ECO 561 Week 3 Knowledge Check / (23/23)
Homework TutorWeek 3 Knowledge Check
1 . A purely- or perfectly-competitive firm would be characterized by which of the following?
- A. Large number of firms, price taker, free entry and exit, and standardized product
- B. Large number of firms, price maker, free entry and exit, and a differentiated product
- C. Small number of firms, price maker, limited entry and exit, and a standardized product
- D. One firm, price maker, limited entry and exit, and a unique product
2 . For a purely-competitive firm, price must be
- A. equal to marginal revenue and average revenue
- B. greater than marginal revenue and average revenue
- C. greater than marginal revenue, and equal to average revenue
- D. less than both marginal revenue and average revenue
3 . What will excessive or economic profits induce for a firm in any industry structure?
- A. entry into the market
- B. exit from the market
- C. equilibrium in the market
- D. greater demand in the market
4 . A pure-monopoly firm’s demand curve is also the market demand curve. This kind of firm may successfully engage in price discrimination to increase its total profit if it
- A. engages in rent-seeking behaviors to prevent possible price challenges from firms in other industries
- B. segregates its market into clearly definable groups of consumers with different elasticity of demand, and prevents buyers in one market segment from reselling to buyers in another market segment.
- C. determines that consumers are relatively sensitive to price changes along its envisioned range of price differentials (price elastic)
- D. determines that demand for its goods or services is relatively insensitive along its envisioned range of differential prices (price inelastic)
5 . Oligopolies are characterized by a small number of firms where the top three firms hold the majority of the market. If in an oligopoly market, firm A is almost twice as big as firm B and firm C then
- A. firm A is perfectly free to price however it chooses, since it is by far the most dominant firm in the market
- B. firm C has to beware of pricing collusion by A and B to avoid being picked off in a price war
- C. firms A, B, and C will tend to use non-price strategies to maintain their profits or market share.
- D. firms B and C will try to observe non-price strategies taken by firm A and follow similar strategies to maintain their profits.
6 . In a monopolistic competition industry, if one firm appreciably increased its price from the existing equilibrium price, which of the following outcomes would most likely ensue?
- A. It would likely suffer a significant decrease in its market share, because its competitors would be unlikely to deviate from the established equilibrium price.
- B. The firm would stand to gain much additional revenue if its competitors did not follow suit by raising their prices.
- C. Any gain or loss in the firm's revenue from increasing its price would depend on the price elasticity of demand: The more elastic the demand, the higher the revenue potential from a price increase.
- D. It would probably see no change in its revenue position as its competitors would raise their prices accordingly.
7 . Which factor characterizes the competitive relationship between firms in an oligopoly market structure?
- A. Total independence of action-reaction
- B. Interdependence: what one firm does—in setting prices, determining production levels, investing in R & D, and so forth—can significantly affect other firms' competitive positions.
- C. Despite the relatively small number of oligopoly firms, the action(s) of any one firm have little direct effect on the decisions of its competitors.
- D. The common practice of collusive price-setting.
8 . Unregulated (natural) monopolies maintain their status through a variety of measures. Whether any particular measure can effectively constrain new firms from entering the market depends on
- A. proprietary technology, exclusive ownership of resources, or government licenses.
- B. the number and size of the firm(s) attempting to enter the market
- C. the willingness of suppliers and distributors doing business with the monopoly firm to boycott potential entrants
- D. the amount of revenue loss the monopoly is willing to accept to undersell potential competitors
9 . Regulated monopolies are empowered by public authority for which specific reason?
- A. The provision of a good or service that, if left to the free market system, would require additional government regulation to prevent negative externalities to consumers as well as the public.
- B. The need to avoid the unnecessary use of duplicate resources that could be more efficiently employed by a single supplier to meet the needs of the broadest range of consumers.
- C. The public policy of protecting consumers from the excesses of unrestricted, demand-driven pricing.
- D. The government's goal of maintaining artificially low prices for particular goods or services.
