Economics Chapter 24 A—Price-Searcher Markets with High Entry Barriers
MULTIPLE CHOICE
1. When economists talk about a barrier to entry, they are referring to
a.
a factor that makes it difficult for potential competitors to enter a market.
b.
the opportunity cost of equity capital that is incurred by a firm producing at minimum total
cost.
c.
the downward-sloping portion of the long-run average total cost curve.
d.
the declining output experienced as additional units of a variable input are used with a
given amount of a fixed input.
2. A monopolist will maximize profits by
a.
setting the price at the level that will maximize per-unit profit.
b.
producing the output where marginal revenue equals total cost and charging a price along
the demand curve.
c.
selling at the price on the demand curve at the output rate where marginal revenue equals
marginal cost.
d.
producing at the output rate where price equals marginal cost.
3. Which one of the following is the best description of a monopolist?
a.
a firm that produces a single product
b.
a firm that is the sole producer of a narrowly defined product class, such as yellow,
grade-A butter produced in Wisconsin
c.
a firm that is the sole producer of a product for which there are no good substitutes in a
market with high barriers to entry
d.
a firm that is large relative to its competitors
4. Assuming that firms maximize profits, how will the price and output policy of an unregulated
monopolist compare with ideal market efficiency?
a.
The output of the monopolist will be too large and its price too high.
b.
The output of the monopolist will be too large and its price too low.
c.
The output of the monopolist will be too small and its price too high.
d.
The output of the monopolist will be too small and its price too low.
5. An oligopolistic market
a.
has a small number of rival firms, and each is large relative to the size of the market.
b.
is characterized by firms that merely take the price that is determined by the forces of
supply and demand in the market.
c.
has low entry barriers facing firms that may be interested in entering the market.
d.
has a large number of firms that are small relative to the size of the market.
6. Oligopolistic agreements on price tend to be unstable because
a.
although the monopoly price is the best price for all firms, oligopolists are unaware of this
and thus charge prices that are lower than the price that could be charged by a
monopolists, therefore, decreasing social welfare.
b.
although the monopoly price maximizes the joint profits of the firms, a secret price cut by
any individual firm will increase the profits of that firm; hence, collusive agreements tend
to break down.
c.
the demand for the products of oligopolistic industries is inherently unstable relative to the
demand for the products of non-oligopolistic industries because demand for products in
oligopolistic industries are dependent on changes in consumer tastes and preferences.
d.
firms in oligopolistic industries have more concern for consumers than do firms in
competitive industries.
7. The price charged by oligopolists will
a.
equal the equilibrium price in a price-takers market if the oligopolists collude.
b.
equal the monopoly price if the oligopolists do not collude.
c.
generally fall between the monopoly and competitive market equilibrium prices.
d.
be the same whether the oligopolists cooperate with one another or not; only profit is
affected.
8. When firms use resources in an attempt to secure and maintain grants of market protection from the
government, it is called
a.
rent-seeking.
b.
collusion.
c.
franchising.
d.
resource investment.
9. A monopolist has less to gain from cost-saving measures in the production process when
a.
the monopoly is unregulated.
b.
regulators use average cost pricing to set the monopolist’s price.
c.
the demand for the product of the monopolist is inelastic.
d.
changes in the regulated price occur only after considerable delay.
10. When natural monopoly is present in an industry, the per-unit costs of production will be
a.
lowest when there are a large number of producers in the industry.
b.
lowest when a single firm generates the entire output of the industry.
c.
lower for small firms than for large firms.
d.
minimized at the output that maximizes the industry’s profitability.
11. Which of the following factors is least likely to be a barrier limiting the entry of potential competitors
into a market?
a.
legally enforced patent rights
b.
an inelastic demand for a product
c.
licensing
d.
control over an essential resource
12. A law that requires hairdressers to undergo many hours of training and acquire a license before they
can offer haircuts to the public is an example of a
a.
positive externality.
b.
natural monopoly.
c.
barrier to entry.
d.
public good.
13. New York City limits the number of taxi cabs that can legally operate in the city. The most likely
result of this practice is that
a.
cab fares will be lower.
b.
cab fares will be higher.
c.
the cost of operating a taxicab will be lower.
d.
subway fares will decrease.
