ECON 9-12
In the short run, a firm will choose to shut down and not produce output if the price that it receives is less than its average (fixed, variable, total) cost.
Fixed
What are the four specific conditions that characterize pure competition?
Free entry/exit Price takers Standardized products Large number of sellers
Price discrimination occurs whenever a product is sold at different (markets, prices) , and these differences are not equal to the differences in the (revenue from, cost of) producing the product.
Prices Cost of
In a purely competitive market, product price measures the marginal benefit, or additional satisfaction, that society obtains from producing additional units of the product.
T
In an increasing-cost industry in pure competition, an expansion of the industry will increase resource prices.
T
In pure competition, price is equal to marginal revenue and also equal to average revenue.
T
In pure monopoly, there are strong barriers to entry
T
In the long run in pure competition, economic profits will attract new firms to enter an industry, while economic losses will cause existing firms to leave an industry.
T
In the long run, pure competition forces firms to produce at the minimum average total cost of production and to charge a price that is just consistent with the cost.
T
In the short run the size (or capacity) of a firm's plant is fixed.
T
Marginal cost is equal to average variable cost at the output at which average variable cost is at a minimum.
T
One explanation why the long-run average-total-cost curve of a firm rises after some level of output has been reached is the law of diminishing returns.
T
One general policy option for a monopoly that creates substantial economic inefficiency and is long lasting is to directly regulate its prices and operation.
T
One of the economic effects of monopoly is the transfer of income from consumers to the owners of the monopoly.
T
One reason many daily newspapers are going bankrupt is that their average fixed costs are rising because more people are getting their news from the Internet and there are fewer subscribers to newspapers.
T
Price and average revenue are the same in pure competition.
T
Price discrimination occurs when a given product is sold at more than one price and these price differences are not justified by cost differences.
T
Product price is a given fact to the individual competitive firm, but the supply plans of all competitive firms as a group are a basic determinant of product price.
T
Resources are misallocated by monopoly because price is not equal to marginal cost.
T
The "invisible hand" of the competitive market system organizes the private interests of producers in a way that complements society's interest in the efficient use of scarce resources.
T
The break-even point means that the firm is realizing normal profits, but not economic profits.
T
The demand curves for an individual firm in a purely competitive industry are perfectly inelastic.
T
The dilemma of monopoly regulation is that the production by a monopolist of an output that causes no misallocation of resources may force the monopolist to suffer an economic loss
T
The economic costs of a firm are the explicit or implicit costs for resources used for production by the firm.
T
The existence of economic profits in an industry will attract new firms to enter an industry.
T
The long-run equilibrium for firms in pure competition is for marginal revenue to equal marginal cost (MR = MC) and for price to equal the minimum of average total cost.
T
The long-run supply curve for a constant-cost industry in pure competition is horizontal.
T
The monopolist can increase the sales of its product if it charges a lower price
T
The pure monopolist produces a product for which there are no close substitutes
T
The purely competitive firm can maximize its economic profit (or minimize its loss) only by adjusting its output.
T
The purely competitive firm views an average revenue schedule as identical to its marginal-revenue schedule.
T
The short-run supply curve of a purely competitive firm tends to slope upward from left to right because of the law of diminishing returns.
T
The short-run supply curve of the purely competitive firm is the segment of the firm's short-run marginal- cost curve that lies above the firm's average-variable-cost curve.
T
Total cost is the sum of fixed and variable costs at each level of output.
T
Total revenue for each sales level is found by multiplying price by the quantity the firm can sell at that price.
T
Under conditions of pure competition, firms achieve productive efficiency by producing in the least costly way.
T
When firms in a purely competitive industry are earning profits that are less than normal, the supply of the product will eventually decrease.
T
When the marginal product of a variable resource increases, the marginal cost of producing the product will decrease, and when marginal product decreases, marginal cost will increase.
T
When there are economic losses in a purely competitive industry, some of the existing firms will exit the industry
T
The monopolist is inefficient productively because the average (variable, total) cost of producing a product is not at a (maximum, minimum) .
Total Minimum
The purely competitive economy achieves productive efficiency in the long run because price and average (variable, total) cost are equal and the latter is at a (maximum, minimum).
Total Minimum
Product price is a given fact to the (firm, industry), but the supply plans of the (firm, industry) as a group of firms are a basic determinant of product price.
Firm Industry
When a purely competitive industry is in long-run equilibrium, which statement is true?
Firms in the industry are earning normal profits.
