Econ 303 Test3

A monopolists economic profits are represented by:

(price minus Average Cost)xnumber of units sold

The profit-maximization problem for a monopolist differs from that of a competitive firms how?

A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost.

Possible benefits of a monopoly include:

A savings of fixed costs because only one firm supplies quantity demanded and greater opportunities for research due to long-run positive economic profits

In the Short Run, Increase in market demand will usually lead to:

An increase in price AND and increase in quantity

When a monopolist increases the number of units it sells, there are two effects on revenue:

An output effect and the price effect

In a competitive market, a firm's supply curve dictates the amount it will sell. What dictates a monopoly market?

Decision about how much to supply is impossible to separate from the demand curve it faces.

Who benefits from protectionism?

Domestic Producers

Elasticity of Short Run supply curve

ES>1-elastic ES<1-inelastic ES=0 -perfectly inelastic ES=1-unit elastic

In the Long Run

Existing firms can change quantity AND new firms can enter

Under Perfect Competition, positive economic profits in the short run lead to:

Firms entering the market in the long run, and the short-run supply curve will outward

Ricardian Rent Example:

Having some advantage in an industry. Exp. The difference between the wage of a star baseball player and what he could earn outside of baseball

A tariff imposed on a good imported into the domestic market will create what consequences?

Lead to an increase in producer surplus and will lead to a decrease in economic efficiency

Technical and legal barriers are:

Legal barriers are government issued barriers to enter a market like a patent, an exclusive franchise, or and exclusive license Technical barriers are barriers that firms have exclusive knowledge of that is better than other firms like decreasing average cost, a low cost method of production known only by the monopolist, or increasing returns to scale.

What is true for profit maximization for both monopolists and perfect competitive markets?

MC=MR only in PC is MC=MR=P

Marginal Revenue can become negative for:

Monopoly firms but not for competitive firms

A deadweight loss of consumer and/or producer surplus occurs when:

Mutually beneficial transactions cannot be completed.

Long Run elasticity of supply is defined as:

Percentage change in quantity supplied in the long run divided by percentage change in price.

For an increasing cost industry, the long run supply curve has a ____ elasticity of supply.

Positive

Price effect & output effect

Price effect: Price goes down and TR goes down Output effect: Output goes up and TR goes up

Positive Economic Profits exist for a firm in the long run if:

Price is above Long Run Average Cost P>AC

In the Short Run

Quantity supplied can be changed, but only by existing firms

In the Very Short Run

Quantity supplied is absolutely fixed

When prices drop in response to a decline in demand for an increasing cost industry:

Rent earned by elastically supplied inputs will decline by less than rent earned by in-elastically supplied inputs.

In a competitive market, an efficient allocation of resources is characterized by:

The largest possible sum of consumer and producer surplus.

In the Long Run, the greater burden of a specific tax will usually be absorbed by:

The party with the least elastic demand/supply curve

A demand curve will NOT shift out due to:

The price of a substitute falling

Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible:

average total cost of production

The principal difference between economic profits for a monopolist and for a competitive firm is that:

competitive profits exist only in the short run whereas monopoly profits may exist in the long run as well.

The exit of existing firms from a competitive market will:

decrease market supply and increase market price.

If a monopoly is maximizing profits, price will always be:

greater than marginal cost

Monopolists has as supply curve that:

is not well defined

In the Short Run, a FIRM's supply curve is equal to the:

marginal cost curve above its average variable cost curve.

If firms are competitive and profit maximizing, the price of a good equals the:

marginal cost of production. If P>MC then they are not producing the maximum quantity possible

A reduction in a monopolist's fixed costs would:

not effect the profit-maximizing price or quantity

A firm that is a natural monopoly is:

not likely to be concerned about new entrants eroding its monopoly power

Perfect price discrimination:

rarely occurs because firms do not have sufficient power to differentiate among specific buyers

In the Short Run, the incidence of a sales tax falls to:

shared between the consumer and the producer

Short Run Market Supply Curve

the horizontal summation of each firm's short-run supply curve

The excess burden of a tax is:

the loss of consumer and producer surplus that is not transferred elsewhere. (this is the same as dead-weight loss of a tax). You can minimize tax dead-weight loss by taxing goods for which either supply or demand is inelastic

The "deadweight loss" from a monopoly refers to:

the loss of consumer surplus due to the monopolization of a market that is not transferred to another economic factor

A monopolists average revenue always equals:

the price of its product

From a point of economic efficiency, output in a monopolized market is:

too low