Econ 202 Test 3 Questions

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(Consider This) Which of the following statements is true about U.S. firms?

Over half are bankrupt within the first five years after starting up.

Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

P = MC = minimum ATC.

For a purely competitive seller, price equals

all of these.

GRAPH QUESTION: Refer to the diagram. By producing at output level Q,

both productive and allocative efficiency are achieved.

A purely competitive firm

cannot earn economic profit in the long run

Which of the following is incorrect? Imperfectly competitive producers

do not compete with one another.

Chart Question: In the provided diagram, at the profit-maximizing output, total profit is

efbc

When a pure monopolist is producing its profit-maximizing output, price will

equal neither MC nor MR.

(Last Word) Patents are most likely to infringe on innovation

for products that incorporate many different technologies into a single product.

A decreasing-cost industry is one in which

input prices fall or technology improves as the industry expands.

Chart Question: In the provided diagram, the profit-maximizing output

is n

In the short run, the individual competitive firm's supply curve is that segment of the

marginal cost curve lying above the average variable cost curve.

An industry comprising 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example of

monopolistic competition.

At its profit-maximizing output, a pure nondiscriminating monopolist achieves

neither productive efficiency nor allocative efficiency.

Which of the following is not a characteristic of pure competition?

pricing strategies by firms

Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm

should continue producing in the short run but leave the industry in the long run if the situation persists.

For an imperfectly competitive firm,

the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.

Economists use the term imperfect competition to describe

those markets that are not purely competitive.

(Consider This) The average life expectancy of a U.S. business is approximately

10.2 years

Chart Question: Refer to the diagram, which pertains to a purely competitive firm. Curve C represents

average revenue and marginal revenue.

GRAPH QUESTION: In the accompanying diagram, demand is relatively elastic

in the P2P4 price range

The pure monopolist's demand curve is relatively elastic

in the price range where marginal revenue is positive.

GRAPH QUESTION: Line (1) in the diagram reflects a situation where resource prices

increase as industry output expands.

Economic profit in the long run is

possible for a pure monopoly but not for a pure competitor.

An increasing-cost industry is associated with

an upsloping long-run supply curve

Price Quantity Demanded $7 1 6 2 5 3 4 4 3 5 At the point where 3 units are being sold, the coefficient of price elasticity of demand

is greater than unity (one).

Which of the following is an example of creative destruction?

Automobile production causes the wagon industry to shut down.

Output Total Cost Product Price 0 $250 $500 1 260 300 2 290 150 3 350 200 4 480 150 5 700 100 If the profit-maximizing pure monopolist whose information is in the accompanying table is able to price discriminate, charging each customer the price associated with each given level of output, how many units will the firm produce?

If a purely competitive firm is producing at the P = MC output and realizing an economic profit, at that output

marginal revenue exceeds ATC.

Chart Question: Curve (2) in the diagram is a purely competitive firm's

marginal revenue curve.

Firms in a monopolistically competitive industry have no reason to engage in nonprice competition because their products are uniquely different from other sellers in the market

FALSE

GRAPH QUESTION: If the firm shown in this graph is producing at the profit-maximizing level of output in the short run, then it is achieving productive and allocative efficiency.

FALSE

Which of the following statements applies to a purely competitive producer?

It will not advertise its product.

The theory of creative destruction was advanced many years ago by

Joseph Schumpeter

Chart Question: Refer to the accompanying diagram. The firm will shut down at any price less than

Which of the following is characteristic of a purely competitive seller's demand curve?

Price and marginal revenue are equal at all levels of output.

Chart Question: In the accompanying diagram, at any price below R, the firm will shut down in the short run.

TRUE

A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and MR = $3. This firm is realizing

an economic profit that could be increased by producing more output.

GRAPH QUESTION: The firm described in the accompanying diagram is selling in

an imperfectly competitive market.

GRAPH QUESTION: Line (1) in the diagram reflects the long-run supply curve for

an increasing-cost industry.

A perfectly elastic demand curve implies that the firm

can sell as much output as it chooses at the existing price

GRAPH QUESTION: Refer to the diagram for a pure monopolist. Monopoly profit

cannot be determined from the information given.

Suppose that at 500 units of output, marginal revenue is equal to marginal cost. The firm is selling its output at $5 per unit, and average total cost at 500 units of output is $6. On the basis of this information, we

cannot determine whether the firm should produce or shut down in the short run.

Chart Question: Refer to the diagram for a purely competitive producer. If product price is P3,

economic profits will be zero

GRAPH QUESTION: Refer to the diagrams. Diagram (A) represents

equilibrium price and quantity in a purely competitive industry.

GRAPH QUESTION: Refer to the diagram for a pure monopolist. Monopoly output will be

A purely monopolistic firm

faces a downsloping demand curve.

If production is occurring where marginal cost exceeds price, the purely competitive firm will

fail to maximize profit and resources will be overallocated to the product.

X-inefficiency refers to a situation in which a firm

fails to achieve the minimum average total costs attainable at each level of output.

A constant-cost industry is one in which

if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth.

Under which of the following situations would a monopolist increase profits by lowering price (and increasing output)?

if it discovered that it was producing where MC < MR

GRAPH QUESTION: In the accompanying diagram, if price is reduced from P1 to P2, total revenue will

increase by C − A.

A pure monopolist should never produce in the

inelastic segment of its demand curve, because it can increase total revenue and reduce total cost by increasing price.

Assume a purely competitive, increasing-cost industry is in long-run equilibrium. If a decline in demand occurs, firms will

leave the industry and price and output will both decline.

A natural monopoly occurs when

long-run average costs decline continuously through the range of demand

GRAPH QUESTION: If the firm in the diagram lowers price from P1 to P2, it will

lose P1P2ba in revenue from the price cut but increase revenue by Q1bcQ2 from the increase in sales.

GRAPH QUESTION: The quantitative difference between areas Q1bcQ2 and P1P2ba in the diagram measures

marginal revenue

Refer to the diagram for a natural monopolist. If a regulatory commission were to set a maximum price of P3, the monopolist would

maximize profits

If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should

not change its output.

Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium. We can

not compare the original and the new prices without knowing what cost conditions exist in the industry.

The demand schedule or curve confronted by the individual, purely competitive firm is

perfectly elastic

(Consider This) An otherwise unprofitable motel located on a largely abandoned roadway might be able to stay open for several years by

reducing or eliminating its annual maintenance expenses

Suppose the market for corn is a purely competitive, constant-cost industry that is in long-run equilibrium. Now assume that an increase in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price will be

the same as the initial equilibrium price, but the new industry output will be greater than the original output.

The MR = MC rule applies

to firms in all types of industries.