The elimination of the market positions of firms and their products by new firms with new products and innovative ways of doing business would be most closely associated with the concept of
creative destruction
The region of demand in which the monopolist will choose a price-output combination will be the
elastic one because total revenue will increase as price declines and output increases
At the output at which the average product of labor is at a maximum, the average variable cost of producing the product is at a (minimum, maximum) .
minimum
The analysis of monopoly indicates that the monopolist
will seek to maximize total profits
Suppose a particular firm exhibits constant returns to scale as it increases its output over any reasonable range. If it increases all its inputs by 10%, its
output will increase by 10%
Competitive firms maximize:
total profits by producing where price equals marginal cost
The law of diminishing returns is that as successive units of a (fixed, variable) resource are added to a (fixed, variable) resource, beyond some point the (total, marginal) product of the former resource will decrease. The law assumes that all units of input are of (equal, unequal) quality.
variable fixed marginal equal
When marginal product is negative, total production (or output) is decreasing.
T
A firm has total fixed costs of $4,000 a year. The average variable cost is $3.00 for 2,000 units of output. At this level of output, its average total costs are
$5.00
Suppose that a firm produces 100,000 units a year and sells them all for $5 each. The explicit costs of production are $350,000 and the implicit costs of production are $100,000. The firm has an accounting profit of
$150,000 and an economic profit of $50,000
The price per unit to the seller is (marginal, total, average) revenue; price multiplied by the quantity the firm can sell is (marginal, total, average) revenue; and the extra revenue that results from selling one more unit of output is (marginal, total, average) revenue.
Average Total Marginal
Which one of the following short-run cost curves would not be affected by an increase in the wage paid to a firm's labor?
Average fixed cost
The law of diminishing returns explains why increases in variable costs associated with each one-unit increase in output become greater and greater after a certain point.
T
The marginal-cost curve intersects the average-total-cost (ATC) curve at the ATC curve's minimum point.
T
Economic profit for a firm is defined as the total revenue of the firm minus its
Economic costs
In the short run in a purely competitive industry, the equilibrium price is the price at which quantity demanded is (greater than, equal to, less than) quantity supplied, and the equilibrium quantity is the quantity at which quantity demanded is (greater than, equal to, less than) quantity supplied at the equilibrium price.
Equal to Equal to
The rule for profit maximization is that marginal revenue is (less than, equal to, greater than) marginal cost and in the case of pure competition this rule can be stated as price is (less than, equal to, greater than) marginal cost; but this rule implies that price is (less than, equal to, greater than) minimum average variable cost.
Equal to Equal to Greater than
Economic profit is an explicit cost, while normal profit is an implicit cost.
F
When the average variable cost of producing a product is falling, the average product of labor is (rising, falling)
rising
In the short run the firm can change its output by changing the quantity of the (fixed, variable) resources it employs, but it cannot change the quantity of the (fixed, variable) resources. This means that the firm's plant capacity is fixed in the (short, long) run and variable in the (short, long) run.
variable fixed short long
The short-run costs of a firm are fixed and variable costs, but in the long run all costs are (fixed, variable) . The long-run average total cost of producing a product is equal to the lowest of the short-run costs of producing that product after the firm has had all the time it requires to make the appropriate adjustments in the size of its (workforce, plant) .
variable plant
If total product is at a maximum, the marginal product is (positive, negative, zero) , but if it decreases, the marginal product is (positive, negative, zero) .
zero negative
The structures of the markets in which business firms sell their products in the U.S. economy are very similar.
F
When total product is increasing at a decreasing rate, marginal product is positive and increasing.
F
The supply curve for a monopolist is the upsloping portion of the marginal cost curve that lies above the average variable cost.
F
There are significant obstacles to entry in a purely competitive industry.
F
Under purely competitive conditions, the product price charged by the firm increases as output increases.
F
When average product is falling, marginal product is greater than average product.
F
When new firms enter a purely competitive industry, it will lead to an increase in market demand.
F
When there is long-run equilibrium in pure competition, the normal profit is zero for the existing firms.
F
At an output of 10,000 units per year, a firm's total variable costs are $50,000 and its average fixed costs are $2. The total costs per year for the firm are
$70,000
State three assumptions about profit maximization in the long run to keep the analysis simple in this chapter.
-Constant-cost industry -Identical costs -Only entry and exit affect long-run adjustments
3 important sources of economies of scale
1. more efficient use 2. managerial specialization 3. labor specialization
A firm is encountering constant returns to scale when it increases all of its inputs by 20% and its output increases by
20%
If the entry of new firms into an industry does not change the costs of all firms in the industry, the industry is said to be (a constant-, an increasing-, a decreasing-) cost industry. Its long-run supply curve is (horizontal, downsloping, upsloping).
A constant Horizontal
If the entry of new firms into an industry lowers costs of all firms in the industry, the industry is said to be (a constant-, an increasing-, a decreasing-) cost industry. Its long-run supply curve is (horizontal, downsloping, upsloping).
A decreasing Downsloping
Which industry comes closest to being purely competitive?
Agriculture
One consequence of a monopolist's use of price discrimination is (an increase, a decrease) in profits.
An increase
If the entry of new firms into an industry raises costs of all firms in the industry, the industry is said to be (a constant-, an increasing-, a decreasing-) cost industry. Its long-run supply curve is (horizontal, downsloping, upsloping).
