Econ exam 3
a firm in monopolistic competition that introduces a new and differentiated product will temporarily have a
LESS ELASTIC demand for its product and is able to charge A HIGHER PRICE THAN BEFORE
the possible alternatives for an oligopoly range from the monopoly case with
LOW OUTPUT to the perfectly competitive case with HIGH OUTPUT
which of the following is ALWAYS true for a single price monopolist?
P>MR
perfect competition
Price falls, quantity Increases
if firms in oligopolistic industry consistently cut their price to sell more output, what price and output will result?
The competitive price and output
for a business, opputunity cost measures
the cost of all the factors of production the firm employs
a price-discriminating monopoly charges
a different price to different types of buyers for the same product, even though there are no differences in costs
price discrimination occurs when
a firm is able to sell different units of good at different prices
a cartel is
a group of firms acting together (colluding) to limit output, raise price, and increase economic profit
when a city licenses only 3 taxi firms to serve the market, the city has created
a legal oligopoly
If we compare a perfectly competitive market to a single-price monopoly with the same costs, the monopoly sells
a smaller quantity at higher price
decreasing marginal returns occur in the short run as more labor is hired to work in a fixed sized plant because
adding more workers exhausts the possible gains from specilization
in the long run, the firm (can/cannot) change the number of workers it employs and (can/cannot) change the size of its plant
the firm can CHANGE the number of workers it employs and CAN change the size of its plant
which of the following must exit for a firm to engage in price discrimination?
the firm must be able to identify and separate its buyers into different classes, and the low price buyers cannot resell the product to the high price buyers
several firms want to be the only horse carriage service in a small tourist town and must pay the city for a license to operate a monopoly. Competition among the potential firms will result in:
adding up the price of the license so that the winning firm makes $0 economic profit
a cost incurred incurred in the production of a good or service and for which the firm doe snot need to make a direct monetary payment
an IMPLICIT cost
A firm faces a small number of competitors. This firm is competing in
an oligopoly
a firms fundamental goal is:
to maximize profit
the short run is a time period that is
too short to change the size of the firms plant
which of the following describes a barrier to entry?
anything that protects a firm from the arrival of new competitors
one requirement for an industry to be perfectly compettive is that in the industry there
are many firms for whom the effluence scale of production is small.
a monopolist can make an economic profit in the long run because of
barriers to entry
for a natural monopoly, economies of scale
exist along the long-run average cost curve at least until it crosses the market demand curve
When firms in monopolistic competition incur an economic loss, some firms will
exit the industry, and demand will increase for the firms that remain
in an oligopoly, there are
few firms and barriers to entry
competition among rent seekers results in
firms earning normal profits
for a single-price monopoly, price is
greater than marginal revenue
patents:
i. encourage the invention of new products and production methods ii. are exclusive rights granted to the inventor of a product or service
For a perfectly competitive firm, the price of its good is equal to the firm's marginal revenue because
individual perfectly competitive firms cannot influence the market price by changing their output
A firm in monopolistic competition is
insufficient because price exceeds marginal cost
the demand curve for a monopoly
is downward sloping
If a perfectly competitive firms are entering or exiting a market, it must be true that the market
is in the short-run
in a perfectly competitive firm finds that the PRICE EXCEEDS AVERAGE TOTAL COST, then the firm
is making an economic profit
to produce more output in the short run, a firm must employ more of
its variable resources
in the LONG RUN, perfectly competitive firms will exit the market if the price is
less than the average total cost
the marginal revenue curve facing a monopolistically competitive firm
lies below its demand curve.
the long run is a time period that is
long enough to change the size of the firms plant and all other inputs
if a monopoly wants to sell greater quantity of output, it must
lower its price
a firms long-run average cost curve shows the ....... average cost at which it is possile to produce each output when the firm has had ...... time to change both its labor force asnd its plant.
lowest; sufficient
in the long run, a perfectly competitive market will
make zero economic profit
the absence of barriers to entry in monopolistic competition means that in the long run firms
make zero economic profit
long run monopolistic competition, firms
make zero economic profit.
entry and exit continue in monopolistic compeitition until the remaining firms are
making zero economic profit
the characteristics that describe a perfectly competitive industry include
many firms selling an identical product
the characteristics to describe a perfectly competitive industry include
many firms selling an identical product
A Perfectly competitive firm is a price taker because
many other firms produce the same product
an industry with a large number of firms, differentiated products, and free entry and exit is called
monopolistic competition
when firms in an oligopoly successfully collude and do not cheat on a cartel agreement, they can make a long-run economic profit similar to a:
monopoly
for a firm in monopolistic competition, innovation and product development are
necessary in order to have a change of making at least a short-run economic profit
when a firms in a perfectly competitive market are earning an economic profit, in the long run
new firms will enter the market
if a perfectly competitive firm are making an economic profit, then
new firms will enter the market and the equilibrium profit of the firms already in the market decreases
normal profit is an....... cost because ......?