14. Which of the following is most likely to contribute to the presence of monopoly in an industry?
a.
economies of scale
b.
an elastic market demand for the product produced by the industry
c.
inefficiency due to bureaucratic decision-making procedures in the industry
d.
controlling over 50 percent of the market
15. A monopoly is most likely to emerge in a market when
a.
the producers in the market have U-shaped average total cost curves.
b.
the price elasticity of demand for the product is high.
c.
the cost of entry and exit into the market is low.
d.
economies of scale are large relative to market demand.
16. In some industries where firms experience declining average total costs over the full range of output
that consumers are willing to buy,
a.
a smaller firm will always have lower per-unit costs.
b.
many firms will tend to emerge from the competitive process.
c.
a single large firm will develop, and it will have cost advantages that protect it from
potential rivals.
d.
a single large firm will develop, and it will buy out any smaller rival firms to avoid the
small firms’ production at a lower per-unit cost.
17. Which of the following provides the most secure protection for a firm with monopoly power?
a.
quality advertising
b.
legal barriers restricting entry into the market of the monopolist
c.
predatory pricing
d.
limited economies of scale
18. The U.S. Postal Service has a monopoly on the delivery of first-class mail due to
a.
economies of scale.
b.
a lack of initiative on the part of competing firms.
c.
legal barriers limiting entry.
d.
control over an essential resource.
19. Patents grant their owners
a.
a property right to new products and production processes that they have developed.
b.
the exclusive right to use a newly developed process or product forever.
c.
the right to use resources owned by their competitors.
d.
an exemption from laws that prohibit price discrimination.
20. Economic analysis suggests that patent laws that can often be used to limit the entry of potential
competitors into an industry
a.
redistribute income from consumers to business decision makers without affecting the
allocation of resources.
b.
may be a source of business monopoly power, but they may also encourage innovation in
the long run.
c.
encourage product development and the adoption of cost-reducing technologies in the
short run but in the long run generally lead to business monopoly.
d.
help inventors at the expense of consumers in the long run.
21. One of the effects of patents is to
a.
reduce incentives for innovation.
b.
give firms incentives to worry less about minimizing production costs.
c.
temporarily provide the patent owner with monopoly power.
d.
reduce the degree of monopoly power in the short run.
22. When a single firm has control over the market supply of a resource that is essential to the production
of a good,
a.
economies of scale are usually important.
b.
monopoly is frequently the result.
c.
diseconomies of scale are the usual cause.
d.
competition for the resource makes monopoly almost impossible
23. If a local ready-mix cement company is the only producer of cement in the local market, the monopoly
power of the firm will
a.
be small if entry barriers into the local market are high.
b.
depend on how many other sellers of similar products there are in the national market.
c.
be total since there are not any other sellers of the same product in the local market.
d.
be minimal if the entry barriers restricting competition from other firms are low.
24. Which of the following constitutes a barrier limiting the entry of potential competitors into a market?
a.
diseconomies of scale
b.
an elastic market demand for the product produced by the industry
c.
control over an essential resource
d.
a perfectly elastic demand curve
25. Which of the following explains why monopoly is uncommon in the real world?
a.
firms usually face downward-sloping demand curves.
b.
supply curves slope upward.
c.
price is usually set equal to marginal cost by firms.
d.
there are reasonable substitutes for most goods.
26. The key element in preserving a monopoly is
a.
government subsidy of critical enterprises.
b.
keeping potential rivals out of the market.
c.
guaranteeing availability of substitute products.
d.
increased advertising expenditure.
27. At a given output level, a monopolist earns a profit only if the
a.
slope of its TR curve exceeds the slope of his TC curve.
b.
height of its MR curve exceeds the height of his MC curve.
c.
height of its demand curve exceeds the height of his MR curve.
d.
height of its demand curve exceeds the height of his ATC curve.
28. At his current level of output, a monopolist has an MR of $10, an MC of $6, and an economic profit of
zero. If the market demand curve is downward sloping and his marginal cost curve upward sloping, the
monopolist
a.
is producing his profit-maximizing level of output.
b.
could increase his profit by increasing his output.
c.
could increase his profit by increasing his price.
d.
should exit the market if he has positive fixed cost.