An increasing Upsloping
If a regulated monopolist is allowed to earn a fair return, the price the government regulators let the monopolist charge for the price would be set equal to (marginal, average total) cost. Such a regulated price falls short of (allocative, productive) efficiency, but it is an improvement over the unregulated case in terms of price and output.
Average total Allocative
Which of the following is a characteristic of equilibrium in long-run competitive markets?
Combined consumer and producer surplus is maximized
Resources can be said to be more efficiently allocated by pure competition than by pure monopoly only if the purely competitive firms and the monopoly have the same (costs, revenues) , and they will not be the same if the monopolist
Costs
Another way to think about allocative efficiency is that it occurs because, at the equilibrium level of output, the marginal benefit to consumers, as reflected by points on the (supply, demand) curve, equal marginal cost for producers, as reflected by the points on the (supply, demand) curve.
Demand Supply
The dynamism and change arising from competition and the search for economic profit is often referred to as creative (construction, destruction), where the creative part leads to new products and lower-cost production methods and the (construction, destruction) part leads to the loss of jobs and bankruptcy of businesses.
Destruction Destruction
The demand schedule confronting the pure monopolist is (perfectly elastic, downsloping) . This means that marginal revenue is (greater, less) than average revenue (or price) and that both marginal revenue and average revenue (increase, decrease) as output increases.
Downsloping Less Decrease
New firms will enter an industry in the long run if the existing firms in the industry are earning (accounting, economic) profits. As new firms enter, the market supply of the product will (decrease, increase) and this change will (decrease, increase) the market price until it is equal to minimum long-run average total cost.
Economic Increase Decrease
One of the attributes of purely competitive markets is their ability to restore (surplus, efficiency) when disrupted by changes in the economy. If the demand for a product increases, this change will (increase, decrease) price so that it is greater than marginal cost. This situation in turn will (increase, decrease) profits and give incentive to expand supply so that price will (increase, decrease) and return to an equilibrium where price is equal to marginal cost.
Efficiency Increase Increase Decrease
A monopolist will charge the highest price it can get.
F
An increase in the price of a variable input will shift the marginal-cost or short-run supply curve downward.
F
As a monopolist increases its output, it finds that its total revenue at first decreases, and that after some output level is reached, its total revenue begins to increase.
F
As firms experiencing economic losses exit a purely competitive industry, product price for the typical firm will decrease until eventually price equals marginal cost and the minimum of average total cost.
F
Assuming a constant- or increasing-cost industry, the final long-run equilibrium positions of all firms have the same basic efficiency characteristics: P > MC > ATC.
F
Assuming that the purely competitive firm chooses to produce and not close down, to maximize profits or minimize losses it should produce at that point where price equals average cost.
F
Economic profit is the difference between total revenue and average revenue.
F
Fixed costs can be controlled or altered in the short run.
F
If a firm has constant returns to scale in the long run, the total cost of producing its product does not change when it expands or contracts its output.
F
If the price of a variable input should increase, the average variable cost, average total cost, and marginal- cost curves would all shift upward, but the position of the average-fixed-cost curve would remain unchanged.
F
If, at the profit-maximizing level of output for the purely competitive firm, price exceeds the minimum average variable cost but is less than average total cost, the firm will make a profit
F
In a constant-cost industry in pure competition, an expansion of the industry will increase resource prices.
F
In pure competition, allocative efficiency is achieved when product price is greater than marginal cost.
F
Marginal cost is the change in fixed cost divided by the change in output.
F
Marginal revenue is the change in average revenue that results from selling one more unit of output.
F
Minimum efficient scale occurs at the largest level of output at which a firm can minimize long-run average costs.
F
One reason for studying the pure competition model is that most industries are purely competitive.
F
Pure competition minimizes the combined consumer and producer surplus
F
Pure monopoly guarantees economic profits.
F
Rent-seeking expenditures that monopolists make to obtain or maintain monopoly privilege have no effect on the firm's costs.
F
The general view of economists is that a pure monopoly is efficient because it has strong incentives to be technologically progressive.
F
The larger the output of a firm, the smaller the fixed cost of the firm.
F
The law of diminishing returns states that as successive amounts of a variable resource are added to a fixed resource, beyond some point total output will diminish.
F
The long-run supply curve for a decreasing-cost industry in pure competition is vertical.
F
The long-run supply curve for an increasing-cost industry in pure competition is downsloping
F
The monopolist determines the profit-maximizing output by producing that output at which marginal cost and marginal revenue are equal and sets the product price equal to marginal cost and marginal revenue at that output.
F
The primary cause of diseconomies of scale is increased specialization of labor.
F
The purely competitive firm is more likely to be affected by X-inefficiency than a monopolist.
F
The regulated utility is likely to make an economic profit when price is set to achieve the most efficient allocation of resources (P = MC)
F
The resources employed by a firm are all variable in the long run and all fixed in the short run.
