Econ Ch. 9

If price is equal to average variable cost, then a perfectly competitive firm breaks even. True False

false

To maintain a monopoly, a firm must have marginal revenue equal to demand. an insurmountable barrier to entry. a perfectly inelastic demand. few competitors.

an insurmountable barrier to entry.

In the long run, the entry of new firms in an industry harms consumers by forcing prices up above the level of total cost benefits consumers by forcing prices down to the level of total cost. benefits consumers by forcing prices down to the level of average cost. harms consumers by forcing prices up above the level of average cost

benefits consumers by forcing prices down to the level of average cost.

If a firm shuts down in the short run, is makes zero economic profit. its loss equals zero. its total revenue is not large enough to cover its fixed cost. its loss equals its fixed cost.

its loss equals its fixed cost.

If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then market supply will remain constant. new firms are attracted to the industry. firms are breaking even. existing firms will exit the industry.

new firms are attracted to the industry

In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are sunk costs. nonmonetary opportunity costs. capital costs. implicit costs.

sunk costs

When firms exit a perfectly competitive industry, the market supply curve shifts to the left. True False

true

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's profit? (P × Q) - TC P - ATC (P × Q) - (P × ATC) P - TC

(P × Q) - TC

Which one of the following about a monopoly is false? A monopoly could make profits in the long run. A monopoly status could be temporary. A monopoly could break even in the long run. A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly.

A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly.

In recent years, Amazon has lowered its profits by offering some of its customers free shipping on books and building more warehouses to hold its book inventories. Which of the following explains Amazons actions? Amazon feared government regulation if its profits were too high. Amazon took these actions to deter entry into its market by new online booksellers. Amazon was forced to take these actions because of the bargaining power of its suppliers. Amazon took these actions to compete more effectively with existing online booksellers.

Amazon took these actions to compete more effectively with existing online booksellers.

Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly? Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost. Each sets a price for its product that will maximize its revenue. Each must lower its price to sell more output. Each maximizes profits by producing a quantity for which price equals marginal cost.

Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.

In long-run perfectly competitive equilibrium, which of the following is false? Firms earn economic profit. There is efficient, low-cost production at the minimum efficient scale. Economic surplus is maximized. Economies of scale are exhausted.

Firms earn economic profit.

A supplier of an input is unlikely to have bargaining power if many firms can supply the input. it has a patent on the input. it is the sole supplier of the input. the input supplied is specialized.

Many firms can supply the input.

Which of the following statements applies to a monopolist but not to a perfectly competitive firm at their profit-maximizing outputs? Marginal revenue is less than price. Marginal revenue equals marginal cost. Price equals marginal cost. Average revenue equals average cost.

Marginal revenue is less than price.

Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly? No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes. Yes, there are no substitutes to Peet's coffee. No, Peet's is not a monopoly because there are many branches of Peet's. Yes, Peet's is the only supplier of Peet's coffee in a market where there are high barriers to entry.

No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes.

In 2017, the Educational Testing Service (ETS) charged $54.50 to take the Scholastic Aptitude Test (SAT) but $205 to take the Graduate Record Exam (GRE). One reason for this difference in price is the ETS faces competition in the market for the SAT but no competition for the GRE. an average, those who take the GRE have higher incomes than those who take the SAT. more people took the SAT than the GRE in 2015. the GRE is a longer test with more questions.

The ETS faces competition in the market for the SAT but no competition for the GRE.

What is always true at the quantity where a firm's average total cost equals average revenue? Marginal cost equals marginal revenue. The firm breaks even. The firm's profit is maximized. The firm's revenue is maximized.

The firm breaks even.

Assume that the 4K and OLED television sets industry is perfectly competitive. Suppose a producer develops a successful innovation that enables it to lower its cost of production. What happens in the short run and in the long run? The firm will be able to increase its economic profits temporarily, but in the long run its economic profits will be eliminated as other firms copy the innovation. The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits. Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short-run profits because other firms would also innovate. This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation.

