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If monopolistically competitive firms in an industry are making an economic profit, then:
New firms will enter the industry and product demand will decrease for the existing firms
The incentive to cheat is strong in a cartel because:
Each firm can increase its output and thus its profits by cutting price
If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?
The pure monopoly model
Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to:
Shift to the right
Monopolistic competition is characterized by excess capacity because:
Firms produce at an output level less than the least-cost output
In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry will produce the quantity of output where:
AC = P, MR = MC < P
In the short run, the monopolistically competitive firm will experience
Economic profits or losses, but in the long run only a normal profit
Mutual interdependence means that each firm in oligopolistic industry:
Considers the reactions of its rivals when it determines its price policy
One difference between monopolistic competition and pure competition is that:
There is some control over price in monopolistic competition
The demand curve faced by a monopolistically competitive firm
Is more elastic than the monopolist's demand curve
Which assumption is part of the model of monopolistic competition?
There is no collusion among firms
Which would be characteristic of monopolistic competition?
Relatively small market share for each firm
The kinked demand model of noncollusive oligopoly assumes that:
Rivals will ignore price increases and match price cuts
Which would make an individual firm's demand curve less elastic?
Increased brand loyalty toward the firm's product
A representative firm in monopolistic competition will tend to make economic profits:
Or losses in the short run, but the firm will break even in the long run
Which is a likely characteristic of a differentiated oligopolistic market?
Price and output decisions of firms are interdependent
The goal of product differentiation and advertising in monopolistic competition is to make:
Price less of a factor and product differences more of a factor in consumer purchases
Collusive control over price may permit oligopolists to:
Reduce uncertainty, increase profits, and possibly limit entry of new firms
When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of:
Demand and marginal revenue curves are downward sloping for monopolistically competitive firms because:
Product differentiation allows each firm some degree of monopoly power
A monopolistically competitive industry is like a purely competitive industry in that:
Neither industry has significant barriers to entry
In the kinked demand model of noncollusive oligopoly, each firm thinks that the demand curve below the going price is:
Less elastic than the demand curve above the going price
The monopolistically competitive seller's demand curve will become more elastic the:
Larger the number of competitors
In the long run, a representative firm in a monopolistically competitive industry will typically:
Earn a normal profit, but not an economic profit
A characteristic of monopolistically competitive industries is that:
The entry and exit of firms causes the representative firm to break even in the long run
A positive effect of advertising for society is that it:
Provides useful information to reduce search cost for consumers
A Lorenz curve showing perfect equality in the distribution of income:
Is a straight line with a 45-degree angle
The greater the degree of inequality in the size distribution of income, the more bowed will be the Lorenz curve toward the
Lower right-hand corner
The diagonal line in a Lorenz curve represents perfect:
Equality in the distribution of personal income
The Gini ratio is determined by:
Dividing the area between the Lorenz curve and the diagonal by the total area below the diagonal
As the area between the Lorenz curve and diagonal gets larger, the Gini ratio:
Rises to reflect greater inequality
A cause of the unequal distribution of income in the United States is:
Differences in preferences and risks
What would be an example of how pure luck contributes to income inequality?
Selection as winner of a state lottery
The debate over income distribution focuses on the tradeoff between:
Economic efficiency and equality
The basic economic argument for greater income equality is that:
a more equal distribution of a given amount of income will increase the total utility of consumers.
If there is no comparative advantage between two countries:
There are no gains from specialization and trade
Consider two countries which trade with each other. The degree of specialization according to their respective comparative advantages will be greater if the countries face:
The principle of comparative advantage indicates that mutually beneficial international trade can take place only when:
Relative costs of production differ between nations
According to the principle of comparative advantage, worldwide output and consumption levels will be highest when goods are produced in nations where:
Domestic opportunity costs are lowest
If country A has a comparative advantage in the production of good X over country B, then:
The domestic opportunity cost of producing X in country A is lower than in country B
The domestic opportunity cost of producing a television in the United States is 20 bushels of wheat. In Korea, the domestic opportunity cost of producing a television is 10 bushels of wheat. In this case:
Mutual gains from trade can be obtained if the United States imports televisions from Korea and Korea imports wheat from the United States
The domestic opportunity cost of producing 100 barrels of chemicals in Germany is one ton of steel. In France, the domestic opportunity cost of producing 100 barrels of chemicals is two tons of steel. In this case:
Germany has a comparative advantage in the production of chemicals
If the U.S. dollar appreciates relative to the British pound, then:
The pound will depreciate relative to the U.S. dollar
If an American can purchase 40,000 British pounds for $90,000, the dollar rate of exchange for the pound is:
A market in which the money of one nation is exchanged for the money of another nation is a:
foreign exchange market.
Depreciation of the dollar will:
increase the prices of U.S. imports, but decrease the prices to foreigners of U.S. exports.
Appreciation of the Canadian dollar will:
make Canada's exports more expensive and its imports less expensive.
An increase in the demand for computers leads to an increase in demand for computer programmers. This situation arises because:
The demand for programmers is a derived demand
The marginal revenue product of labor in a competitive market decreases as a firm increases the quantity of labor used because of the:
Law of diminishing returns
Marginal revenue product is the increase in:
Total revenue from the use of an additional unit of a resource
Which is an example of a change in product demand that increases labor demand?
Tourism increases in popularity, increasing the demand for workers at tourist resorts
If the price of a good increases, then in the market for labor which is used to produce this product:
The marginal revenue product (MRP) of labor will increase
The demand for a resource will increase if the:
Price of the product the firm is producing increases
Suppose capital is readily substitutable for labor and that the price of capital falls. We can conclude that the:
Substitution effect will tend to reduce the demand for labor
The elasticity of demand for labor varies:
Directly with labor's share of the total cost of the product
The demand for labor would most likely become more elastic as a result of:
An increase in the proportion of labor cost to total costs
A characteristic of a purely competitive labor market would be:
Many firms competing in hiring workers
In pure competition, a profit-maximizing firm will equate the marginal revenue product of labor with the:
If the supply of labor in a purely competitive labor market decreases, the labor:
Supply curve for a single employer will shift upward
If the wage rate in a purely competitive labor market decreases, it will cause the:
Marginal resource cost for a single competitive firm in the industry to decrease
The individual firm which hires labor under competitive conditions faces a labor supply curve which:
Is perfectly elastic
The marginal cost of a productive resource is equal to the price of the resource if a firm is:
A price taker in the resource market
When the supply curve of labor is upward sloping, the marginal cost curve of labor facing the monopsonist:
Lies above the supply curve of labor
The labor market for teachers in a small, isolated community that has one school district would be best described as a(n):
Craft unions have typically been most effective in raising wage rates by:
Decreasing the supply of labor
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