F
If there are substantial economies of scale in the production of a product, a small-scale firm will find it difficult to enter into and survive in an industry because its average costs will be (greater, less) than those of established firms, and a firm will find it (easy, difficult) to start out on a large scale because it will be nearly impossible to acquire the needed financing.
Greater Difficult
The monopolist will typically charge a (lower, higher) price and produce (less, more) output and is efficient than if the product was produced in a purely competitive industry.
Higher Less
Two common misconceptions about pure monopoly are that it charges the (lowest, highest) price possible and seeks the maximum (normal, per-unit) profit.
Highest Per unit
When demand is price elastic, a decrease in price will (increase, decrease) total revenue, but when demand is price inelastic, a decrease in price will (increase, decrease) total revenue. The demand curve for the purely competitive firm is (horizontal, down sloping) , but it is (horizontal, down sloping) for the monopolist. The profit-maximizing monopolist will want to set price in the price (elastic, inelastic) portion of its demand curve.
Increase Decrease Horizontal Downsloping Elastic
Three general policy options to reduce the economic (losses, inefficiency) of a monopoly are to file charges against it through (liability, antitrust) laws, have government regulate it if it is a (conglomerate, natural monopoly) , or ignore it if it is unsustainable.
Inefficiency Antitrust Natural monopoly
In pure competition, as an individual firm increases output, the product price (rises, falls, is constant) . Marginal revenue is (less than, greater than, equal to) product price and average revenue is (less than, greater than, equal to) product price.
Is constant Equal to Equal to
The model of pure competition used in this chapter assumed that all firms in the industry had the same cost curves and production technology, so as a result, firms entering an industry just duplicate the production methods of other firms, so there (is, is no) innovation and there (is, is no) dynamism. Entries and exits of firms in pure competition will ensure that every firm will make the same (normal, economic) profit in the long run.
Is no Is no Normal
The pure monopolist (is, is not) guaranteed an economic profit; in fact, the pure monopolist can experience economic losses in the (short run, long run) because of (strong, weak) demand for the monopoly product.
Is not Short run Weak
Existing firms will leave an industry in the long run if they are realizing economic (profits, losses). As firms leave the industry, the market supply of the product will (decrease, increase) and this change will (decrease, increase) the market price until it is equal to minimum long-run average total cost.
Losses Decrease Increase
In a purely competitive industry individual firms do not have control over the price of their product.
T
The supply curve for a purely competitive firm is the portion of the (average variable cost, marginal cost) curve that lies above the (average variable cost, marginal cost) curve. The supply curve for the monopolist (is the same, does not exist)
MC AVC doesn't exist
If the price of labor or some other variable resource increased, the
MC curve would shift upward
For a purely competitive firm in long-run equilibrium,
MR 5 MC 5 minimum ATC
In the short run, the individual firm's supply curve in pure competition is that portion of the firm's (total-, marginal-) cost curve that lies (above, below) the average-variable-cost curve. The break-even point for a firm is where price equals average (total, variable) cost.
Marginal Above Total
If the monopolist were regulated and a socially optimal price for the product were sought, the price would be set equal to (marginal, average total) cost. Such a legal price would achieve (productive, allocative) efficiency but might result in losses for the monopolist.
Marginal Allocative
In the long run the purely competitive economy is allocatively efficient because price and (total, marginal) cost are equal and it implies that resources will be allocated according to the "tastes and preferences" of (producers, consumers).
Marginal Consumers
When the economic profit of a monopolist is at a maximum, (marginal, average) revenue equals (marginal, average) cost and price is (greater, less) than marginal cost.
Marginal Marginal Greater
When a purely competitive industry is in long-run equilibrium, the price that the individual firm is paid for its product is equal to (total, marginal) revenue and its (total, marginal) cost. Also in this case the long-run average total cost for the firm is at a (maximum, minimum).
Marginal Marginal Minimum
The change in total product divided by the change in resource input defines
Marginal product
Which is true with respect to the demand data confronting a monopolist?
Marginal revenue decreases as average revenue decreases.
The "invisible hand" also operates in a competitive market system because it (maximizes, minimizes) the profits of individual producers and at the same time the system creates a pattern of resource allocation that (maximizes, minimizes) consumer satisfaction.
Maximizes Maximizes
If a purely competitive firm produces any output at all, it will produce that output at which its profit is at a (maximum, minimum) or its loss is at a (maximum, minimum) . Or, said another way, the firm will produce output at which marginal cost is (equal to, greater than) marginal revenue.
Maximum Minimum Equal to
Consumer surplus is the difference between the (minimum, maximum) prices that consumers are willing to pay for a product and the market price of that product, whereas producer surplus is the difference between the (minimum, maximum) prices that producers are willing to accept for a product and the market price of a product. At the long-run equilibrium level of output, the (minimum, maximum) willingness to pay for the last unit is just equal to the (minimum, maximum) acceptable price for that unit so that the combined consumer and producer surplus is at a (minimum, maximum
Maximum Minimum Maximum Minimum Maximum
Economic profit is total revenue (plus, minus) total cost. If the firm is making a normal profit, total revenue is (greater than, equal to) total cost. This output level is called the (profit, break-even) point by economists. A firm will produce a quantity where the difference between total revenue and total cost is at a (minimum, maximum).
