CH 2: Imperfect Markets
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Questions and Answers

What is a characteristic of a monopolist's marginal revenue curve?

  • It lies above their demand curve.
  • It is vertical.
  • It is equal to their demand curve.
  • It lies below their demand curve. (correct)

    • What is the goal of a firm in an imperfect market?

  • To maximize revenue
  • To minimize profit
  • To maximize profit (correct)
  • To minimize cost

    • What is a consequence of imperfect markets?

  • Allocative and productive inefficiencies (correct)
  • Allocative and productive efficiency
  • Higher output and lower prices
  • Perfect competition

    • What is the purpose of government intervention in imperfect markets?

    <p>To control monopolistic and oligopolistic powers</p> Signup and view all the answers

    What characterizes a monopoly?

    <p>A single firm dominating a market</p> Signup and view all the answers

    What is a feature of an oligopoly?

    <p>Interdependence among firms</p> Signup and view all the answers

    What is a characteristic of a kinked demand curve in an oligopoly?

    <p>It discourages competitive price changes</p> Signup and view all the answers

    What is a characteristic of monopolistic competition?

    <p>Many firms selling differentiated products</p> Signup and view all the answers

    What happens to profits in monopolistic competition in the long run?

    <p>They are eroded to normal profits</p> Signup and view all the answers

    Why do firms in monopolistic competition engage in non-price competition?

    <p>To build customer loyalty</p> Signup and view all the answers

    What is a characteristic of imperfect markets?

    <p>Lack of perfect competition</p> Signup and view all the answers

    What is a monopoly?

    <p>A market with a single company controlling the entire supply of a product or service</p> Signup and view all the answers

    What is the main advantage of a monopoly?

    <p>The ability to set prices and influence market output</p> Signup and view all the answers

    What prevents new entrants in a monopoly?

    <p>Barriers to entry</p> Signup and view all the answers

    What is the characteristic of an oligopoly?

    <p>A few firms dominating a market</p> Signup and view all the answers

    What is the purpose of collusion in an oligopoly?

    <p>To maximize collective profits</p> Signup and view all the answers

    What is the shape of the demand curve for an oligopolist?

    <p>Kinked</p> Signup and view all the answers

    What is the characteristic of monopolistic competition?

    <p>Many firms selling products that are differentiated but serve a similar purpose</p> Signup and view all the answers

    What is the focus of firms in monopolistic competition?

    <p>Non-price competition</p> Signup and view all the answers

    What happens to economic profits in monopolistic competition in the long run?

    <p>They tend to normalize</p> Signup and view all the answers

    What is the result of monopolies and oligopolies maintaining prices higher than marginal costs?

    <p>Lower output and higher prices</p> Signup and view all the answers

    What is a potential consequence of monopolistic competition?

    <p>Redundant expenditures on advertising and marketing</p> Signup and view all the answers

    Why do governments intervene in markets with monopolies and oligopolies?

    <p>To increase market competition and reduce inefficiencies</p> Signup and view all the answers

    What is a characteristic of perfect competition?

    <p>Prices reflecting true scarcity of products</p> Signup and view all the answers

    What is the result of imperfect markets?

    <p>Challenges in terms of economic efficiency and equitable outcomes</p> Signup and view all the answers

    What is a form of government intervention?

    <p>Antitrust laws</p> Signup and view all the answers

    What is a consequence of monopolistic competition?

    <p>A variety of products and innovations</p> Signup and view all the answers

    What is the goal of government intervention in markets with monopolies and oligopolies?

    <p>To increase economic efficiency and reduce inefficiencies</p> Signup and view all the answers

    What is a characteristic of monopolies and oligopolies?

    <p>High barriers to entry</p> Signup and view all the answers

    What is the result of regulatory and economic policies?

    <p>Harnessing the benefits of market competition while mitigating its downsides</p> Signup and view all the answers

    What is a key characteristic of a monopoly?

    <p>A single company controlling the entire supply</p> Signup and view all the answers

    What is a common feature of oligopolistic markets?

    <p>A few firms producing differentiated or standardized products</p> Signup and view all the answers

    What is a key difference between monopolistic competition and perfect competition?

    <p>Product differentiation</p> Signup and view all the answers

    What is a likely outcome of a monopoly in the long run?

    <p>Economic profits increase indefinitely</p> Signup and view all the answers

    What is a key goal of firms in oligopolistic markets?

