1. Both competitive and monopolistically competitive firms: a. Can enforce price
ID: 1202694 • Letter: 1
Question
1. Both competitive and monopolistically competitive firms:
a. Can enforce price arrangements vigorously in court.
b. Cannot control or set their own price.
c. Can maximize profit by raising price.
d. Can maximize profit by producing to the point where marginal cost = marginal revenue.
e. Sell products that are identical.
2. A natural monopoly:
a. Is needed to make a profit in the long run.
b. Is an example of a government-created barrier.
c. Exists when a firm has sole ownership of a natural resource.
d. Exists when many sellers experience lower average total costs than potential competitors do.
e. Exists when a single seller experiences lower average total costs than any potential competitor.
3. Assume that two firms (Firm A and Firm B) operate in the U.S. steel industry. The owner of Firm A writes the following letter to the owner of Firm B:
Dear Owner of Firm B,
I have concluded that if we both restrict output such that we each produce only 3 million tons of steel per year, we can both charge a price that will allow us to effectively monopolize the steel market and to maximize our joint profits. If you would like to enter into this agreement with me, please draft a contract that specifies this agreement and I will be more than willing to meet with you and sign it.
Sincerely, Owner of Firm A
If this letter were sent in the year 1944, the:
a. Owners of both Firm A and Firm B would not be guilty of violating antitrust laws because antitrust laws in 1944 contained exceptions for certain nationally important industries like the steel industry.
b. Owners of both Firm A and Firm B would not be guilty of anything because there were no antirust laws in existence in 1944.
c. Owner of Firm A would be guilty of violating antitrust laws only if she met with the owner of Firm B and signed the contract, but she would not be guilty if the attempt to monopolize the market failed because the owner of Firm B never responded to the letter.
d. Owner of Firm A would be guilty of violating antirust laws because she merely attempted to monopolize the steel industry.
e. Owners of both Firm A and Firm B would not be guilty of violating antitrust laws because antitrust laws in 1944 applied only to industries made up of three or more firms.
4. Entry of new firms will continue in a monopolistically competitive industry until:
a. Marginal cost = 0 (zero).
b. Economic profit is negative.
c. Marginal revenue = marginal cost.
d. Economic profit equals zero.
e. Marginal Revenue = 0 (zero).
5. A monopolistically competitive firm usually charges less than a monopoly firm because:
a. It is part of a group of firms that has formally agreed to control the price and the output of a product.
b. Its primary goal is to reap monopoly profits by replacing competition with cooperation.
c. It has a monopoly, but potential entrants exist in the form of contestable markets.
d. It faces some degree of competition due to low barriers to entry.
e. Producing homogenous output is more expensive than producing differentiated output.
6. An example of price discrimination is when:
a. A single box of Froot Loops cost $3.50, but when purchased in a case of six, it costs only $3.00 per box.
b. You can purchase a new PC for half the price of a new Mac, even though they are both computers.
c. Procter & Gamble charges $9 for a bottle of Tide laundry detergent, while the store brand costs the consumer significantly less, despite being somewhat similar products.
d. Out-of-state students pay more for the same education as in-state students.
e. Movie theaters do not allow children into R-rated movies without a parent or guardian.
Explanation / Answer
1) For monopolistically competitive and competitive firms, Profit maximizing point is where MR=MC. Answer is option D.
Note: Please ask other parts of the question as different questions.
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