Minus Equal to Break-even Maximum
Which would be defining characteristics of pure monopoly?
No close substitutes for the product exist and there is one seller.
A second strategy for an entrepreneur trying to earn more than a(n) (normal, economic) profit typically earned by firms in pure competition would be to develop a new product that is popular with consumers. If the product is successful, then the firm will be able to earn a(n) (normal, economic) profit for a while; but, when other firms develop similar products, then eventually there will be a return to a(n) (normal, economic) profit typically earned by firms.
Normal Economic Normal
An entrepreneur will improve production methods to earn more than a(n) (normal, economic) profit typically earned by firms in pure competition. A successful new method of production will reduce the firm's cost, and if revenues stay the same, the firm will earn a(n) (normal, economic) profit for a while; but if other firms copy those production methods and increase production, eventually there will be return to a(n) (normal, economic) profit typically earned by firms.
Normal Economic Normal
An industry will be in long-run equilibrium when firms are earning (normal, economic) profits, which means that the firms are earning what they could be earning elsewhere in the economy and there (is, is not) an incentive for change.
Normal Is not
Which triple identity results in the most efficient use of resources?
P 5 MC 5 minimum ATC
Legal barriers to entry by government include granting an inventor the exclusive right to produce a product (license, patent) , and limiting entry into an industry or occupation through its issuing of a (license, patent) .
Patent License
It is inefficient allocatively because (marginal revenue, price) is not equal to (marginal, total) cost.
Price Marginal
In a graph with marginal and average-cost curves, the way to calculate economic profit is to take the difference between average total cost and (price, output) and multiply it by (price, output) .
Price Output
At which combination of price and marginal revenue is the price elasticity of demand less than 1?
Price equals $72; marginal revenue equals 2$18.
In a decreasing-cost industry in pure competition, an expansion of the industry will decrease resource prices.
T
There are two ways to determine the level of output at which the competitive firm will realize maximum (loss, profit) or minimum(loss, profit). One method is to compare total revenue with (total, marginal) cost and the other way is to compare marginal revenue with (total, marginal) cost.
Profit Loss Total Marginal
The closest example of pure monopoly would be government-regulated (nonprofit organizations, public utilities) that provide water, electricity, or natural gas. There are also "near monopolies," such as private businesses that might account for (40, 80) % of a particular market, or businesses in a geographic region that are the (multiple, sole) suppliers of a good or service.
Public utilities 80 sole
For which market model are there a very large number of firms?
Pure competition
In which market model is the individual seller of a product a price taker?
Pure competition
The four market models examined in this and the next three chapters are:
Pure competition Pure monopoly Monopolistic competition Oligopoly
The incidence of pure monopoly is relatively (rare, common) because eventually new developments in technology (strengthen, weaken) monopoly power or (substitute, complementary) products are developed.
Rare Weaken Substitute
Other barriers to entry include the ownership of essential (markets, resources) and strategic changes in product (price, regulation) (markets, resources)
Resources Price
The purely competitive firm's demand schedule is a (cost, revenue) schedule. Demand is equal to (marginal, total) revenue and is equal to (average, total) revenue.
Revenue Marginal Average
Due to the law of diminishing returns, marginal costs eventually (fall, rise) as more units are produced. To have an incentive to produce more units at higher marginal costs, the product's price must (fall, rise).
Rise Rise
Pure monopoly is an industry in which a single firm is the sole producer of a product for which there are no close (substitutes, complements) and into which entry in the long run is effectively (open, blocked) .
Substitutes Blocked
The short-run market supply curve is the (average, sum) of the (short-run, long-run) supply curves of all firms in the industry.
Sum Short run
A discriminating monopolist who can segment its market based on elasticity of demand will charge a higher price to the customers with a less elastic demand and a lower price to customers with a more elastic demand.
T
A fair-return price for a regulated utility would have price set to equal average total cost.
T
A major attribute of pure competition is the ability to restore productive and allocative efficiency when it is disrupted by changes in the economy.
T
A monopolist may create an entry barrier by price-cutting or substantially increasing the advertising of its product.
T
A monopolist seeks maximum total profits, not maximum unit profits
T
A monopolist will avoid setting a price in the inelastic segment of the demand curve and prefer to set the price in the elastic segment.
T
A purely competitive firm is a price taker, but a monopolist is a price maker
T
A purely competitive firm that wishes to produce and not close down will maximize profits or minimize losses at that output at which marginal costs and marginal revenue are equal.
T
A purely competitive firm will produce in the short run the output at which marginal cost and marginal revenue are equal provided that the price of the product is greater than its average variable cost of production.