normal profit is an IMPLICIT cost, because it represents the cost of not running another firm
which of the following is only found in an Oligopoly?
one firms actions affect another firms profit
a monopoly is a market with
one supplier
we define a monopoly as a market with
one supplier with barriers to entry
we define monopoly as a market with
one supplier with barriers to entry
when an economist uses the term "cost" referring to a firm, the economist refers to the
opportunity cost of producing a good or service, which includes both implicit and explicit cost
to encourage invention and innovation, the government provides
patents
in which of the following market types do all firms sell products so identical that buyers do not care from which firm they buy?
perfect competition
to increase its profit, a perfectly competitive firm will produce more output when
price is greater than marginal cost
monopoly
price rises, quantity decreases
a monopoly creates a deadweight loss because it
produces less than the effiecient quantity
to maintain their economic profits, firms in monopolistic compeition must continually engage in
product development and marketing
One of the major benefits to society of monopolistic competition is
product differentiation
Suppose the monopoly is currently producing the quanityt at which marginal revenue is less than marginal cost (MR<MC), the monopoly can increase its profits by
raising its price and decreasing its output
If a business owner decided to expand her business but rather than borrowing money from a bank used her own funds, then
she would forego the oppurnuity to earn interest on the money
the long-run average cost curve
shows the lowest average cost facing a firm as it increases output changing both its plant and labor force
product differentiation involves making a product that is
slight different from the products of competing firms
the main sources of economies of scale are
specialization of resources such as labor and capital
a natural barrier to entry is defined as a barrier that arises because of
technology that allows one firm to meet the entire market demand at lower average total cost than could two or more firms.
rent seeking is
the act of obtaining special treatment by the government to create economic profit
marginal cost equals
the change in TOTAL cost that results from a one-unit increase in output
for a monopoly, marginal revenue is equal to
the change in total revenue brought about by a one-unit increase in quanity sold
the marginal product of labor is the change in
total output from employing one more worker
When marginal revenue is positive,
total revenue INCREASES when output increases and demand is ELASTIC
in a perfectly competitive market wheat farmer is maximizing its profit and then increases its output, the farmer's
total revenue increases, but Total cost RISES by more so that the farmer's total profit DECREASES
Economic profit equals:
total revenue minus total opportunity costs
to maximize profit, in the short run a perfectly compettive firm decides
what quantity of output to produce
under which of the following conditions will a profit-maximizing perfectly competive firm shut down in the short run?
when the price is less than its minimum AVERAGE VARIABLE COST
when a firms long-run average cost FALLS as its output INCREASES, the firm is experencing
economies of scale
patents
-increase the incentive to innovate -are a legal barrier to entry
the U-shape of the average variable, average total, and marginal cost curve reflects
both increasing and decreasing marginal returns
A perfectly competitive firm is earning an economic profit when total fixed cost increase. Assuming the firm does not shut down, in the short run the firm will
continue producing the same quantity as before but will make less economic profit
compared to a sing-price monopoly, when a monopoly can perfectly price discriminate, the deadweight loss:
decreases
compared to a single price monopoly, when a firm price discriminated, the deadweight loss
decreases
when a firm becomes so large it is difficult to coordinate and control, it is most likeley that
diseconomies of scale have begun
in monopolistic competition in the long run, firms
earn zero economic profit and have excess capacity
if firms in an oligopolistic industry successfully collude and form a cartel, what price and output will result?
the monopoly price and output
The long run is defined as
the period of time when ALL resources are VARIABLE
if a perfectly competitive industry is taken over by a single firm that operates as a single-price monopoly,
the price will RISE and the quantity will DECREASE
the market supply in the short run for perfectly competitve industry is
the sum of the supply schedules of all firms
the short run is
the time Fram in which SOME resources are FIXED
price discrimination is possible in part, because
the willingness to pay can vary among groups of buyers
when a market has barriers to entry,
then in the long run it might be possible for the firms to make a positive economic profit
One requirement for an industry to be perfectly competetive is that
there are no restrictions on entry into or exit from the market
it would be impossible for members of the fast-food industry to collude to fix prices because
there are too many fast-food firms in the market
If a few oil-producing countries in the Middle East decide to jointly limit the production of oil,
they are forming a cartel