Which of the following is not a valid generalization concerning the relationship between price and costs for a purely competitive seller in the short run?

Price must be at least equal to average total cost.

(Last Word) Eliminating patents would tend to

encourage innovation in products made up of many different technologies but discourage innovation of easy-to-copy products requiring large R&D costs to create.

Entrepreneurs in purely competitive industries

innovate to lower operating costs and generate short-run economic profits.

The nondiscriminating pure monopolist's demand curve

is the industry demand curve.

If a monopolist were to produce in the inelastic segment of its demand curve,

the firm would not be maximizing profits.

Long-run supply curves for a purely competitive industry can never be downsloping.

FALSE

Chart Question: Refer to the accompanying diagram. The firm will realize an economic profit if price is

A pure monopolist

will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.

GRAPH QUESTION: Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. Which of the following is correct?

The diagrams portray short-run equilibrium but not long-run equilibrium.

The marginal revenue curve for a monopolist

becomes negative when output increases beyond some particular level.

GRAPH QUESTION: The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's total revenue

is $400. Remember price x quantity

long-run average costs decline continuously through the range of demand

natural monopoly.

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue

will also be $5.

Output Total Cost Product Price 0 $250 $500 1 260 300 2 290 150 3 350 200 4 480 150 5 700 100 According to the accompanying table, this nondiscriminating pure monopolist should set its price at

$200

Suppose that a pure monopolist can sell 20 units of output at $10 per unit and 21 units at $9.75 per unit. The marginal revenue of the 21st unit of output is

$4.75.

Suppose losses cause industry X to contract and, as a result, the prices of relevant inputs decline. Industry X is

an increasing-cost industry.

Assume a pure monopolist is currently operating at a price-quantity combination on the inelastic segment of its demand curve. If the monopolist is seeking maximum profits, it should

charge a higher price

GRAPH QUESTION: Refer to the diagrams. In diagram (B) the profit-maximizing quantity is

g, and the profit-maximizing price is d.

The fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies that

product price is constant at all levels of output.

Total Output Total Fixed Cost Total Variable Cost Total Cost 0 $50 $0 $50 1 50 70 120 2 50 120 170 3 50 150 200 4 50 220 270 5 50 300 350 6 50 390 440 The accompanying table gives cost data for a firm that is selling in a purely competitive market. Given the $75 product price, at its optimal output, the firm will

realize a $30 economic profit.

GRAPH QUESTION: Refer to the diagram. At the profit-maximizing level of output, total cost will be

0BHE.

Which of the following is correct?

A purely competitive firm is a "price taker," while a monopolist is a "price maker."

Chart Question: According to the accompanying diagram, at the profit-maximizing output, total variable cost is equal to

0CFE.

GRAPH QUESTION: Refer to the diagrams. The demand for Firm B's product is

elastic for prices above $4 and inelastic for prices below $4.

The demand curve in a purely competitive industry is, while the demand curve to a single firm in that industry is .

downsloping; perfectly elastic

If a pure monopolist is producing at that output where P = ATC, then

its economic profits will be zero.

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating

marginal revenue and marginal cost.

If a purely competitive firm is producing at some output level less than the profit-maximizing output, then

marginal revenue exceeds marginal cost.

If a pure monopolist is operating in a range of output where demand is elastic,

marginal revenue will be positive but declining.

In long-run equilibrium, purely competitive markets

maximize the sum of consumer surplus and producer surplus.

When a firm is maximizing profit, it will necessarily be

maximizing the difference between total revenue and total cost.

The profit-maximizing output of a pure monopoly is not socially optimal, because in equilibrium

price exceeds marginal cost.

Chart Question: At P3 in the accompanying diagram, this firm will

produce 40 units and incur a loss.

Chart Question: At P2 in the accompanying diagram, this firm will

produce 44 units and earn only a normal profit.

Output Total Cost 0 $50 1 90 2 120 3 140 4 170 5 210 6 260 7 330 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If product price is $60, the firm will

produce 6 units and realize a $100 economic profit.

A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should

produce because the resulting loss is less than its TFC.

If the price of bottled water is $2 and the marginal cost of producing it is $2.50

resources are being overallocated to bottled water.

A nondiscriminating pure monopolist finds that it can sell its 50th unit of output for $50. We can surmise that the marginal

revenue of the 50th unit is less than $50.

Chart Question: In the provided diagram, the short-run supply curve for this firm is the

segment of the MC curve lying to the right of output level h.

A single-price monopoly is economically inefficient because, at the profit-maximizing output,

society values additional units of the monopolized product more highly than it does the

When entrepreneurs in competitive industries successfully innovate to lower production costs, it usually results in long-run economic profits for the firm.

FALSE

GRAPH QUESTION: Assume the figure applies to a pure monopolist and that MC is the same for both graphs. If this firm is able to price discriminate between children and adults, its profit-maximizing level of output will be

Q1C + Q2

GRAPH QUESTION: Refer to the diagram for a natural monopolist. If a regulatory commission set a maximum price of P1, the monopolist would produce output

Q4 and realize a loss.

An unregulated pure monopolist will maximize profits by producing that output at which

MR = MC.

The MR = MC rule

applies both to pure monopoly and pure competition.

A pure monopolist is selling six units at a price of $12. If the marginal revenue of the seventh unit is $5, then the

price of the seventh unit is $11.

Suppose that a pure monopolist can sell 4 units of output at $2 per unit and 5 units at $1.75 per unit. The monopolist will produce and sell the fifth unit if its marginal cost is

$.75 or less.

Balin's Burger Barn operates in a perfectly competitive market. Balin's is currently earning economic profits of $20,000 per year. Based on this information, we can conclude that

Balin's is operating in the short run, but not the long run.

Which of the following conditions is not required for price discrimination?

Buyers with different elasticities must be physically separate from each other.

Which of the following outcomes is consistent with a purely competitive market in long-run equilibrium?

Combined consumer and producer surplus will be maximized.

Which of the following would not be expected to occur in a purely competitive market in long-run equilibrium?

Consumer and producer surplus will be minimized.

GRAPH QUESTION: Refer to the diagram. To maximize profits or minimize losses, this firm should produce

E units and charge price A.

Which of the following is characteristic of a pure monopolist's demand curve?

It is the same as the market demand curve.

After all long-run adjustments have been completed, a firm in a competitive industry will produce that level of output where average total cost is at a minimum.

TRUE

GRAPH QUESTION: In the accompanying diagram, the demand for Firm B's product is elastic at all prices in excess of $4.

TRUE

If the XYZ Company can sell 4 units per week at $10 per unit and 5 units per week at $9 per unit, the marginal revenue of the fifth unit is $5.