T
An assumption of the law of diminishing returns is that all units of variable inputs are of equal quality.
T
An improvement in technology that raises productivity will shift the marginal-cost or short-run supply curve downward.
T
As new firms enter a purely competitive industry with economic profits, product price for the typical firm will decrease until eventually price equals marginal cost at the minimum of average total cost.
T
Creative destruction is the concept that the creation of new products and new production methods is beneficial for society, but that it also leads to the destruction of jobs, businesses, and even industries.
T
If a firm increases all its inputs by 20% and its output increases by 30%, the firm is experiencing economies of scale.
T
If a purely competitive firm is producing output less than its profit-maximizing output, marginal revenue is greater than marginal cost.
T
If the fixed cost of a firm increases from one year to the next (because the premium it must pay for the insurance on the buildings it owns has been increased) while its variable cost schedule remains unchanged, its marginal-cost schedule also will remain unchanged.
T
Imperfectly competitive markets are defined as all markets except those that are purely competitive.
T
When there are substantial economies of scale in the production of a product, the monopolist may charge a price that is lower than the price that would prevail if the product were produced by a purely competitive industry.
T
With pure competition, any advantage that innovative firms gain by either lowering production costs or introducing new products will not persist over time.
T
he weaker the barriers to entry into an industry, the more competition there will be in the industry, other things equal.
T
An individual firm in a purely competitive industry is a price (maker, taker) and finds that the demand for its product is perfectly (elastic, inelastic), so its demand curve is graphed as a (vertical, horizontal) line
Taker Elastic Horizontal
Which would best describe the short run for a firm as defined by economists?
The plant capacity for a firm is fixed.
Which is one of the conditions that must be met before a seller finds that price discrimination is workable?
The seller must be able to segment the market.
After all long-run adjustments are made in a purely competitive industry, product price will be equal to, and production will occur at, each firm's minimum average (variable, total) cost because firms (shut down production, seek profits) and firms are free to (enter or exit, raise prices or lower prices) in an industry.
Total Seek profits Enter or exit
In the short run, a firm will be willing to produce its output at an economic loss if the price that it receives is less than its average (fixed, variable, total) cost but greater than its average (fixed, variable, total) cost.
Total Variable
If marginal product is positive but falling
Total product is increasing at a decreasing rate
Which statement is true of a purely competitive industry in short-run equilibrium?
Total quantity demanded is equal to total quantity supplied.
An increase in the price of variable inputs such as worker wages will shift the marginal-cost or short-run supply curve of the individual firm (upward, downward) while a decrease in the price of variable input or an improvement in technology will shift this curve (upward, downward)
Upward Downward
The economic profits of firms in long-run competitive equilibrium are
Zero
Which is most likely to be a long-run adjustment for a firm that manufactures golf carts on an assembly line?
a change from the production of golf carts to motorcycles
Suppose a decrease in product demand occurs in a decreasing-cost industry. Compared to the original equilibrium the new long-run competitive equilibrium will entail:
a higher price and a lower total output
A monopolist can segment two groups of buyers of its product based on elasticity of demand. Assume that ATC remains constant. The monopolist will maximize profit by charging
a lower price to customers with an elastic demand and a higher price to customers with an inelastic demand
Compared to the downsloping demand curve for the output of a competitive industry, a single firm operating in that industry faces:
a perfectly elastic demand curve
Suppose that a business incurred implicit costs of $300,000 and explicit costs of $1,300,000 over the past year. If the firm earned $1,400,000 in revenue, its:
accounting profits were $100,000 and its economic losses were $200,000
In the long run, competitive markets achieve:
allocative efficiency because P = MC and productive efficiency because P = min ATC
At a monopolist's current output, ATC = $10, P = $11, MC = $8 and MR = $7. This firm is realizing:
an economic profit that could be increased by producing less output
An increasing cost industry is characterized by:
an upsloping long-run supply curve
Individual firms in purely competitive markets:
are "price takers"
Explicit costs and implicit costs:
are alike in that both represent opportunity costs
If the long-run average-total-cost curve for a firm is downsloping, then it indicates that there
are economies of scale
The distinguishing feature of the short run is that
at least one input is fixed
Combined consumer and producer surplus is maximized in a competitive market:
at the quantity corresponding to the intersection of the market supply and demand curves
Average variable cost may be either increasing or decreasing when
average fixed cost is decreasing
Marginal costs and average variable cost are equal at the output at which
average product is a maximum
When the monopolist is maximizing total profits or minimizing losses,
average revenue is greater than marginal cost
A monopolist who is limited by the imposition of a government-set or regulated price to a fair return would sell the product at a price equal to
average total cost
Because the marginal product of a variable resource initially increases and later decreases as a firm increases its output,
average variable cost decreases at first and then increases
If you know that total fixed cost is $100, total variable cost is $300, and total product is 4 units, then
average variable cost is $75
The individual firm's short-run supply curve is that part of its marginal- cost curve lying above its
average-variable-cost curve
The law of diminishing returns explains why a firm's average variable, average total, and marginal cost may at first tend to (increase, decrease) but ultimately (increase, decrease) as the output of the firm increases.
