Econ Chapter 9

To maintain a monopoly, a firm must have

an insurmountable barrier to entry.

In the long run, the entry of new firms in an industry

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

The rules of accounting generally require that ________ costs be used for purposes of keeping a company's financial records and for paying taxes. These costs are sometimes called ________ costs.

explicit; accounting

Economic costs of production differ from accounting costs in that

economic costs add the opportunity costs of a firm using its own resources while accounting costs do not.

If a firm shuts down in the short run,

its loss equals its fixed cost.

In long-run perfectly competitive equilibrium, which of the following is false?

Firms earn economic profit.

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

True

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

If a theatre company expects $250,000 in ticket revenue from five performances and $288,000 in ticket revenue if it adds a sixth performance, the

marginal revenue of the sixth performance is $38,000.

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 increase, market price to fall, and profits to decrease.

Which of the following is an implicit cost of production?

rent that could have been earned on a building owned and used by the firm

In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are

sunk costs.

Of the factors that are within the control of the firm's owners, the most important factors that make a firm successful are

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

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that, for both

there are many other suppliers of similar goods or services.

A monopolist's profit-maximizing price and output correspond to the point on a graph

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

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

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

Which of the following is not true for a firm in perfect competition?

Average revenue is greater than marginal revenue.

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.

Which of the following statements is correct?

Economic profit takes into account all costs involved in producing a product.

A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly. (T/F)

False

Economists consider all costs to be implicit costs. (T/F)

False

If marginal cost is above the average variable cost, then average variable cost is decreasing.

False

Marginal cost will equal average total cost when marginal cost is at its lowest point. (T/F)

False

Which of the following statements best describes the economic short run?

It is a period during which at least one of the firm's inputs is fixed.

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.

For a perfectly competitive firm, which of the following is not true at profit maximization?

Market price is greater than marginal cost.

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.

Suppose that a firm in a competitive market succeeds in producing a superior product and selling it at a price that generates a large demand. As a result, the firm's market share is almost 100 percent. Meanwhile, other firms are trying to regain their market shares through research and development. Is this firm a monopolist?

No, because it faces potential competition from other companies.

Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio." Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true?

The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll need to continue operations is a variable cost.

What is always true at the quantity where a firm's average total cost equals average revenue?

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.

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?

The firm will not sell any output.

Which of the following is not a characteristic of a perfectly competitive market structure?

There are restrictions on exit of firms.

As output increases, average fixed cost becomes smaller and smaller. (T/F)

True

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

True

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

True

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 the firm's revenues cover the total variable cost of $16,000.

Which of the following is the best example of a short-run adjustment?

Your local Walmart hires two more associates.

Which of the following is the best example of a perfectly competitive firm?

a corn farmer in Illinois

A price maker is

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

Marginal cost is the

additional cost of producing an additional unit of output.

A characteristic of the long run is

all inputs can be varied.

In the long run,

all of the firm's costs are variable costs.

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

allocative efficiency

A natural monopoly is most likely to occur in which of the following industries?

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

If the marginal cost curve is below the average variable cost curve, then

average variable cost is decreasing.

Why does a monopoly cause a deadweight loss?

because it stops producing output at a point where price is above marginal cost

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

Marginal cost is calculated for a particular increase in output by

dividing the change in total cost by the change in output.

Both buyers and sellers are price takers in a perfectly competitive market because

each buyer and seller is too small relative to others to independently affect the market price.

A local electricity-generating company has a monopoly that is protected by an entry barrier that takes the form of

economies of scale.

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.

A patent or copyright is a barrier to entry based on

government action to protect a producer.

A profit-maximizing monopoly's price is

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

If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should

increase its output.

A public franchise

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.

A perfectly competitive firm's marginal revenue

is equal to its price.

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm

is incurring a loss.

Compared to perfect competition, the consumer surplus in a monopoly

is lower because price is higher and output is lower.

Diet Coke ________ considered a product in a monopoly market, because ________.

is not; it has many substitutes

A monopoly firm's demand curve

is the same as the market demand curve.

The long run refers to a time period

long enough for a firm to vary all of its inputs, to adopt new technology, and change the size of its physical plant.

A supplier of an input is unlikely to have bargaining power if

many firms can supply the input.

The price of a seller's product in perfect competition is determined by

market demand and market supply.

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.

In the long run, a perfectly competitive market will

supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve.

The processes a firm uses to turn inputs into outputs of goods and services is called

technology.

Which of the following is an example of a factor that a firm's owners and managers can control in making the firm successful?

the ability to produce the product at a lower cost

In perfect competition,

the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.

The minimum point on the average variable cost curve is called

the shutdown point.

If a monopolist's marginal revenue is $35 per unit and its marginal cost is $25, then

to maximize profit the firm should increase output.

The basic activity of a firm is

to use inputs to produce outputs of goods and services.

Average total cost is equal to

total cost divided by the level of output.

Which of the following costs will not change as output changes?

total fixed cost

A monopoly is the only seller of a product

without a close substitute.