29. Which of the following accurately describes a major difference between a monopolist and firms in
competitive price-searcher markets?
a.
A monopolist will maximize profit, while firms in competitive price-searcher markets will
maximize sales.
b.
A monopolist may be able to earn long-run economic profit, but firms in competitive
price-searcher markets will not be able to do so.
c.
A monopolist will charge a price that is greater than its marginal cost, but competitive
price searchers will charge prices that are just equal to their marginal cost.
d.
A monopolist will charge a price that is just equal to its marginal cost, but competitive
price searchers will charge prices that are greater than their marginal cost.
30. Which of the following indicates the major difference between monopolists and competitive price
searchers?
a.
Monopolists will always be able to make economic profit; competitive price searchers will
not.
b.
Barriers to entry are high under monopoly but low in competitive price-searcher markets.
c.
Monopolists will face a downward-sloping demand curve; competitive price searchers will
not.
d.
Unregulated monopolists will charge prices that exceed marginal cost; competitive price
searchers will not.
31. A firm that is a “pure monopoly” is
a.
a seller of a highly advertised and differentiated product in a market with low barriers to
entry in the long run.
b.
the only seller of a good for which there are no good substitutes in a market with high
barriers to entry.
c.
the only buyer of a unique raw material.
d.
the producer of a product subsidized by the government.
32. The demand curve of a monopolist is
a.
identical to the marginal cost curve.
b.
downward sloping and above the marginal revenue curve.
c.
downward sloping and below the marginal revenue.
d.
elastic because of a recognized interdependence with other firms.
33. Which of the following best explains why the monopolist’s marginal revenue is less than the sales
price?
a.
To sell more units, the monopolist must reduce price on all units sold.
b.
As the monopolist expands output, the average total cost will decline.
c.
The monopolist charges each consumer the highest possible price.
d.
When a firm has a monopoly, consumers have no choice other than to pay the price set by
the monopolist.
34. Graphically, the marginal revenue curve of a monopolist
a.
will sometimes lie below the demand curve of the monopolist.
b.
will always lie below the demand curve of the monopolist.
c.
is the same as the demand curve of the monopolist.
d.
will equal −1 when the elasticity of demand is unitary.
35. A profit-maximizing monopolist will continue expanding output as long as
a.
marginal revenue exceeds marginal cost.
b.
marginal revenue is positive.
c.
the cost of producing an additional unit exceeds the marginal revenue derived from the
unit.
d.
economic profit is more than zero.
36. At the long-run equilibrium level of output, the monopolist’s marginal cost will
a.
exceed price.
b.
equal price.
c.
be less than price.
d.
be less than marginal revenue.
37. When a monopolist is producing at the profit-maximizing output level, the value to consumers of one
additional unit of output will
a.
exceed the monopolist’s marginal cost.
b.
equal the monopolist’s marginal cost.
c.
be less than the monopolist’s marginal cost.
d.
exceed the price of the additional unit.
38. If marginal cost exceeds marginal revenue, a profit-maximizing monopolist will
a.
restrict output to increase the price even higher.
b.
raise price and expand output to increase profit.
c.
lower price and expand output to increase profit.
d.
attempt to maintain this position because it is consistent with profit maximization.
39. If marginal revenue exceeds marginal cost, a profit-maximizing monopolist will
a.
raise price and decrease output.
b.
lower price and increase output.
c.
reduce both output and price.
d.
hold output constant and raise price.
40. A monopolist will earn economic profits as long as his price exceeds
a.
marginal revenue.
b.
average fixed cost.
c.
average variable cost.
d.
average total cost.
41. If the average total cost curve is always above the demand curve of a monopolist,
a.
the profits of the monopolist will be large.
b.
the monopolist must be producing inefficiently.
c.
even a monopolist will suffer economic losses.
d.
entry will occur, forcing the monopolist to reduce price and expand output.
42. When a monopolist is maximizing profit, which of the following conditions will always be satisfied?
a.
P = MC
b.
MR = AVC
c.
P = ATC
d.