TRUE

Marginal cost is a measure of the alternative goods that society forgoes in using resources to produce an additional unit of some specific product.

TRUE

Which of the following statements is correct?

The long-run supply curve for a purely competitive increasing-cost industry will be upsloping.

Which of the following industries most closely approximates pure competition?

agriculture

Chart Question: According to the accompanying diagram, at the profit-maximizing output, the firm will realize

an economic profit of ABGH.

GRAPH QUESTION: Refer to the diagram for a pure monopolist. Monopoly price will be

There is some evidence to suggest that X-inefficiency is

more likely to occur in monopolistic firms than in competitive firms.

Chart Question: According to the information in the provided diagram, this firm is selling its product in a(n)

purely competitive market.

Output Marginal Revenue Marginal Cost 0 -- -- 1 $16 $10 2 16 9 3 16 13 4 16 17 5 16 21 The data in the accompanying table indicates that this firm is selling its output in a(n)

purely competitive market.

If a monopolist's marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by

reducing output and raising price.

A constant-cost industry is one in which

resource prices remain unchanged as output is increased.

Chart Question: In the accompanying diagram, at the profit-maximizing output, total revenue will be 0GLD.

FALSE

GRAPH QUESTION: Refer to the diagrams. If $4 is Firm B's profit-maximizing price, its

MC must be zero.

If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing

price and average variable cost.

A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is

producing less output than allocative efficiency requires.

The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing it is known as the

profit-maximizing rule.

A price discriminating pure monopolist will attempt to charge each buyer (or group of buyers)

the maximum price each would be willing to pay

GRAPH QUESTION: Refer to the diagram. At the profit-maximizing level of output, the firm will realize

an economic profit of ABHJ.

Suppose a purely competitive, increasing-cost industry is in long-run equilibrium. Now assume that a decrease in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price

and industry output will be less than the initial price and output

If a monopolist engages in price discrimination, it will

charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic.

If a purely competitive firm is maximizing economic profit,

it may or may not be maximizing per-unit profit

If a pure monopolist is producing more output than the MR = MC output,

it will be in the interest of the firm, but not necessarily of society, to reduce output.

If a purely competitive firm shuts down in the short run,

it will realize a loss equal to its total fixed costs.

Karlee's Kreations sells handbags in a purely competitive market. Karlee's is currently breaking even. Based on this information, we can conclude that Karlee's Kreations

may be operating in either short-run or long-run equilibrium.

In the short run, a monopolist's economic profits

may be positive or negative depending on market demand and cost conditions.

Price discrimination is

only illegal if used to lessen or eliminate competition

An industry comprising a very large number of sellers producing a standardized product is known as

pure competition.

GRAPH QUESTION: Refer to the diagram. At output level Q2,

resources are overallocated to this product and productive efficiency is not realized.

Long-run competitive equilibrium

results in zero economic profits.

If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue

will be less than $35.

(Last Word) "Patent trolls"

buy up patents in order to collect royalties and sue other companies.

Successful price discrimination requires that buyers charged the different prices be physically separated.

FALSE

The demand curve for a purely competitive industry is perfectly elastic, but the demand curves faced by individual firms in such an industry are downsloping.

FALSE

An increasing-cost industry is the result of

higher resource prices that occur as the industry expands.

Under pure competition, in the long run

both allocative efficiency and productive efficiency are achieved.

If for a firm P = minimum ATC = MC, then

both allocative efficiency and productive efficiency are being achieved.

Suppose you find that the price of your product is less than minimum AVC. You should

close down because, by producing, your losses will exceed your total fixed costs.

Allocative efficiency occurs whenever

it is impossible to produce a net benefit for society by changing the combination of goods and services produced.

Price Quantity Demanded $7 1 6 2 5 3 4 4 3 5 The marginal revenue obtained from selling the third unit of output is

Total Output Price Marginal Revenue Average Total Cost Marginal Cost 1 $100 $100 $100.00 $30 2 90 80 63.00 26 3 80 60 52.67 32 4 70 40 49.50 40 5 60 20 49.60 50 6 50 0 50.00 52 7 40 -20 52.29 66 8 30 -40 55.75 80 9 20 -60 60.67 100 10 10 -80 67.60 130 Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's price will exceed its marginal cost by and its average total cost by .

$30; $20.50

Chart Question: According to the accompanying diagram, to maximize profit or minimize losses, this firm will produce

E units at price A.

Which of the following statements is correct?

Economic profits induce firms to enter an industry; losses encourage firms to leave.

Pure monopolists always earn economic profits.

FALSE

Chart Question: Refer to the accompanying diagram. The firm's supply curve is the segment of the

MC curve above its intersection with the AVC curve.

the short run

Firms seek to maximize

total profit.

Chart Question: Refer to the accompanying diagram. At the profit-maximizing output, total revenue will be

0AHE.

Output Marginal Revenue Marginal Cost 0 -- -- 1 $16 $10 2 16 9 3 16 13 4 16 17 5 16 21 Refer to the data in the accompanying table. If the firm's minimum average variable cost is $10, the firm's profit-maximizing level of output would be

Chart Question: Refer to the short-run data in the accompanying graph. The profit-maximizing output for this firm is

320 units.

(Last Word): Alex owns a luxury automobile and regularly purchases high-end fashion items online. Kara drives an old sedan and does most online shopping on eBay and Amazon. Suppose both Alex and Kara search the same online retailer for a nice watch to give on Fatherâ€™s Day. Based on Big Data and personalized pricing, we would expect

Alex to see a higher price than Kara for the same watch.

Chart Question: According to the accompanying diagram, at the profit-maximizing output, total fixed cost is equal to

BCFG.

Barriers to entering an industry

are the basis for monopoly.

In which one of the following market models is X-inefficiency least likely to be present?

pure competition

Price Quantity Demanded $7 1 6 2 5 3 4 4 3 5 The marginal revenue obtained from selling the fourth unit of output is

$82.

GRAPH QUESTION: Refer to the diagrams. With the industry structures represented by diagram

(A), there will be only a normal profit in the long run, while in (B) an economic profit can persist.

(Consider This) Approximately what percentage of start-up firms in the United States go bankrupt within the first two years?

Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 1 $150.00 $25.00 $175.00 $ 25.00 2 75.00 23.00 98.00 21.00 3 50.00 20.00 70.00 14.00 4 37.50 21.00 58.50 24.00 5 30.00 23.00 53.00 31.00 6 25.00 25.00 50.00 35.00 7 21.43 28.00 49.43 46.01 8 18.75 33.00 51.76 68.07 9 16.67 39.00 55.67 86.95 10 15.00 48.00 63.00 128.97 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for this firm's product is $68.10, it will produce

8 units at an economic profit of $130.72

9 units at an economic profit of $281.97.