    <p>To set prices and limit production</p> Signup and view all the answers

    What is a characteristic of the demand curve in an oligopoly?

    <p>It has a kinked shape</p> Signup and view all the answers

    What is a common strategy used by firms in monopolistic competition?

    <p>Non-price competition</p> Signup and view all the answers

    What is a common barrier to entry in a monopoly?

    <p>All of the above</p> Signup and view all the answers

    What is a consequence of imperfect markets?

    <p>Market inefficiencies</p> Signup and view all the answers

    What is a primary consequence of monopolies and oligopolies maintaining prices higher than their marginal costs?

    <p>Allocative inefficiency and potential welfare losses</p> Signup and view all the answers

    What is a key difference between a monopoly and an oligopoly?

    <p>The number of firms in the market</p> Signup and view all the answers

    What is a potential benefit of monopolistic competition?

    <p>A variety of products and innovations</p> Signup and view all the answers

    Why do governments intervene in markets with monopolies and oligopolies?

    <p>To increase economic efficiency and reduce inefficiencies</p> Signup and view all the answers

    What is a characteristic of imperfect markets?

    <p>Realistic conditions that diverge from perfect competition</p> Signup and view all the answers

    What is a potential drawback of monopolistic competition?

    <p>Redundant expenditures on advertising and marketing</p> Signup and view all the answers

    What is a goal of government intervention in markets with monopolies and oligopolies?

    <p>To increase market competition and reduce inefficiencies</p> Signup and view all the answers

    What is a consequence of imperfect markets in terms of economic efficiency?

    <p>Reduced economic efficiency</p> Signup and view all the answers

    In a monopoly, what is the primary source of the firm's market power?

    <p>Barriers to entry</p> Signup and view all the answers

    What is a form of government intervention in markets with monopolies and oligopolies?

    <p>Both A and B</p> Signup and view all the answers

    In an oligopoly, what is the primary feature of the demand curve?

    <p>It is kinked</p> Signup and view all the answers

    What is a challenge posed by imperfect markets?

    <p>Achieving economic efficiency</p> Signup and view all the answers

    What is the primary goal of government intervention in imperfect markets?

    <p>To enhance competitive outcomes and protect consumer interests</p> Signup and view all the answers

    What is a goal of regulatory and economic policies in imperfect markets?

    <p>To harness the benefits of market competition while mitigating its downsides</p> Signup and view all the answers

    What is the primary consequence of monopolies and oligopolies setting prices above marginal cost?

    <p>Welfare losses to society</p> Signup and view all the answers

    What is the primary characteristic of monopolistic competition?

    <p>Many firms sell differentiated products</p> Signup and view all the answers

    What is the primary reason for the interdependence of firms in an oligopoly?

    <p>The actions of one firm affect the market and other firms</p> Signup and view all the answers

    What is the primary reason for the strategic behavior of firms in oligopolies?

    <p>To engage in non-price competition</p> Signup and view all the answers

    What is the primary consequence of imperfect markets for resource allocation?

    <p>Underutilization of resources</p> Signup and view all the answers

    What is the primary reason for firms to engage in advertising in monopolistic competition?

    <p>To build customer loyalty</p> Signup and view all the answers

    What is the primary implication of imperfect markets for economic welfare?

    <p>Welfare losses to society</p> Signup and view all the answers

    What is a key difference between a monopoly and an oligopoly?

    <p>The number of firms in the market</p> Signup and view all the answers

    What is the primary goal of firms in an oligopoly?

    <p>To maximize collective profits through collusion</p> Signup and view all the answers

    What is a characteristic of monopolistic competition?

    <p>Many firms produce differentiated products</p> Signup and view all the answers

    What is the result of monopolies and oligopolies maintaining prices higher than marginal costs?

    <p>Reduced consumer surplus</p> Signup and view all the answers

    What is a barrier to entry that helps maintain a monopoly?

    <p>All of the above</p> Signup and view all the answers

    What is a characteristic of the demand curve in an oligopoly?

    <p>It is kinked</p> Signup and view all the answers

    What is a primary advantage of monopolistic competition?

    <p>Product differentiation and variety</p> Signup and view all the answers

    What is the goal of government intervention in markets with monopolies and oligopolies?

    <p>To increase competition and innovation</p> Signup and view all the answers

    What is a key implication of the downward-sloping demand curve faced by a monopolist?