decrease increase
In some industries, the long-run average-cost curve will (increase, decrease) over a long range of output and efficient production will be achieved with only a few (small, large) firms. The conditions for a natural monopoly are created when (economies, diseconomies) of scale extend beyond the market's size so that unit costs are minimized by having a single firm produce a product.
decrease large economies
At present output a monopolist determines that its marginal cost is $18 and its marginal revenue is $21. The monopolist will maximize profits or minimize losses by
decreasing price and increasing output
Suppose a monopolist could segment its market into two distinct submarkets and prevent resale between them. Its profits would increase if it charged a higher price to the group whose:
demand is more inelastic
The supply curve for a pure monopolist
does not exist
The demand curve for the pure monopolist is
downsloping
By virtue of being a large firm enjoys (economies, diseconomies) of scale not available to a pure competitor;
economies
A barrier to entry that significantly contributes to the establishment of a monopoly would be
economies of scale
In pure competition, product price is
equal to marginal revenue
If there is an increase in demand for a product in a purely competitive industry, it results in a dynamic adjustment in which there is an industry
expansion that will end when the price of the product is equal to its marginal cost
Accounting profit is equal to the firm's total revenue less its (explicit, implicit) costs. Normal profit is an (explicit, implicit) cost because it represents the forgone income that the entrepreneur could have earned working at another firm. Economic profit is equal to the firm's total (costs, revenues) minus all its economic (costs, revenues), both explicit and implicit.
explicit implicit revenues costs
When the marginal product of labor is rising, the marginal cost of producing a product is (rising, falling)
falling
If marginal cost is less than average variable cost, average variable cost will be (rising, falling, constant) , but if average variable cost is less than marginal cost, average variable cost will be (rising, falling, constant) .
falling rising
The market for which of the following most closely approximates pure competition?
feed corn
Those costs that in total do not vary with changes in output are (fixed, variable) costs, but those costs that in total change with the level of output are (fixed, variable) costs. The sum of fixed and variable costs at each level of output is (marginal, total) cost.
fixed variable total
Which factor contributes to economies of scale?
greater specialization in management of a firm
A monopoly will charge a (lower, higher) price than would a purely competitive firm with the same costs, so consumers pay this higher price and this income gets transferred as revenue to the owners of the monopoly
higher
When the firm experiences diseconomies of scale, it has (higher, lower) average total costs as output increases. Where diseconomies of scale are operative, an increase in all inputs will cause a (greater, less) -than- proportionate increase in output. The factor that gives rise to large diseconomies of scale is managerial (specialization, difficulties) .
higher less difficulties
When compared with the purely competitive industry with identical costs of production, a monopolist will charge a
higher price and produce less output
Increasing-cost industries find that their costs rise as a consequence of an increased demand for their product because of
higher resource prices
The long-run supply curve under pure competition will be
horizontal in a constant-cost industry and upsloping in an increasing-cost industry
The long-run industry supply curve will be horizontal:
if resource prices remain constant as industry demand rises or falls
Is more susceptible to X-(efficiency, inefficiency) than pure competitors
inefficiency
A purely competitive firm has set its price at the market price of $210. The firm is operating on the upsloping section of its marginal cost curve and t its current output level, its marginal cost is $225. Assuming the firm wishes to maximize profit, it should:
leave price unchanged and cut production
The entry and exit of firms in a purely competitive market can occur only in the (short run, long run). In the short run, the industry is composed of a specific number of firms, each with a plant size that is (fixed, variable), but in the long run the number of firms is (fixed, variable).
long run fixed variable
If economies of scale are limited and diseconomies appear quickly in an industry, then minimum efficient scale occurs at a
low level of output, and there will be many firms
At the output at which the average variable cost is at a minimum, average variable cost and (marginal, total) cost are equal and average product and (marginal, total) product are equal.
marginal marginal
Suppose that when 2,000 units of output are produced, the marginal cost of the 2,001st unit is $5. This amount is equal to the minimum of average total cost, and marginal cost is rising. If the optimal level of output in the short run is 2,500 units, then at that level,
marginal cost is greater than $5 and marginal cost is greater than average total cost
If the short-run average variable costs of production for a firm are falling, then this indicates that
marginal costs are below average variable costs
Total revenue for producing 10 units of output is $6. Total revenue for producing 11 units of output is $8. Given this information, the
marginal revenue for producing the 11th unit is $2.