MR = MC
43. A monopolist will maximize profits by
a.
setting his price as high as possible.
b.
setting his price at the level that will maximize per-unit profit.
c.
producing the output where marginal revenue equals marginal cost.
d.
producing the output where price equals marginal cost.
Consider the following demand and cost information for a monopoly.
Table 11-1
Quantity
Price
Total Cost
1
$30
$3
2
$25
$7
3
$20
$12
4
$15
$18
5
$10
$25
44. Refer to Table 11-1. The marginal revenue of the second unit is
a.
$10
b.
$15
c.
$20
d.
$25
45. Refer to Table 11-1. The marginal cost of the fourth unit is
a.
$7.
b.
$12.
c.
$25.
d.
$60.
46. Refer to Table 11-1. The maximum profit this monopolist can earn is
a.
$5.
b.
$15.
c.
$16
d.
$28
47. Refer to Table 11-1. To maximize profit, the monopolist sets price at
a.
$10
b.
$15
c.
$20
d.
$25
48. Which of the following is true of marginal revenue for a monopolist that charges a single price?
a.
P = MR because there are no close substitutes for the monopolist’s product.
b.
P > MR because the monopolist must decrease price on all units sold in order to sell an
additional unit.
c.
P < MR because the monopolist must decrease price on all units sold in order to sell an
additional unit.
d.
P = MR only at the profit-maximizing quantity.
49. A monopolist earning short-run economic profit determines that at its present level of output, marginal
revenue is $23 and marginal cost is $30. Which of the following should the firm do to increase profit?
a.
Raise price and lower output.
b.
Lower price and lower output.
c.
Raise price and raise output.
d.
Lower price and raise output.
e.
Lower output but leave price unchanged.
50. For a monopolist that does not price discriminate, economic profit is maximized in the short run at a
price of $140. Marginal revenue at that output level is
a.
equal to $140.
b.
greater than $140.
c.
less than $140.
d.
less than marginal cost.
e.
greater than average revenue.
51. A profit-maximizing monopolist that produces in the short run will
a.
produce the level of output where marginal revenue exceeds marginal cost by the largest
amount.
b.
increase output as long as the marginal revenue exceeds the marginal cost of producing
that unit.
c.
produce the level of output where average total cost is at a minimum.
d.
increase price as long as the average revenue exceeds the average total cost.
e.
produce the level of output where average revenue exceeds average total cost by the
largest amount.
52. In the short run, how will a profit-maximizing monopolist react if its marginal cost suddenly
increases? It will
a.
lower price to expand revenue possibilities.
b.
reduce output and raise price.
c.
maintain the current price if profit is still positive.
d.
increase plant size to lower marginal cost.
e.
decrease plant size to lower marginal cost.
53. What should a profit maximizing monopolist do if she is currently producing where MC < MR?
a.
Increase output until MC = MR.
b.
Decrease output until MC = MR.
c.
Shut down in the long run.
d.
Keep producing at this level.
e.
Operate only in the short run.
54. Assuming that firms maximize profits, how will the price and output policy of an unregulated
monopolist compare with ideal market efficiency?
a.
The output of the monopolist will be too large and the price too high.
b.
The output of the monopolist will be too small and the price too low.
c.
The output of the monopolist will be too small and the price too high.
d.
The price will be too high, but the impact of monopoly on the output is indeterminate.
55. Which of the following best explains why economists are generally critical of unregulated
monopolists?
a.
Monopolists do not try to minimize their costs of production.
b.
Monopolists produce where marginal revenue is greater than marginal costs.
c.
Monopolists attempt to produce too many products, and as a result, their prices are high,
and consumers waste time trying to choose between too many options.
d.
Monopolists restrict output, and as a result, they fail to produce units that are valued more
than the marginal cost of producing them.
56. When entry barriers into a market are high,
a.
a monopolist will always be able to make an economic profit.
b.
rival firms will enter and drive price down to the level of per-unit costs if the firms in the
market are making economic profit.
c.
entry into the market will not take place, at least not quickly, even if the firms currently in
the market are making economic profits.
d.
the producers in the market will have little or no incentive to produce efficiently (at a low
cost).
Use the table to answer the following question.