10 . Using a significantly greater economy of scale—with attendant lower, long-run average total costs—to restrict the market entry of new competitors
- A. can be a successful tactic for established firms regardless of industry type, technology, market dynamics, or nature of the consumer base
- B. may not be effective in industries in which dynamic technology-driven changes frequently alter the demand for product design features, performance qualities, and or production methods
- C. is more effective in industry structures having low, minimum efficiencies of scale
- D. is a tactic seldom employed due to legislation governing unfair trade practices
11 . In technology-intensive oligopolies—characterized by dynamically evolving product design—restricting the entry of additional firms is
- A. not possible through customary legal protections, such as patents, because of the wide latitude of possible product alternatives afforded by highly advanced technologies
- B. achieved by patenting, the effective use of licensing restrictions, as well as by maintaining sustained advantages in design and production
- C. invariably a matter of establishing and maintaining economy of scale to minimize long-run average total cost
- D. accomplished by requiring key suppliers of production factors to do business exclusively with firms currently in the industry
12 . Whether the market structure is monopolistic or oligopolistic, a firm may increase consumer demand for its product as an overall portion of market share if
- A. the firm acquires or possesses a resource that is difficult or impossible for competitors to imitate—such as a geographic location, technologies, or design and production applications that cannot be replicated
- B. it can field an advertising campaign large and convincing enough to persuade large numbers of consumers to purchase its product
- C. it repackages its product to appeal to fashion trends
- D. the firm restricts distribution of its product to core market areas or demographic groups
13 . One difference between firms already established in a monopolistic competition industry and those attempting to enter it is that
- A. existing firms often have established, core-consumer marketing bases, while entrants may have to advertise and otherwise promote themselves to develop market share in the new industry
- B. product development is more important than establishing market visibility for firms entering a monopolistic industry
- C. cost control is more difficult for incumbent than for entrant firms due to costs of counter marketing
- D. established firms may be able to use product differentiation to help distinguish themselves from new competitors
14 . An average firm in an industry characterized by a homogeneous product, relatively low barriers to entry, and a low concentration ratio
- A. is unable to make any changes in characteristic product design or services to enlarge its market share
- B. has no pricing options but the market equilibrium price
- C. can attempt to increase market share through consumer-oriented changes in the design and perceived value of its product(s)
- D. has numerous pricing options —frequent discounts, extended sales, and so forth—if it properly uses the strength of its brand-image relative to those of its competitors
15 . A monopolistic firm may operate in a relatively mature market with little likelihood for significant change in technology or process efficiencies. To maximize its profits, such a firm might
- A. observe the existing market equilibrium price and concentrate on lowering its break-even point through cost reduction measures
- B. consider diversifying its product line by offering modestly-enhanced variants of the same good or service and selling these at prices marginally higher than for its existing product
- C. attempt to leverage its existing resources to fund its acquisition of smaller competitors, in hopes of increasing market share and revenue
- D. abandon the market altogether, as it really has no effective way of changing the status quo
16 . Production differentiation can effectively be achieved by
- A. emphasizing the weaknesses and disadvantages of competing products through comparative advertising, especially in oligopoly markets
- B. implementing a broader range of combinations of price and quality than those offered by competitors
- C. concentrating exclusively on market segments most likely to recognize differences in product value
- D. utilizing consumer satisfaction surveys and other metrics to determine what it is the customer really wants
17 . While mass retail industries have one or several dominant producers, smaller firms have a limited set of nonpricing options. The most feasible of these include
- A. attempting to garner increased market share by simultaneously expanding capacity, increasing economy of scale, and discounting prices
- B. seeking to differentiate themselves from their larger competitors by appealing to specific niche markets
- C. mimicking the advertising, marketing, and other successful non-pricing strategies of the dominant firm(s)
- D. attempting to develop markets in related industries rather than trying to compete head-to-head with industry leaders
18 . In monopolistic competition industries, effective product differentiation is illustrated by
- A. widespread brand recognition across most, if not all, consumer age and income groups; otherwise, the firm cannot generate sufficient demand to enlarge market share
- B. concentrated appeal to consumers in market demographics most likely to want or use the firm's principal products
- C. a balanced combination of innovation, new product development, and intensive marketing
- D. having a long-established reputation for distinctly superior product quality
19 . Differentiation strategies vary in degree of effectiveness from one type of market structure to another. For firms other than perfect competition
- A. opportunities exist throughout the acquisition, production, sales, and service process to distinguish their products based on perceived quality and consumer appeal
- B. the competitive margin is so tight that they cannot afford the costs associated with extensive product or market development
- C. selective product development and enhancements which appeal to particular consumer classes can create marketable differences between one firm's products and another's
- D. the best way of distinguishing the firm's product is through every-day low pricing
20 . If a firm’s industry devolved from a monopolistic competition into an oligopolistic structure, the firm would discover that
- A. clearly distinguishing its products' unique attributes from those of competitors in an oligopoly market would be more difficult for consumers than in a monopolistic structure
- B. quality of maintenance and warranty service would become more important as differentiating attributes in an oligopoly market
- C. nothing has changed. It all depends on the individual industry
- D. as surviving firms gain market share, they may enjoy lower average costs.
21 . A firm can increase both profit and per-unit profit margin by lowering production costs. To make this a long-term outcome, the firm should
- A. acquire factors of production at lower prices, defer planned investments in expansion capital, and downsize its workforce
- B. increase productivity through better applications of existing technologies, curtail product development plans, and implement energy conservation programs
- C. seek to update existing production technologies for greater future efficiencies, consider alternative energy sources for production, and better retain and develop its human and intellectual capital resources
- D. concentrate on improving present levels of productivity through greater process efficiencies, seeking to reinvesting the savings in future R&D programs
22 . A firm’s cost-reduction strategies may span multiple stages, from acquisition of production input factors to product service and maintenance. When seeking to lower cost in the short term, firms should
- A. reduce capital indebtedness through refinancing at more favorable long-term interest rates
- B. curtail output across the board to reduce variable operating costs
- C. streamline and consider alternative methods of production
- D. attempt to restructure long-standing contracts with suppliers and distributors, to reduce fixed costs in the short-run
23 . Firms can shift their marginal cost curves to the right, resulting in higher outputs at the same or lower maximum-profit prices. This can be done by
- A. eliminating fixed-cost components in the short term
- B. reducing average total cost through reorganizing, production and increasing efficiencies in distribution
- C. only if demand for the firm's product(s) shifts to the right: Businesses are always demand driven
- D. better product innovation through enhanced research and development
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