Chart Question: Refer to the short-run data in the accompanying graph. Which of the following is correct?

Any level of output between 100 and 440 units will yield an economic profit.

The short-run supply curve of a purely competitive producer is based primarily on its

MC curve.

Allocative efficiency is achieved when the production of a good occurs where

P = MC.

Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit. With no spillovers, this information means that

price is greater than marginal cost.

The MR = MC rule can be restated for a purely competitive seller as P = MC because

each additional unit of output adds exactly its price to total revenue

A purely competitive seller should produce (rather than shut down) in the short run

if total revenue exceeds total cost or if total cost exceeds total revenue by some amount less than total fixed cost.

Suppose that an industry's long-run supply curve is downsloping. This suggests that

it is a decreasing-cost industry.

If the variable costs of a profit-maximizing pure monopolist decline, the firm should

produce more output and charge a lower price.

A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its

total variable costs.

With the creation and growth of the Internet, vacationers can now book their own flights, hotels, rental cars, and other travel logistics online. If this capability resulted in creative destruction, which of the following industries would we have expected to decline the most as a result?

travel agencies

A purely competitive firm's short-run supply curve is

upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

For a pure nondiscriminating monopolist, marginal revenue is less than price because

when a monopolist lowers price to sell more output, the lower price applies to all units sold.

In the short run, a purely competitive firm that seeks to maximize profit will produce

where total revenue exceeds total cost by the maximum amount.

Suppose that a pure monopolist can sell 5 units of output at $4 per unit and 6 units at $3.90 per unit. The monopolist will produce and sell the sixth unit if its marginal cost is

$3.40 or less

The long-run supply curve for a decreasing-cost industry is downsloping.

TRUE

A purely competitive seller is

a "price taker."

Other things equal, in which of the following cases would economic profit be the greatest?

an unregulated monopolist that is able to engage in price discrimination

If profits are maximized (or losses minimized), which of the following conditions is common to both unregulated monopoly and pure competition?

MR = MC

Chart Question: Refer to the accompanying diagram. This firm will earn only a normal profit if product price is

Which of the following is not a barrier to entry?

X-inefficiency

Price is constant to the individual firm selling in a purely competitive market because

each seller supplies a negligible fraction of total supply.

We would expect an industry to expand if firms in that industry are

earning economic profits.

Output Total Cost Product Price 0 $250 $500 1 260 300 2 290 150 3 350 200 4 480 150 5 700 100 At its profit-maximizing output, the nondiscriminating pure monopolist whose information is in the accompanying table

earns an economic profit of $250.

A competitive firm will produce in the short run so long as its price exceeds its average fixed cost.

FALSE

The short-run supply curve slopes upward because producers must be compensated for rising marginal costs.

TRUE

The term imperfect competition refers to every market structure besides pure competition.

TRUE

Which of the following is not a precondition for price discrimination?

The commodity involved must be a durable good.

If a regulatory commission wants to establish a socially optimal price for a natural monopoly, it should select a price

at which the marginal cost curve intersects the demand curve

The primary force encouraging the entry of new firms into a purely competitive industry is

economic profits earned by firms already in the industry.

Answer the question on the basis of the provided demand and cost data for a pure monopolist. Demand Data Cost Data Price Quantity Demanded Output Total Cost $5.50 3 3 $5.00 5.00 4 4 6.00 4.50 5 5 6.50 3.85 6 6 7.50 3.35 7 7 9.00 2.90 8 8 11.00 2.50 9 9 14.00 The profit-maximizing monopolist will realize a

profit of $16

GRAPH QUESTION: Refer to the diagrams. Firm A is a

pure competitor, and Firm B is a pure monopoly.

Output Total Cost 0 $50 1 90 2 120 3 140 4 170 5 210 6 260 7 330 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If product price is $25, the firm will

shutdown and incur a $50 dollar loss

In maximizing profit, a firm will always produce that output where total revenues are at a maximum.

FALSE

In the short run, a competitive firm will always choose to shut down if product price is less than the lowest attainable average total cost.

FALSE

Price discrimination is illegal in the United States under all circumstances due to antitrust regulations.

FALSE

Price discrimination occurs whenever a firm sells a good for two different prices.

FALSE

Price discrimination refers to

the selling of a given product to different customers at different prices that do not reflect cost differences.

In a purely competitive industry, competition centers more on advertising and sales promotion than on price.

FALSE

0 units at a loss of $150.

Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed, product price will be

higher, and total output will be larger than originally.

GRAPH QUESTION: Refer to the diagrams. The price will be and the quantity will be with the industry structure represented by diagram (B) compared to the one represented in (A).

higher; lower

A dilemma of regulation is that

the regulated price that achieves allocative efficiency is also likely to result in losses.

Answer the question on the basis of the accompanying table, which shows the demand schedule facing a nondiscriminating monopolist. P Qd $10 1 7 2 5 3 3 4 1 5 The profit-maximizing monopolist will sell at a price

that cannot be determined with the information provided.

the law of diminishing returns.

Which of the following best approximates a pure monopoly?

the only grocery store in a small isolated town

Output Marginal Revenue Marginal Cost 0 -- -- 1 $16 $10 2 16 9 3 16 13 4 16 17 5 16 21 Refer to the data in the accompanying table. At the profit-maximizing output, the firm's total revenue is

$48

Allocative efficiency is achieved by equalizing consumer surplus and producer surplus.

FALSE

Because of the ability to influence price, a pure monopolist can increase price and increase volume of sales simultaneously.

FALSE

GRAPH QUESTION: If the industry depicted in the graph comprises only one seller, the profit-maximizing price and quantity will be

P3 and Q3.

GRAPH QUESTION: If the industry depicted in the graph is purely monopolistic, the profit-maximizing price and quantity will be

P3 and Q3.

Pure monopoly refers to

a single firm producing a product for which there are no close substitutes.

Economists would describe the U.S. automobile industry as

an oligopoly.

Which of the following is a characteristic of pure monopoly?

barriers to entry

For a purely competitive firm, total revenue

has all of these characteristics.

The supply curve for a monopolist is

nonexistent

If the long-run supply curve of a purely competitive industry slopes upward, this implies that the prices of relevant resources

rise as the industry expands.

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, marginal revenue graphs as a

straight line, parallel to the horizontal axis

Chart Question: The firm represented by the diagram would maximize its profit where

the vertical distance between curves (3) and (4) is the greatest.

A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the 10th unit of sales per week is

$1,000.