Table 11-2
Price
Units of Output
Total Cost
(dollars)
(quantity demanded)
(dollars)
10
200
2,000
9
260
2,275
8
325
2,550
7
405
2,825
6
480
3,100
57. The demand and total cost schedules of a monopolist are presented in Table 11-2. What price should a
profit-maximizing monopolist charge?
a.
$10
b.
$9
c.
$8
d.
$7
Use the table to answer the following question.
Table 11-3
Price
Units of Output
Total Cost
(dollars)
(quantity demanded)
(dollars)
10
200
2,000
9
250
2,275
8
325
2,550
7
405
2,825
6
480
3,100
58. The demand and total cost schedules of a monopolist are presented in Table 11-3. What price should a
profit-maximizing monopolist charge?
a.
$10
b.
$9
c.
$8
d.
$7
59. A monopolist finds out that if he lowers his price from $10 to $8, sales rise from 100 units to 115
units. Therefore, in this price range,
a.
marginal revenue is positive.
b.
marginal revenue is negative.
c.
the price elasticity of demand is greater than one.
d.
both a and c are correct.
60. Suppose a monopolist and a competitive price-taker firm have the same cost curves. The monopoly
firm would
a.
charge a lower price than the competitive price-taker firm.
b.
charge a higher price than the competitive price-taker firm.
c.
charge the same price as the competitive price-taker firm.
d.
refuse to operate in the short run unless an economic profit could be made.
e.
refuse to operate in the short run if an economic loss was present.
61. If pizza used to be produced in a competitive price-taker market, and now the pizza market has become
a monopoly, we can expect
a.
less pizza to be sold at a higher price.
b.
more pizza to be sold at a higher price.
c.
less pizza to be sold at a lower price.
d.
more pizza to be sold at a lower price.
e.
the same amount of pizza to be sold at the same price.
62. A market situation where a small number of sellers compose the entire industry is called
a.
monopolistic competition.
b.
monopsony.
c.
monopoly.
d.
oligopoly.
63. Under which one of the following market structures are sellers most likely to consider the reaction of
rival sellers when they set the price of their product?
a.
price-taker firms
b.
pure monopoly
c.
price searchers with low entry barriers
d.
oligopoly
64. Which of the following is a unique characteristic of the oligopolistic market structure?
a.
low barriers to entry
b.
a large number of firms producing highly differentiated products that are complements to
each other
c.
product differentiation among the products produced by individual firms
d.
mutual interdependence among firms in demand, and thus, in price decisions
65. If mutual interdependence among firms is present, each profit-maximizing firm in the market
a.
produces a product that must be identical to the products of its rivals.
b.
must consider the reactions of its rivals when it determines its price policy.
c.
faces a perfectly elastic demand curve for its product.
d.
faces a perfectly inelastic demand curve for its product.
66. One key characteristic that is distinctive of an oligopoly market is that
a.
the demand curve facing each firm is downward sloping, with a marginal revenue curve
that lies below the firm’s demand curve.
b.
the decisions of one seller often influence the price of products, the output, and the profits
of rival firms.
c.
there is only one firm that produces a product for which there are no good substitutes.
d.
there are many sellers in the market and each is small relative to the total market.
67. Why do oligopolists (or cartel members) have an incentive to cheat on collusive agreements designed
to maximize the joint profits of the firms in the industry?
a.
Individual firms could gain if they charged a price greater than the industry’s
profit-maximizing price.
b.
The industry demand curve is more elastic than the demand curve confronting each of the
firms in the industry.
c.
The firms would like to see the industry produce a larger output and charge a lower price.
d.
The demand curve confronting the individual firms is more elastic than the market demand
curve for the product.
68. In markets characterized by oligopoly,
a.
the oligopolists earn the highest profit when they cooperate and behave like a monopolist.
b.
collusive agreements will always prevail.
c.
collective profits are always lower with cartel arrangements than they are without cartel
arrangements.
d.
pursuit of self-interest by profit-maximizing firms always maximizes collective profits in
the market.
69. As a group, oligopolists would always earn the highest profit if they would
a.
produce the competitive quantity of output.
b.
produce more than the competitive quantity of output.
c.
charge the same price that a monopolist would charge if the market were a monopoly.
d.
operate according to their own individual self-interests.