    <p>Higher prices and lower output compared to perfect competition</p> Signup and view all the answers

    What is a characteristic of imperfect markets that leads to welfare losses to society?

    <p>Underutilization of resources</p> Signup and view all the answers

    What is a consequence of imperfect markets?

    <p>Market inefficiencies and deadweight loss</p> Signup and view all the answers

    What is a common feature of oligopolistic markets?

    <p>Firms producing differentiated products</p> Signup and view all the answers

    What is the primary goal of government intervention in imperfect markets?

    <p>To enhance competitive outcomes and protect consumer interests</p> Signup and view all the answers

    In an oligopoly, what is the primary implication of interdependence among firms?

    <p>Firms engage in non-price competition strategies</p> Signup and view all the answers

    What is a key difference between monopolistic competition and perfect competition?

    <p>Firms earn above-normal profits in the long run in monopolistic competition</p> Signup and view all the answers

    What is the primary reason for the inefficiencies in imperfect markets?

    <p>Prices are higher and output is lower compared to perfect competition</p> Signup and view all the answers

    What is a key feature of market dynamics in oligopolies?

    <p>Firms' decisions on pricing and output affect the market</p> Signup and view all the answers

    What is the primary consequence of monopolies and oligopolies maintaining prices higher than marginal costs?

    <p>Resources are underutilized, leading to welfare losses</p> Signup and view all the answers

    What is a characteristic of monopolistic competition that leads to erosion of profits?

    <p>Ease of market entry and exit</p> Signup and view all the answers

    What is the primary reason for government intervention in markets with monopolies and oligopolies?

    <p>To enhance competitive outcomes and protect consumer interests</p> Signup and view all the answers

    What is a key implication of monopolies and oligopolies maintaining prices higher than their marginal costs?

    <p>Lower output and higher prices</p> Signup and view all the answers

    What is a potential outcome of monopolistic competition?

    <p>Increased redundant expenditures on advertising and marketing</p> Signup and view all the answers

    What is the main goal of government intervention in markets with monopolies and oligopolies?

    <p>To promote allocative efficiency and reduce welfare losses</p> Signup and view all the answers

    What is a characteristic of imperfect markets?

    <p>They present challenges in terms of economic efficiency and equitable outcomes</p> Signup and view all the answers

    What is a potential consequence of redundant expenditures on advertising and marketing?

    <p>Reduced innovation and variety of products</p> Signup and view all the answers

    What is the focus of firms in imperfect markets?

    <p>To differentiate their products and services</p> Signup and view all the answers

    What is a key difference between monopolies and oligopolies?

    <p>The number of firms in the market</p> Signup and view all the answers

    What is the primary goal of regulatory and economic policies?

    <p>To increase market competition and reduce inefficiencies</p> Signup and view all the answers

    What is a potential drawback of monopolistic competition?

    <p>Reduced innovation and variety of products</p> Signup and view all the answers

    What is the primary consequence of imperfect markets in terms of economic efficiency?

    <p>Allocative inefficiency</p> Signup and view all the answers

    What is a consequence of monopolies and oligopolies maintaining prices higher than their marginal costs?

    <p>Allocative inefficiency</p> Signup and view all the answers

    What is a goal of government intervention in markets with monopolies and oligopolies?

    <p>To increase market competition and reduce inefficiencies</p> Signup and view all the answers

    What is a characteristic of monopolistic competition?

    <p>Many firms produce differentiated products</p> Signup and view all the answers

    What is a potential drawback of monopolistic competition?

    <p>Redundant expenditures on advertising and marketing</p> Signup and view all the answers

    What is a common feature of oligopolistic markets?

    <p>Few firms producing either homogeneous or differentiated products</p> Signup and view all the answers

    What is a primary consequence of imperfect markets?

    <p>Allocative inefficiency and potential welfare losses</p> Signup and view all the answers

    What is a goal of regulatory and economic policies?

    <p>To increase market competition and reduce inefficiencies</p> Signup and view all the answers

    What is a characteristic of imperfect markets?

    <p>Price does not reflect the true scarcity of the product</p> Signup and view all the answers

    What is a potential benefit of monopolistic competition?

    <p>A variety of products and innovations</p> Signup and view all the answers

    What is a challenge posed by imperfect markets?

    <p>Allocative inefficiency and potential welfare losses</p> Signup and view all the answers

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