Total Output Total Fixed Cost Total Variable Cost Total Cost 0 $50 $0 $50 1 50 70 120 2 50 120 170 3 50 150 200 4 50 220 270 5 50 300 350 6 50 390 440 The accompanying table gives cost data for a firm that is selling in a purely competitive market. At 5 units of output, average fixed cost, average variable cost, and average total cost are

$10, $60, and $70, respectively.

Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 1 $150.00 $25.00 $175.00 $ 25.00 2 75.00 23.00 98.00 21.00 3 50.00 20.00 70.00 14.00 4 37.50 21.00 58.50 24.00 5 30.00 23.00 53.00 31.00 6 25.00 25.00 50.00 35.00 7 21.43 28.00 49.43 46.01 8 18.75 33.00 51.76 68.07 9 16.67 39.00 55.67 86.95 10 15.00 48.00 63.00 128.97 The accompanying table gives cost data for a firm that is selling in a purely competitive market. We can infer that, at zero output, this firm's total fixed, total variable, and total costs are

$150, zero, and $150, respectively

Quantity Demanded Price Quantity Supplied 400,000 $5 800,000 500,000 4 700,000 600,000 3 600,000 700,000 2 500,000 800,000 1 400,000 The accompanying table applies to a purely competitive industry composed of 100 identical firms. If each of the 100 firms in the industry is maximizing its profit and earning only a normal profit, each must have a total cost of

$18,000

$198

Total Output Price Marginal Revenue Average Total Cost Marginal Cost 1 $100 $100 $100.00 $30 2 90 80 63.00 26 3 80 60 52.67 32 4 70 40 49.50 40 5 60 20 49.60 50 6 50 0 50.00 52 7 40 -20 52.29 66 8 30 -40 55.75 80 9 20 -60 60.67 100 10 10 -80 67.60 130 Refer to the data. At its profit-maximizing output, this firm's total revenue will be

$280.

Quantity Demanded Price Quantity Supplied 400,000 $5 800,000 500,000 4 700,000 600,000 3 600,000 700,000 2 500,000 800,000 1 400,000 The accompanying table applies to a purely competitive industry composed of 100 identical firms. The equilibrium price in this purely competitive market is

Quantity Demanded Price Quantity Supplied 400,000 $5 800,000 500,000 4 700,000 600,000 3 600,000 700,000 2 500,000 800,000 1 400,000 The accompanying table applies to a purely competitive industry composed of 100 identical firms. For each of the 100 firms in this industry, marginal revenue and total revenue will be

$3 and $18,000, respectively.

Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 1 $100.00 $17.00 $117.00 $17 2 50.00 16.00 66.00 15 3 33.33 15.00 48.33 13 4 25.00 14.25 39.25 12 5 20.00 14.00 34.00 13 6 16.67 14.00 30.67 14 7 14.29 15.71 30.00 26 8 12.50 17.50 30.00 30 9 11.11 19.44 30.55 35 10 10.00 21.60 31.60 41 11 9.09 24.00 33.09 48 12 8.33 26.67 35.00 56 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If there were 1,000 identical firms in this industry and total, or market, demand is as shown in the second table, equilibrium price will be Price Quantity Demanded $50 3,000 42 6,000 36 9,000 32 11,000 20 14,000 13 19,500

$36

GRAPH QUESTION: The graphs represent the demand for use of a local golf course for which there is no significant competition. (It has a local monopoly.) P denotes the price of a round of golf, and Q is the quantity of rounds "sold" each day. If the left graph represents the demand during weekdays and the right graph the weekend demand, this profit-maximizing golf course will earn how much economic profit over the course of a full seven-day week?

$4,200

$4.50.

$420.

Answer the question on the basis of the accompanying table, which shows the demand schedule facing a non discriminating monopolist P Qd $10 1 7 2 5 3 3 4 1 5 Assume that this monopolist faces zero production costs. The profit-maximizing monopolist will set a price of

$5.

Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 1 $150.00 $25.00 $175.00 $ 25.00 2 75.00 23.00 98.00 21.00 3 50.00 20.00 70.00 14.00 4 37.50 21.00 58.50 24.00 5 30.00 23.00 53.00 31.00 6 25.00 25.00 50.00 35.00 7 21.43 28.00 49.43 46.01 8 18.75 33.00 51.76 68.07 9 16.67 39.00 55.67 86.95 10 15.00 48.00 63.00 128.97 The accompanying table gives cost data for a firm that is selling in a purely competitive market. At 3 units of output, total variable cost is and total cost is .

$60;$210

$80

GRAPH QUESTION: Refer to the diagrams. With the industry structures represented by diagram

(B), output will be less than in diagram (A).

Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 1 $150.00 $25.00 $175.00 $ 25.00 2 75.00 23.00 98.00 21.00 3 50.00 20.00 70.00 14.00 4 37.50 21.00 58.50 24.00 5 30.00 23.00 53.00 31.00 6 25.00 25.00 50.00 35.00 7 21.43 28.00 49.43 46.01 8 18.75 33.00 51.76 68.07 9 16.67 39.00 55.67 86.95 10 15.00 48.00 63.00 128.97 The accompanying table gives cost data for a firm that is selling in a purely competitive market. At 6 units of output, total fixed cost is and total cost is .

. $150; $300

GRAPH QUESTION: Refer to the diagram. At the profit-maximizing level of output, total revenue will be

0AJE.

GRAPH QUESTION: The graphs represent the demand for use of a local golf course for which there is no significant competition. (It has a local monopoly.) P denotes the price of a round of golf, and Q is the quantity of rounds "sold" each day. If the left graph represents the demand during weekdays and the right graph the weekend demand, then over the course of a full seven-day week, this price-discriminating, profit-maximizing golf course should sell a total of

1,200 rounds

Answer the question on the basis of the accompanying table, which shows the demand schedule facing a nondiscriminating monopolist. P Qd $10 1 7 2 5 3 3 4 1 5 The monopolist will select its profit-maximizing level of output somewhere within the

1-3 unit range of output.

Output Total Cost Product Price 0 $250 $500 1 260 300 2 290 150 3 350 200 4 480 150 5 700 100 Based on the accompanying table, how many units would the given profit-maximizing non discriminating pure monopolist produce?

Total Output Price Marginal Revenue Average Total Cost Marginal Cost 1 $100 $100 $100.00 $30 2 90 80 63.00 26 3 80 60 52.67 32 4 70 40 49.50 40 5 60 20 49.60 50 6 50 0 50.00 52 7 40 -20 52.29 66 8 30 -40 55.75 80 9 20 -60 60.67 100 10 10 -80 67.60 130 Refer to the data for a non discriminating monopolist. This firm will maximize its profit by producing

4 UNITS

4 units at a loss of $138.