70. Because each oligopolist cares about its own profit rather than the collective profit of all the
oligopolists together,
a.
they are unable to maintain the same degree of monopoly power achieved by a
monopolist.
b.
each firm’s profit always ends up being zero.
c.
competitive pressures are absent from the market.
d.
it will be easier to maintain collusive agreements.
71. Suppose a market is initially competitive with many firms selling an identical product. Over time,
however, suppose the merging of firms results in the market being served by only three or four firms
selling this same product. As a result, we would expect
a.
an increase in market output and an increase in the price of the product.
b.
an increase in market output and an decrease in the price of the product.
c.
a decrease in market output and an increase in the price of the product.
d.
a decrease in market output and a decrease in the price of the product.
72. Cartels are difficult to maintain because
a.
antitrust laws are difficult to enforce.
b.
cartel agreements are conducive to monopoly outcomes.
c.
there is always tension between cooperation and self-interest in a cartel.
d.
firms pay little attention to the decision made by other firms.
73. Oligopolies would like to act like a
a.
duopoly, but self-interest often drives them closer to the competitive outcome.
b.
competitive firm, but self-interest often drives them closer to the duopoly outcome.
c.
monopoly, but self-interest often drives them closer to the duopoly outcome.
d.
monopoly, but self-interest often drives them closer to the competitive outcome.
74. Why is it difficult for economists to predict the price and output policy that will emerge in
oligopolistic markets?
a.
Economists cannot determine if barriers to entry exist in a market.
b.
Economists cannot predict the reactions that firms will have to the actions and decisions of
other firms.
c.
The government prevents economists from acquiring the information that would lead to
good predictions.
d.
Firms have a set price and output policy, but the policy is concealed to discourage
competition.
75. If the firms in an oligopolistic industry can collude effectively (from the firms’ viewpoints), the
resulting price and output in the market will be most similar to that of
a.
a competitive price-searcher market.
b.
pure monopoly.
c.
bilateral monopoly.
d.
a competitive price-taker market.
76. An organization of sellers designed to coordinate their supply decisions to maximize joint profits is
called a
a.
consumer cooperative.
b.
marketing association.
c.
regulatory agency.
d.
cartel.
77. It is difficult to predict the behavior of oligopolistic firms because
a.
there are few real-world examples of oligopolies for economists to study.
b.
oligopolists make decisions independently of each other.
c.
firms in oligopolistic industries react to each other’s behavior in many ways.
d.
economists have paid little attention to the topic in recent years and so have not yet
applied to it the techniques of modern economic theory.
78. The difficulty in analyzing oligopolistic behavior arises from the
a.
degree of government regulation of the market structure.
b.
interdependent nature of oligopolistic decisions.
c.
large number of firms in the industry.
d.
market power of consumers.
79. Which of the following reflects the incentive structure confronted by a typical firm in a cartel?
a.
If I alone cheat, I‘m better off; if everyone cheats, I’m worse off.
b.
I can never do better for myself than by following agreed-upon cartel policies.
c.
If everyone cheats, I’m better off and so is everyone else in the cartel.
d.
If I suspect others are planning to cheat, I’ll do best for myself by deciding not to cheat.
80. Suppose Ford, GM, and Dodge make the majority of pick-up trucks sold in the United States If they all
sell for approximately the same price, and Ford offers a $2,000 rebate on new truck sales, what can
Ford expect to see?
a.
an unprecedented increase in truck sales
b.
an immediate response by GM and Dodge
c.
a visit from the antitrust authorities of the government
d.
a revolution from Ford stockholders
e.
announcements by GM and Dodge that plans are underway to produce a much cheaper
pick-up truck in six years
81. Cartel members have an incentive to cheat on cartel agreements because
a.
the cartel cannot maximize profits.
b.
the cartel price is the competitive price.
c.
the demand curve for the firm is more elastic than the cartel’s demand curve.
d.
the industry profit would be higher under competitive conditions.
82. Collusion
a.
is exactly the same thing as competition.
b.
involves cooperative actions by sellers at the expense of buyers.
c.
requires competitive actions by sellers to win customers from rival firms.
d.
can only be achieved in price-taker markets.