The firm will be able to increase its economic profits temporarily, but in the long run its economic profits will be eliminated as other firms copy the innovation.

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements regarding economic surplus in each market structure is true? Under perfectly competitive conditions, economic surplus in this industry equals consumer surplus plus producer surplus. Under monopoly conditions, some consumer surplus is transferred to producer surplus, but economic surplus is the same as it was under perfectly competitive conditions. Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss. Under perfectly competitive conditions, economic surplus in this industry is maximized. Under monopoly conditions, economic surplus is minimized. Under perfectly competitive conditions, economic surplus is equal to consumer surplus; there is no producer surplus because firms are price takers. Under monopoly conditions, economic surplus is equal to producer surplus.

Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss.

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The fixed cost of production is $20,000. The price of each good is $10. Should the firm continue to produce in the short run? Yes, it should continue to produce because its price exceeds its average fixed cost. Yes, it should continue to produce because the firm's revenues cover the total variable cost of $16,000. No, it should shut down because it is making a loss. There is insufficient information to answer the question.

Yes, it should continue to produce because the firm's revenues cover the total variable cost of $16,000.

A price maker is a firm that is able to sell any quantity at the highest possible price. a consumer who participates in an auction where she announces her willingness to pay for a product. a firm that has some control over the price of the product it sells. a person who actively seeks out the best price for a product that he or she wishes to buy.

a firm that has some control over the price of the product it sells.

Relative to a perfectly competitive market, a monopoly results in a gain in producer surplus equal to the loss in consumer surplus. greater economic efficiency. a gain in producer surplus less than the loss in consumer surplus. a gain in producer surplus equal to the gain in consumer surplus

a gain in producer surplus less than the loss in consumer surplus.

A natural monopoly is most likely to occur in which of the following industries? the pharmaceutical industry because the development and approval of new drugs through the Food and Drug Administration can take more than 10 years the diamond mining and marketing industry because one firm can control a key resource an industry where fixed costs are very large relative to variable costs the software industry because of the importance of network externalities

an industry where fixed costs are very large relative to variable costs

Microsoft hires marketing and sales specialists to decide what prices it should set for its products, whereas a wealthy corn farmer in Iowa, who sells his output in the world commodity market, does not. Why is this so? because unlike Microsoft, the wealthy corn farmer is probably a monopolist because Microsoft could potentially lose sales if it sets prices indiscriminately because Microsoft is large enough to hire the best people in the field because the wealthy corn farmer is a price maker who sets his price independently of the market price, but Microsoft's optimal output depends on the price it selects

because Microsoft could potentially lose sales if it sets prices indiscriminately

The De Beers Company, one of the longest-lived monopolies, is facing increasing competition. One source of competition comes from people who might resell their previously owned diamonds. Why is De Beers worried that people might resell their previously owned diamonds? because previously owned diamonds would be a close substitute to newly mined diamonds and would therefore reduce De Beers' market power because De Beers will not be able to guarantee the quality of previously owned diamonds and fears that its reputation might be harmed because the availability of previously owned diamonds would increase the market demand for diamonds and dilute De Beers' monopoly because the availability of previously owned diamonds would make the market demand curve for diamonds more inelastic and force De Beers to lower its price

because previously owned diamonds would be a close substitute to newly mined diamonds and would therefore reduce De Beers' market power

As word processing on personal computers expanded, sales of typewriters began to disappear. Which competitive force does this event demonstrate? competition from substitute goods or services the threat of competition from new entrants bargaining power of buyers bargaining power of suppliers

competition from substitute goods or services

A perfectly competitive industry achieves allocative efficiency when goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. it produces where market price equals marginal production cost. goods and services are produced at the lowest possible cost. firms carry production surpluses.

goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.

A profit-maximizing monopoly's price is not consistently related to price that would prevail if the market was perfectly competitive. less than the price that would prevail if the industry was perfectly competitive. greater than the price that would prevail if the industry was perfectly competitive. the same as the price that would prevail if the industry was perfectly competitive.

greater than the price that would prevail if the industry was perfectly competitive.