4 units of output

Chart Question: At P1 in the accompanying diagram, this firm will produce

47 units and realize an economic profit

5 units.

6 units at a loss of $90.

Quantity Demanded Price Quantity Supplied 400,000 $5 800,000 500,000 4 700,000 600,000 3 600,000 700,000 2 500,000 800,000 1 400,000 The accompanying table applies to a purely competitive industry composed of 100 identical firms. At the equilibrium price, each of the 100 firms in this industry will produce

6,000 units of output.

Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 1 $100.00 $17.00 $117.00 $17 2 50.00 16.00 66.00 15 3 33.33 15.00 48.33 13 4 25.00 14.25 39.25 12 5 20.00 14.00 34.00 13 6 16.67 14.00 30.67 14 7 14.29 15.71 30.00 26 8 12.50 17.50 30.00 30 9 11.11 19.44 30.55 35 10 10.00 21.60 31.60 41 11 9.09 24.00 33.09 48 12 8.33 26.67 35.00 56 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $32, the competitive firm will produce

8 units at an economic profit of $16

A pure monopolist will maximize profits by producing at that output where price and marginal cost are equal.

FALSE

Although individual purely competitive firms can influence the price of their product, these firms as a group cannot influence market price.

FALSE

Because of their large-scale level of production, pure monopolists overallocate resources to their industry by producing beyond the P = MC output

FALSE

Chart Question: In the accompanying graph, if demand fell to the level of FNJ, there would be no output at which the firm could realize an economic profit.

FALSE

Chart Question: The firm described in the accompanying graph will maximize profits by producing output D.

FALSE

GRAPH QUESTION: If this diagram represents a typical firm in the industry and the firm is producing at the profit-maximizing level of output in the short run, then in the long run we would expect economic profits in this market to rise.

FALSE

GRAPH QUESTION: In the accompanying diagram, Firm B's average revenue curve coincides with its marginal revenue curve.

FALSE

GRAPH QUESTION: In the accompanying diagrams, both firms are selling their products in purely competitive markets.

FALSE

In the short run a pure monopolist will charge the highest price the market will bear for its product.

FALSE

In the short run a pure monopolist will maximize profits by producing at that level of output where the difference between price and average total cost is at a maximum.

FALSE

Which of the following distinguishes the short run from the long run in pure competition?

Firms can enter and exit the market in the long run but not in the short run.

Which of the following statements is correct?

In seeking the profit-maximizing output, the pure monopolist underallocates resources to its production.

Which of the following is true concerning purely competitive industries?

In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.

In the short run, a purely competitive firm will earn a normal profit when

P = ATC.

In the short run, a purely competitive firm will always make an economic profit if

P > ATC.

Which of the following will not hold true for a competitive firm in long-run equilibrium?

P equals AFC.

GRAPH QUESTION: Refer to the diagram for a pure monopolist. Suppose a regulatory commission is created to determine a legal price for the monopoly. If the commission seeks to provide the monopolist with a "fair return," it will set price at

GRAPH QUESTION: Assume the figure applies to a pure monopolist and that MC is the same for both graphs. If this firm is able to price discriminate between children and adults, it should charge prices of

P1 to children and P2 to adults.

Chart Question: Refer to the accompanying diagram. The firm will produce at a loss if price is

Chart Question: Refer to the diagram for a purely competitive producer. The lowest price at which the firm should produce (as opposed to shutting down) is

GRAPH QUESTION: Refer to the diagram for a pure monopolist. If a regulatory commission seeks to achieve the socially optimal allocation of resources to this line of production, it will set a price of

Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 1 $100.00 $17.00 $117.00 $17 2 50.00 16.00 66.00 15 3 33.33 15.00 48.33 13 4 25.00 14.25 39.25 12 5 20.00 14.00 34.00 13 6 16.67 14.00 30.67 14 7 14.29 15.71 30.00 26 8 12.50 17.50 30.00 30 9 11.11 19.44 30.55 35 10 10.00 21.60 31.60 41 11 9.09 24.00 33.09 48 12 8.33 26.67 35.00 56 The accompanying table gives cost data for a firm that is selling in a purely competitive market. Which of the following tables gives the firm's short- run supply schedule?

Price Qs $50 11 42 10 36 9 32 8 20 6 13 0

Because the equilibrium position of a purely competitive seller entails an equality of price and marginal costs, competition produces an efficient allocation of economic resources.

TRUE

Chart Question: In the accompanying diagram, at output C, production will result in an economic profit.

TRUE

Chart Question: In the accompanying diagram, if the firm produced D units of output at price G, it would earn a normal profit.

TRUE

Extensive network effects may drive a market toward natural monopoly because consumers tend to choose a common, standard product that everyone else is using.

TRUE

Marginal revenue is the addition to total revenue resulting from the sale of one more unit of output.

TRUE

Natural monopoly may result where products produce substantial network effects and can be simultaneously consumed by a large number of consumers.

TRUE

Oligopoly firms may produce either standardized or differentiated products.

TRUE

Price and marginal revenue are identical for an individual purely competitive seller.

TRUE

Price discrimination will result in consumers with more elastic demand purchasing more of the good than when a single price is charged to all consumers in the market.

TRUE

The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.

TRUE

Which of the following statements is correct?

The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping.

Under what conditions would an increase in demand lead to a lower long-run equilibrium price?

The firms in the market are part of a decreasing-cost industry.

(Consider This) Children are charged less than adults for admission to professional baseball games but are charged the same prices as adults at the concession stands. Which of the following conditions of price discrimination explains why this occurs?

The items can be bought by people in the low-price group and transferred to members of the high-price group.

What do economies of scale, the ownership of essential raw materials, and patents have in common?

They are all barriers to entry.

Assume the figure applies to a pure monopolist and that MC is the same for both graphs. If this firm is able to price discriminate between children and adults, its economic profit will be

[(P1 − MC) × Q1C] + [(P2 − MC) × Q2].

GRAPH QUESTION: Line (2) in the accompanying diagram reflects the long-run supply curve for

a constant-cost industry.

Confronted with the same unit cost data, a monopolistic producer will charge

a higher price and produce a smaller output than a competitive firm.

GRAPH QUESTION: Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. The predicted long-run adjustments in this industry might be offset by

a technological improvement in production methods.

DASH Airlines is considering the addition of a flight from Red Cloud to David City. The total cost of the flight would be $1,100, of which $800 are fixed costs already incurred. Expected revenues from the flight are $600. DASH should

add this flight, because marginal revenue exceeds marginal costs and total revenue exceeds total variable cost.

