West Virginia University

ASP 220

Ch. 11

1)When economists talk about a barrier to entry, they are referring to

1. 1. a factor that makes it difficult for potential competitors to enter a market.
   2. the opportunity cost of equity capital that is incurred by a firm producing at minimum total cost.
   3. the downward-sloping portion of the long-run average total cost curve.
   4. 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
   1. setting the price at the level that will maximize per-unit profit.
   2. producing the output where marginal revenue equals total cost and charging a price along the demand curve.
   3. selling at the price on the demand curve at the output rate where marginal revenue equals marginal cost.
   4. producing at the output rate where price equals marginal cost.
3. Which one of the following is the best description of a monopolist?
   1. a firm that produces a single product
   2. a firm that is the sole producer of a narrowly defined product class, such as yellow, grade-A butter produced in Jackson County, Wisconsin
   3. 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
   4. 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?
   1. The output of the monopolist will be too large and its price too high.
   2. The output of the monopolist will be too large and its price too low.
   3. The output of the monopolist will be too small and its price too high.
   4. The output of the monopolist will be too small and its price too low.
5. An oligopolistic market
   1. has a small number of rival firms, and each is large relative to the size of the market.
   2. is characterized by firms that merely take the price that is determined by the forces of supply and demand in the market.
   3. has low entry barriers facing firms that may be interested in entering the market.
   4. 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
   1. 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.
   2. 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.
   3. 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.
   4. firms in oligopolistic industries have more concern for consumers than do firms in competitive industries.
7. The price charged by oligopolists will
   1. equal the equilibrium price in a price-takers market if the oligopolists collude.
   2. equal the monopoly price if the oligopolists do not collude.
   3. generally fall between the monopoly and competitive market equilibrium prices.
   4. be the same whether the oligopolists cooperate with one another or not; only profit is affected.