A public franchise results from ownership of a key raw material. is a government designation that a private firm is the only legal producer of a good or service. is a corporation that is owned by stockholders. is an unregulated monopoly necessary for the public good.

is a government designation that a private firm is the only legal producer of a good or service.

If a perfectly competitive firm's price is above its average total cost, the firm is earning a profit. is incurring a loss. should shut down. is breaking even.

is earning a profit.

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm should shut down. is earning a profit. is breaking even. is incurring a loss.

is incurring a loss.

Compared to perfect competition, the consumer surplus in a monopoly is lower because price is higher and output is lower. is higher because price is higher and output is the same. is eliminated. is unchanged because price and output are the same.

is lower because price is higher and output is lower.

Diet Coke ________ considered a product in a monopoly market, because ________. is; the CocaCola company has market power is not; because it is produced in factories around the world is; it has only one producer: CocaCola company is not; it has many substitutes

is not; it has many substitutes

A monopoly firm's demand curve is more inelastic than the demand curve for the product. is inelastic at high prices and elastic at lower prices. is the same as the market demand curve. is perfectly inelastic.

is the same as the market demand curve.

If a typical firm in a perfectly competitive industry is earning profits, then new firms will enter in the long run causing market supply to decrease, market price to rise, and profits to increase. all firms will continue to earn profits. new firms will enter in the long run causing market supply to increase, market price to fall, and profits to decrease. the number of firms in the industry will remain constant in the long run.

new firms will enter in the long run causing market supply to increase, market price to fall, and profits to decrease.

When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell nothing at all; the firm shuts down. any positive output the entrepreneur decides upon because all of it can be sold. the output where average total cost equals price. the output where marginal revenue equals marginal cost.

nothing at all; the firm shuts down.

Which of the following describes a situation in which a good or service is produced at the lowest possible cost? marginal efficiency productive efficiency allocative efficiency profit maximization

productive efficiency

If a typical firm in a perfectly competitive industry is incurring losses, then some firms will enter in the long run, causing market supply to increase and market price to rise, increasing profit for all firms. some firms will exit in the long run, causing market supply to decrease and market price to fall, increasing losses for the remaining firms. all firms will continue to lose money. some firms will exit in the long run, causing market supply to decrease and market price to rise, increasing profits for the remaining firms.

some firms will exit in the long run, causing market supply to decrease and market price to rise, increasing profits for the remaining firm

Of the factors that are within the control of the firm's owners, the most important factors that make a firm successful are the selection of the prices of its products and the selection of the most productive and loyal employees. the differentiation of its products and the production of products at a lower average cost than competing firms. the establishment of trademarks for its products and the aggressive defense of those trademarks. lobbying government to erect or enforce entry barriers in its markets and the marketing of its products as widely as possible.

the differentiation of its products and the production of products at a lower average cost than competing firms.

If a firm shuts down in the short run, it avoids its variable cost but not its fixed cost. True False

true

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that, for both fixed costs are lower than variable costs. there are many other suppliers of similar goods or services. the implicit costs of production exceed the explicit costs of production. average costs of production do not change when their industry expands.

there are many other suppliers of similar goods or services.

A monopoly is characterized by all of the following except entry barriers are high. the firm has market power. there are only a few sellers, each selling a unique product. there are no close substitutes to the firm's product.

there are only a few sellers, each selling a unique product.

For a natural monopoly, the marginal cost of producing an additional unit of its product is relatively small. True False

true

A monopolist's profit-maximizing price and output correspond to the point on a graph where total costs are the smallest relative to price. where marginal revenue equals marginal cost and charging the price on the market demand curve for that output. where price is as high as possible. where average total cost is minimized.

where marginal revenue equals marginal cost and charging the price on the market demand curve for that output.

A monopoly is the only seller of a product without a close substitute. without a well-defined demand curve. with many substitutes. with a perfectly inelastic demand.

without a close substitute.