At the output at which marginal cost is at a minimum, the marginal product of labor is at a (minimum, maximum)
maximum
The smallest level of output at which a firm can minimize long-run average costs is (maximum, minimum) efficient scale. Relatively large and small firms could coexist in an industry and be equally viable when there is an extended range of (increasing, decreasing, constant) returns to scale.
minimum constant
In a purely competitive industry,
new firms are free to enter and existing firms are able to leave the industry very easily
Reduces costs through adopting (higher prices, new technology)
new technology
The four market models differ in terms of the (age, number) of firms in the industry, whether the product is (a consumer good, standardized) or (a producer good, differentiated), and how easy or difficult it is for new firms to (enter, leave) the industry.
number standardized differentiated enter
The value or worth of any resource in its best alternative use is called the (out-of-pocket, opportunity) cost of that resource.
opportunity
The demand schedule or curve confronted by the individual purely competitive firm is
perfectly elastic
The long-run supply curve in a constant-cost industry will be
perfectly elastic
An economy is producing the goods most wanted by society when, for each and every good, its
price and marginal cost are equal
The allocative inefficiency of non discriminating monopoly arises from the fact that:
price exceeds marginal cost
In long run equilibrium, both competitive firms and a monopolistic firms that maximize profits:
produce the output at which marginal revenue equals marginal cost
The Zebra, Inc. is selling in a purely competitive market. Its output is 250 units, which sell for $2 each. At this level of output, marginal cost is $2 and average variable cost is $2.25. The firm should
produce zero units of output
Allocative efficiency in the production of wheat requires:
producing every unit of wheat whose marginal benefit equals or exceeds its marginal cost
May need to make (liability, rent-seeking) expenditures to obtain or maintain monopoly privileges granted by government
rent-seeking
Which will tend to increase the inefficiencies of the monopoly producer?
rent-seeking behavior
The economic cost of producing a product is the amount of money or income the firm must pay or provide to (government, resource suppliers) to attract land, labor, and capital goods away from alternative uses in the economy. The monetary payments for resources used for production are (explicit, implicit) costs, and the self- owned or self-employed resources used by the firm are (explicit, implicit) costs.
resource suppliers explicit implicit
Because of the law of diminishing marginal returns, marginal costs eventually
rise as more units of output are produced; thus higher prices are required to motivate producers to supply more
If the marginal product of any input exceeds its average product, the average product is (rising, falling) , but if it is less than its average product, the average product is (rising, falling) . If the marginal product is equal to its average product, the average product is at a (minimum, maximum) .
rising falling maximum
If the total product increases at an increasing rate, the marginal product is (rising, falling) . If it increases at a decreasing rate, the marginal product is (positive, negative, zero) but (rising, falling) .
rising positive falling
Changes in either resource prices or technology will cause cost curves to (shift, remain unchanged) . If average fixed costs increase, then the average-fixed-cost curve will (shift up, shift down, remain unchanged) and the average-total-cost curve will (shift up, shift down, remain unchanged) , but the average-variable-cost curve will (shift up, shift down, remain unchanged) and the marginal-cost curve will (shift up, shift down, remain unchanged)
shift shift up shift up remain unchanged remain unchanged
If average variable costs increase, then the average variable- cost curve will (shift up, shift down, remain unchanged) and the average-total-cost curve will (shift up, shift down, remain unchanged) , and the marginal- cost curve will (shift up, shift down, remain unchanged) , but the average-fixed-cost curve will (shift up, shift down, remain unchanged) .
shift up shift up shift up remain unchanged
A competitive firm is currently producing and selling 2000 units per month at the market price of $5.60. Its total cost is $12,000, of which its fixed costs are $1,000, and its marginal cost is $5. This firm:
should increase production
A product's ability to satisfy a large number of consumers at the same time is called
simultaneous consumption
For all values above minimum average variable cost, a competitive firm's:
supply curve is coincident with its marginal cost curve
Assume that the market for wheat is purely competitive. Currently, firms growing wheat are experiencing economic losses. In the long run, we can expect this market's
supply curve to decrease
In a decreasing-cost industry, the long-run
supply curve would be downsloping
At an equilibrium level of output, a monopolist is not productively efficient because
the average total cost of producing the product is not at a minimum
Pure competition in the long run in an industry is most affected by
the entry and exit of firms
Why does the short-run marginal-cost curve eventually increase for the typical firm?
the law of diminishing returns
Price discrimination is possible when the following three conditions exist:
the original buyers can't resell the product the seller is able to separate buyers into groups with different elasticities of demand the seller has some monopoly power
"Creative destruction" refers to:
the process by which old industries or technologies are replaced by newer ones
The idea of the "invisible hand" operating in the competitive market system means that
there is a unity of private and social interests that promotes efficiency
Marginal cost is the increase in (average, total) variable cost or (average, total) cost that occurs when the firm increases its output by one unit.
total total
Because the marginal product of a resource at first increases and then decreases as the output of the firm increases,
total cost at first increases by decreasing amounts and then increases by increasing amounts
If other factors are held constant, an increase in wages for a purely competitive firm would result in a shift
upward in the marginal-cost curve