Purely competitive industry X has constant costs and its product is an inferior good. The industry is currently in long-run equilibrium. The economy now goes into a recession and average incomes decline. The result will be

an increase in output, but not in the price, of the product.

Chart Question: Refer to the diagram. Other things equal, an increase of product price would be shown as

an increase in the steepness of curve (3), an upward shift in curve (2), and an upward shift in curve (1).

The gains to monopolists from exercising market power

are less than the losses to consumers in monopoly markets, resulting in a net loss to society.

The higher prices charged by monopolists

are like a private tax that redistributes income from consumers to monopoly sellers.

GRAPH QUESTION: In the accompanying diagram, demand is relatively inelastic

at any price below P2

If a regulatory commission wants to provide a natural monopoly with a fair return, it should establish a price that is equal to

average total cost

A single-price pure monopoly is economically inefficient

because it produces short of minimum average total cost and price is greater than marginal cost.

Chart Question: Refer to the diagram for a purely competitive producer. The firm will produce at a loss at all prices

between P2 and P3

Marginal revenue is the

change in total revenue associated with the sale of one more unit of output.

charge $7 for each round on weekdays and $10 during the weekend.

Which of the following is not a basic characteristic of pure competition?

considerable nonprice competition

In contrast to American firms, Japanese firms frequently make lifetime employment commitments to their workers and agree not to lay them off when product demand is weak. Other things being equal, we would expect Japanese firms to

continue to produce in the short run at lower prices than would American firms.

The process by which new firms and new products replace existing dominant firms and products is called

creative destruction.

The supply curve of a pure monopolist

does not exist because prices are not "given" to a monopolist.

GRAPH QUESTION: If the competitive firm depicted in this diagram produces output Q, it will

earn a normal profit.

Output Marginal Revenue Marginal Cost 0 -- -- 1 $16 $10 2 16 9 3 16 13 4 16 17 5 16 21 Refer to the data in the accompanying table. Assuming total fixed costs equal to zero, the firm's

economic profit is $16

Total Output Price Marginal Revenue Average Total Cost Marginal Cost 1 $100 $100 $100.00 $30 2 90 80 63.00 26 3 80 60 52.67 32 4 70 40 49.50 40 5 60 20 49.60 50 6 50 0 50.00 52 7 40 -20 52.29 66 8 30 -40 55.75 80 9 20 -60 60.67 100 10 10 -80 67.60 130 Refer to the data for a non discriminating monopolist. At its profit-maximizing output, this firm will be operating in the

elastic portion of its demand curve

Long-run adjustments in purely competitive markets primarily take the form of

entry or exit of firms in the market.

GRAPH QUESTION: Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. In the long run we should expect

firms to leave the industry, market supply to fall, and product price to rise.

GRAPH QUESTION: Assume a pure monopolist is charging price P and selling output Q, as shown on the diagram. On the basis of this information, we can say that

if marginal costs were somehow zero, the firm would be maximizing its profits.

When a firm is on the inelastic segment of its demand curve, it can

increase profits by increasing price.

If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to

increase, output to increase, price to decrease, and profits to decrease.

GRAPH QUESTION: The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's total cost

is $400.

The marginal revenue curve of a purely competitive firm

is horizontal at the market price

The nondiscriminating monopolist's demand curve

is less elastic than a purely competitive firm's demand curve.

The demand curve faced by a pure monopolist

is less elastic than that faced by a single purely competitive firm.

In the short run, a purely competitive seller will shut down if product price

is less than AVC.The short-run supply curve for a purely competitive industry can be found by

(Last Word): The ability of personalized pricing by online retailers to price discriminate

is limited by buyers' willingness and ability to easily search out lower prices at other online sites.

Assume a purely competitive firm is selling 200 units of output at $3 each. At this output, its total fixed cost is $100 and its total variable cost is $350. This firm

is making a profit, but not necessarily the maximum profit.

Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation

is realizing an economic profit of $40.

(Last Word) "Big Data"

is used by firms to price discriminate through personalized pricing.

GRAPH QUESTION: The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's economic profit

is zero.

In a decreasing-cost industry,

lower demand leads to higher long-run equilibrium prices.

GRAPH QUESTION: In the accompanying diagram, the quantitative difference between areas A and C for reducing the price from P1 to P2 measures

marginal revenue

For a pure monopolist, the relationship between total revenue and marginal revenue is such that

marginal revenue is positive when total revenue is increasing, but marginal revenue becomes negative when total revenue is decreasing.

In the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal to

marginal revenue.

To maximize profit, a pure monopolist must

maximize the difference between total revenue and total cost.

Assume for a competitive firm that MC = AVC at $12, MC = ATC at $20, and MC = MR at $16. This firm will

minimize its losses by producing in the short run.

The practice of price discrimination is associated with pure monopoly because

monopolists have considerable ability to control output and price.

Assuming no change in product demand, a pure monopolist

must lower price to increase sales.

GRAPH QUESTION: In the diagram, at output level Q1,

neither productive nor allocative efficiency is achieved.

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then

new firms will enter this market.

Pure monopolists may obtain economic profits in the long run because

of barriers to entry.

A purely competitive firm is precluded from making economic profits in the long run because

of unimpeded entry to the industry.

Innovations that lower production costs or create new products

often generate short-run economic profits that do not last into the long run

An industry comprising a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is called

oligopoly

An industry comprising four firms, each with about 25 percent of the total market for a product, is an example of

oligopoly

In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies?

oligopoly

GRAPH QUESTION: Refer to the diagrams. The demand for Firm A's product is

perfectly elastic over all ranges of output.

Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Currently Betty's MR = $15, MC = $12, ATC = $10, and AVC = $8. Based on this information, we can conclude that

potential new firms will be encouraged by Betty's success to enter the market.

(Consider This) An unprofitable motel will stay open in the short run if

price (average nightly room rate) exceeds average variable cost.

GRAPH QUESTION: Refer to the diagram for a pure monopolist. If the monopolist is unregulated, it will maximize profits by charging

price P3 and producing output Q3

Comparing a pure monopoly and a purely competitive firm with identical costs, we would find in long-run equilibrium that the pure monopolist's

price and average total cost would be higher, but output would be lower.

When a purely competitive firm is in long-run equilibrium,

price equals marginal cost.

With respect to the pure monopolist's demand curve, it can be said that

price exceeds marginal revenue at all outputs greater than 1.

Resources are efficiently allocated when production occurs where

price is equal to marginal cost.

In the short run, a purely competitive seller will shut down if

price is less than average variable cost at all outputs.

Because the monopolist's demand curve is downsloping,

price must be lowered to sell more output.