83. The two conflicting tendencies that a firm has in an oligopolistic industry are the incentive to
a.
cheat to maximize joint profits and the incentive to raise prices.
b.
cheat and avoid collusion and the incentive to raise price to maximize the firm’s share of
profits.
c.
increase output in order to minimize per-unit costs and the incentive to reduce price in
order to maximize joint profit.
d.
cooperate to maximize joint profits and the incentive to cheat on the agreement in order to
increase the firm’s share of the profit.
84. Under which one of the following market structures are firms most likely to enter into a price-fixing
agreement designed to maximize their joint profit?
a.
price-taker markets with low entry barriers
b.
pure monopoly
c.
price-searcher markets with low entry barriers
d.
oligopoly
85. When oligopolistic firms collude to maximize their joint profits, in comparison with the situation in
competitive markets, their actions generally lead to
a.
a larger output and lower prices.
b.
a smaller output and higher prices.
c.
a smaller output and lower prices.
d.
the same output and higher prices.
86. When barriers to entry are high, a monopolist (or cartel) will often be able to increase their profits by
a.
expanding their output so they can increase their price.
b.
reducing their output so they can raise their price.
c.
expanding their output so they can lower their price.
d.
reducing their output so they can lower their price.
87. Under which of the following market conditions is it most difficult to maintain a cartel agreement?
a.
There are many firms in the industry and these firms have similar costs.
b.
There are many firms in the industry and these firms have different costs.
c.
There are few firms in the industry and these firms have similar costs.
d.
There are few firms in the industry and these firms have different costs.
88. The chances of successful collusion are greatest when
a.
firms are producing a differentiated product.
b.
there are many firms in the industry.
c.
there are tiny firms and huge firms together in the same industry.
d.
demand curves and cost curves are similar among the firms in the industry.
e.
demand is falling.
89. If zinc suppliers are successful in forming an international zinc cartel, they will
a.
lower output and raise prices, which discourages the entry of new firms into the industry.
b.
lower output, raise prices, and have a need to prevent the entry of new firms into the
industry.
c.
raise output and raise prices, which discourages the entry of new firms into the industry.
d.
raise output, raise prices, and have a need to prevent the entry of new firms into the
industry.
90. Each member of a cartel
a.
faces a temptation to cheat on the agreement because lowering its price slightly below the
established price will usually increase the firm’s sales and profit.
b.
faces a temptation to cheat on the agreement because raising its price slightly above the
established price will usually increase the firm’s sales and profit.
c.
has no temptation to cheat on the agreement because lowering its price slightly below the
established price will usually have no impact on the firm’s sales and profit.
d.
has no temptation to cheat on the agreement because raising its price slightly above the
established price will usually decrease the firm’s sales and profit.
e.
has no temptation to cheat on the agreement because lowering its price slightly below the
established price will usually lower the firm’s sales and profit.
91. Which one of the following factors increases the likelihood that a cartel agreement will lead to higher
profit for cartel members?
a.
free entry into the cartelized market
b.
a small number of sellers involved in the cartel agreement
c.
the cartel members produce a differentiated product
d.
highly unstable demand for the product produced by the cartel
92. Which of the following conditions would increase the likelihood of successful collusion among
American automobile producers?
a.
vigorous enforcement of antitrust laws
b.
strong quality competition that makes it difficult to monitor price cuts by rival firms
c.
imposition of tariffs or quotas on imported automobiles
d.
The market demand for automobiles fluctuates substantially.
93. Which of the following will reduce the likelihood of effective collusion among oligopolistic
producers?
a.
low entry barriers into the market
b.
a production of a homogenous product
c.
a stable market demand for the product
d.
a highly inelastic market demand for the product
94. Collusion among sellers will be less attractive when
a.
it is difficult to determine if some firms are providing secret price cuts.
b.
there are a small number of firms in the industry that are easily monitored.
c.
the demand for the product is relatively stable.
d.
the demand for the product is highly inelastic.
95. Cartel agreements are difficult to maintain because individual members
a.
can gain by raising their price above the price that is best for the cartel.
b.
are often unable to police the price and output policies of other members.
c.
can gain by secretly raising their price above the price that is best for the cartel.
d.
can enforce price arrangements vigorously in court.