 + 2Q, then the firm will produce at a price of
A) $16.
B) $1,400.
C) $1,700.
D) $1,600.
34) Under monopoly, there are
A) unexploited gains from trade.
B) many competitors.
C) advantages of heterogeneous products.
D) problems of easy entry.
35) Under monopoly we have "unexploited gains from trade" because
A) if the firm were competitive it would have increased output in the long run.
B) if the firm were competitive it would have decreased output in the long run.
C) if the firm were competitive it would have not changed output in the long run.
D) the FCC is always trying to regulate it.
36) Under what market structure do we have only one firm?
A) perfect competition
B) monopoly
C) monopolistic competition
D) oligopoly
37) Currently, a monopolist's MR = $5 and its MC = $10 and it serves 10 consumers. An 11 th consumer walks in. Should the company provide service to the additional customer?
A) Yes, MC is equal to the number of customers, so it should provide service to the additional customer.
B) Yes, MR < MC, so it should provide service to the additional customer.
C) No, MR is less than the number of customers, so it should not provide service to the additional customer.
D) No, MR < MC, so it should not provide service to the additional customer.
38) Currently, a monopolist's MR = $10 and its MC = $5 and it serves 10 consumers. An 11 th consumer walks in. Should the company provide service to the additional customer?
A) Yes, MR > MC, so it should provide service to the additional customer.
B) Yes, MR is equal to the number of customers, so it should provide service to the additional customer.
C) No, MR > MC, so it should not provide service to the additional customer.
D) No, MC is less than the number of customers, so it should not provide service to the additional customer.
39) The monopolist earns a profit equal to
A) $330.
B) $550.
C) $300.
D) $220.
40) The area RSTU represents
A) economic surplus.
B) the profit earned by the monopolist.
C) the loss incurred by the monopolist.
D) deadweight loss.
41) Elmer's Glue has captured the market for school glue. It is preferred by both students and parents alike. It takes very little capitalization to enter the market, but nobody succeeds in doing so. The glue clearly needs no patents or secret formulas. This type of market is called a(n)
A) pure or perfect competition.
B) oligopoly.
C) monopolistic competition.
D) monopoly.
42) In a monopolistically competitive market, the seller maximizes profits by
A) setting P = ATC.
B) setting MC = ATC.
C) setting price where MR = MC.
D) setting price where P = MC.
43) In a monopolistically competitive market, the advantage that a seller has over competitors or newcomers is
A) the consumer preference for its brand.
B) the high price elasticity of demand for its product.
C) the high price elasticity of supply for its product.
D) the licenses or patents it has received.
44) Under what market structure do we have products like toothpaste, airlines, fast food, and shampoos?
A) perfect competition
B) monopoly
C) monopolistic competition
D) oligopoly
45) A market where a few firms produce most of the output is called a(n)
A) oligopolistic market.
B) monopolistically competitive market.
C) perfectly competitive market.
D) monopolistic market.
46) In a Nash equilibrium, firms are clearly strategically interdependent, and
A) they cooperate with each other to determine market outcomes.
B) they determine price in a closed auction bid system.
C) they are dependent on differentiated goods.
D) they are noncooperative in determining market outcomes.
47) The Nash equilibrium for the market is
A) Fly Air—full service, Hi Air—full service.
B) Fly Air—no frills, Hi Air—no frills.
C) Fly Air—full service, Hi Air—no frills.
D) Fly Air—no frills, Hi Air—full service.
48) In the Cournot equilibrium, each firm assumes that the other's ________ is/are being held constant.
A) price
B) costs
C) output or sales
D) marketing strategy
49) In the Cournot equilibrium, the price that each firm accepts is
A) slightly higher than the monopoly price, but lower than the competitive price.
B) the same as the monopoly price.
C) lower than the monopoly price, but higher than the competitive price.
D) the same as the competitive price.
50) The prisoner's dilemma and the problem of the cartel are very similar. In both cases,
A) cooperation would improve the outcome, but it rarely happens.
B) cooperation is the only solution.
C) noncooperation would improve the outcome, but it rarely happens.
D) noncooperation is an instable solution.
51) The problem of the cartel points out that
A) the interests of consumers and duopolists are the same.
B) the interests of consumers and duopolists conflict.
C) the interests of consumers and duopolists are the same in pricing, but conflict in output management.
D) the interests of consumers and duopolists are the same in output management, but conflict in pricing.
52) Suppose two firms agree to set a single high price for their products and reap high profits. What is a potential problem here?
A) One firm is afraid that its profit might fall drastically since it might secretly cut price.
B) One firm is afraid that its profit might fall drastically since the other might secretly cut price.
C) One firm is afraid that its profit might fall drastically since the other might raise price.
D) One firm is afraid that its profit might fall drastically since oil prices may go up.
53) Under what market structure do we have strategic thinking?
A) perfect competition
B) monopoly
C) monopolistic competition
D) oligopoly
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Test Bank | Managerial Economics and Organizational Architecture 7th Edition
By James Brickley