(Last Word) Oil wells and seasonal resorts will often shut down temporarily because

prices for their output temporarily fall below their average variable costs of production.

Output Total Cost 0 $50 1 90 2 120 3 140 4 170 5 210 6 260 7 330 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If product price is $45, the firm will

produce 5 units and realize a $15 economic profit.

Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 1 $100.00 $17.00 $117.00 $17 2 50.00 16.00 66.00 15 3 33.33 15.00 48.33 13 4 25.00 14.25 39.25 12 5 20.00 14.00 34.00 13 6 16.67 14.00 30.67 14 7 14.29 15.71 30.00 26 8 12.50 17.50 30.00 30 9 11.11 19.44 30.55 35 10 10.00 21.60 31.60 41 11 9.09 24.00 33.09 48 12 8.33 26.67 35.00 56 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $28, the competitive firm will

produce 7 units at a loss of $14.00.

Other things equal, a price-discriminating monopolist will

produce a larger output than a nondiscriminating monopolist.

GRAPH QUESTION: Refer to the diagram for a natural monopolist. If a regulatory commission set a maximum price of P2, the monopolist would

produce output Q3 and realize a normal profit

The Ajax Manufacturing Company is selling in a purely competitive market. Its output is 100 units, which sell at $4 each. At this level of output, total cost is $600, total fixed cost is $100, and marginal cost is $4. The firm should

produce zero units of output.

GRAPH QUESTION: Refer to the diagram. If this somehow was a costless product (that is, the total cost of any level of output was zero), the firm would maximize profits by

producing Q2 units and charging a price of P2.

The vertical distance between the horizontal axis and any point on a nondiscriminating monopolist's demand curve measures

product price and average revenue.

On a per-unit basis, economic profit can be determined as the difference between

product price and average total cost

In which of the following industry structures is the entry of new firms the most difficult?

pure monopoly

In which one of the following market models is X-inefficiency most likely to be the greatest?

pure monopoly

GRAPH QUESTION: Line (2) in the diagram reflects a situation where resource prices

remain constant as industry output expands.

Which of the following is not a possible source of natural monopoly?

rent-seeking behavior

If the price of product Y is $25 and its marginal cost is $18

resources are being underallocated to Y.

GRAPH QUESTION: At output level Q1, in this diagram,

resources are underallocated to this product and productive efficiency is not realized.

Chart Question: At P4 in the accompanying diagram, this firm will

shut down in the short run

If at the MC = MR output, AVC exceeds price,

some firms should shut down in the short run

(Last Word) Fixed costs for a firm are analogous to

starting out in a hole that represents economic losses if the firm produces nothing

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, total revenue graphs as

straight, upsloping line.

GRAPH QUESTION: Refer to the diagram for a pure monopolist. If a regulatory commission sets the price to achieve the socially optimal allocation of resources, it will have to

subsidize the monopolist or the monopolist will go bankrupt in the long run.

The short-run supply curve for a purely competitive industry can be found by

summing horizontally the segments of the MC curves lying above the AVC curve for all firms.

When LCD televisions first came on the market, they sold for at least $1,000, and some for much more. Now many units can be purchased for under $400. These facts imply that

the LCD television industry is a decreasing-cost industry.

Chart Question: Refer to the diagram for a purely competitive producer. The firm's short-run supply curve is

the bcd segment and above on the MC curve.

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm,

the demand and marginal revenue curves will coincide.

(Last Word) Temporary shutdowns of firms are most widespread when

the economy experiences recession.

GRAPH QUESTION: The diagram portrays

the equilibrium position of a competitive firm in the long run.

If a regulatory commission imposes upon a nondiscriminating natural monopoly a price that is equal to marginal cost and below average total cost at the resulting output, then

the firm must be subsidized or it will go bankrupt

If a pure monopolist can price discriminate by separating buyers into two or more groups,

the firm will face multiple marginal revenue curves.

If a purely competitive firm is producing where price exceeds marginal cost, then

the firm will fail to maximize profit and resources will be underallocated to the product.

The lowest point on a purely competitive firm's short-run supply curve corresponds to

the minimum point on its AVC curve.

Suppose an increase in product demand occurs in a decreasing-cost industry. As a result

the new long-run equilibrium price will be lower than the original long-run equilibrium price.

If a nondiscriminating pure monopolist decides to sell one more unit of output, the marginal revenue associated with that unit will be

the price at which that unit is sold less the price reductions that apply to all other units of output.

Creative destruction is

the process by which new firms and new products replace existing dominant firms and products.

The term productive efficiency refers to

the production of a good at the lowest average total cost

The term allocative efficiency refers to

the production of the product mix most desired by consumers.

(Consider This) Children are charged less than adults for admission to professional baseball games but are charged the same prices as adults at the concession stands. This pricing system occurs because

the seller can prevent children from buying game tickets for adults but cannot prevent children from buying concession items for adults.

Assume a purely competitive firm is maximizing profit at some output at which long-run average total cost is at a minimum. Then

there is no tendency for the firm's industry to expand or contract.

In a purely competitive industry,

there may be economic profits in the short run but not in the long run.

Chart Question: Curve (4) in the diagram is a purely competitive firm's

total cost curve

Chart question: Curve (1) in the diagram is a purely competitive firm's

total economic profit curve.

A firm reaches a break-even point (normal profit position) where

total revenue and total cost are equal.

Chart Question: Curve (3) in the diagram is a purely competitive firm's

total revenue curve.

A competitive firm will maximize profits at that output at which

total revenue exceeds total cost by the greatest amount.

Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. We thus know that

total revenue is increasing.

Chart Question: Refer to the diagram, which pertains to a purely competitive firm. Curve A represents

total revenue only.

An important economic problem associated with pure monopoly is that, at the profit-maximizing outputs, resources are

underallocated because price exceeds marginal cost.

A nondiscriminating profit-maximizing monopolist

will never produce in the output range where demand is inelastic.

A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that price

will vertically intersect demand where MR = MC

Creative destruction is least beneficial to

workers in the "destroyed" industries.

Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 1 $100.00 $17.00 $117.00 $17 2 50.00 16.00 66.00 15 3 33.33 15.00 48.33 13 4 25.00 14.25 39.25 12 5 20.00 14.00 34.00 13 6 16.67 14.00 30.67 14 7 14.29 15.71 30.00 26 8 12.50 17.50 30.00 30 9 11.11 19.44 30.55 35 10 10.00 21.60 31.60 41 11 9.09 24.00 33.09 48 12 8.33 26.67 35.00 56 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $12, the competitive firm should produce

zero units at a loss of $100.

The diagram indicates that the marginal revenue of the sixth unit of output is

−$1.

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