Econ Final

Mr. Gizmo, owner and CEO of Gizmos Incorporated, notices that, while people can be prevented from using gizmos, gizmos also exhibit simultaneous (nonrivalrous) consumption. Gizmos Incorporated, is most likely

a natural monopoly.

An individual firm in a perfectly competitive market can obtain a higher price for its product by reducing output.

false

An individual firm in a perfectly competitive market must lower its price to sell more of its product.

false

Average fixed cost is always higher than average variable cost.

false

The ATC curve crosses the MC curve at the lowest point on the MC curve.

false

Monopolies and monopolistically competitive firms differ in that monopolies

participate in markets where barriers to entry are present.

The _____ charged is determined by the market equilibrium. For a perfectly competitive firm, it is depicted as a horizontal line on the firm level graph, and also equals demand and marginal revenue (D=MR).

price

A profit‐maximizing firm will

produce a level of output such that marginal revenue equals marginal cost.

The _____ chosen by a firm will be determined by the intersection of the firm-level demand curve and the marginal cost curve (which is their firm level supply curve).

profit-maximizing output

Which curve will be farther right (higher supply) if graphed?

short-run industry supply

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

some control over price

Tesla utilized an early infusion of funds to invest in research and development that helped create cost advantages for future production. What kind of barrier did this overcome?

supply-side barriers

The long run is best defined as a time period

that is long enough to change all factors of production.

In the short run, ATC is always greater than or equal to AVC.

true

Marginal cost refers to the change in total cost associated with the production of another unit.

true

T or F.. All costs are either fixed or variable.

true

The average fixed cost curve is downward-sloping.

true

Initially, the existing farmers increase production of apples to meet the increased demand. After new farmers have entered and the market is again in long run equilibrium

farmers will produce at MC=ATC .

A perfectly competitive industry is characterized by

many firms with no control over the market price producing identical products.

Building a large brewery with a high start‑up cost. mass production network effects ownership of a key input

mass production

To be produced by a natural monopoly, a good must be

nonrival and excludable.

The automobile industry

oligopoly

Sportlife is a company that produces water enhanced with electrolytes. In this market there are many firms, entry and exit is relatively easy, and firms sell a homogeneous product. Sportlife is a firm in which market structure?

perfect competition

One thing that distinguishes the short run and the long run is

the existence of at least one fixed input.

In comparison to oligopolies, firms in monopolistic competition

face competition from many other firms.

. The ATC is increasing whenever the MC is increasing.

false

In general, the market demand curve in a perfectly competitive market is perfectly elastic.

false

The VC curve is modeled as a horizontal line.

false

What is a natural monopoly?

A monopoly that faces a high fixed cost and low marginal costs so that the average total cost curve slopes downward

The _____ is one of the pieces of information needed to calculate profits/losses for the firm. It can be found once quantity produced is chosen by a firm. Graphically, it is the point on the average total cost curve once this choice is made. It also helps determine two vertices of the profit/loss rectangle.

ATC at the profit-maximizing output

How is the issue of raising capital a natural barrier to entry for new firms seeking to enter a market?

Banks and venture capital companies are unlikely to lend to firms with little chance of competing against established businesses.

Coca‑Cola's vast market share in the soft drink market: Control of a resource Network externalities Brand loyalty Legal barrier

Brand loyalty

China's control of the market for rare earths (a group of minerals used to produce electronics): Brand loyalty Control of a resource Legal barrier Network externalities Economies of scale

Control of a resource

Firms do not have an incentive to price discriminate because it results in some groups paying a lower price than others.

False

Perfect price discrimination occurs when perfectly competitive firms charge some people higher prices than others.

False

Price discrimination is illegal under all circumstances.

False

Price discrimination only occurs with natural monopolies.

False

Amazon consistently prices laptops less than the going market price: Demand-side Supply-side Government policy Deterrence

Deterrence

Which of the statements is true of the long‑run industry supply curve (LRIS)?

External diseconomies result in an increasing cost industry and an upward sloping LRIS curve.

In order to best position your company for cost-saving and competition, what kinds of features of government policy should you look into?

Find what states, cities, and counties will assist in your expansion via tax-breaks and subsidies. Seek out policies that may administer grants or loans for your type of product, or modify your product to fit in that category

Pfizer's control of the production of Viagra from 1996-2020: Supply-side Demand-side Government policy Deterrence

Government policy

Pfizer's control of the production of Viagra: Brand loyalty Economies of scale Legal barrier Network externalities Control of a resource

Legal barrier

can be calculated as (𝑃 −𝐴𝑇𝐶) ⋅ 𝑄. It can be represented graphically as a rectangle, where Q and the vertical axis establish the long sides and P-ATC establishes the short sides. If ATC at the profit-maximizing quantity is greater than price, this is what you call the calculation.

Losses

Which situation gives the best example of a price‑taker as it pertains to perfect competition?

Mary Beth grows cotton. She finds that she can always sell her entire crop at the market price. However, if she asks a price that is even slightly higher she cannot sell any of her cotton.

Which of the firms is most likely to be a natural monopoly?

Municipal Power Light, the local supplier of electricity.

In addition to coming up with a product that could have sufficient demand in a market, what are some ways to overcome demand-side barriers to entry?

Reduce the impact of incumbent firms' network effects. Find a way to reduce incumbent switching costs, and create other switching costs for your product. Create your own network effects for your product.

China's control of the market for rare earths (a group of minerals used to produce electronics): Supply-side Government policy Demand-side Deterrence

Supply-side

Ikea selling kitchen cabinets at a lower average cost than other producers:

Supply-side

Which of the statements is definitely true of Gizmos Incorporated?

The firm has large economies of scale.

Which of the given factors is an assumption of perfect competition?

There are a large number of producers in the market.

Firms in monopolistic competition

To differentiate their products

All else being equal, single-price monopolists earn lower profits than firms that can price discriminate.

True

Which is most likely to be a natural monopoly?

a firm that provides electricity

Which of the following makes monopolistic competition different than perfect competition? Monopolistically competitive firms

differentiate their products

What is the cause of the divergence in the short-run and long-run supply curves?

differing individual cost structures

The long run is best defined as a time period

during which all inputs can be varied.

Building a brewery is a high start‑up cost operation. economies of scale government-imposed ownership of a key input

economies of scale

Drug companies obtain patents so that they can recover research and development costs by the exclusive sale of the drug for some number of years. supply-side cost advantage deterrence government policy

government policy

There are a limited number of licenses for taxi drivers in NYC. ownership of a key input network effects government policy

government policy

There are a limited number of licenses for taxi drivers in NYC. ownership of a key input economies of scale government-imposed

government-imposed

Drug companies obtain patents so that they can recover research and development costs by the exclusive sale of the drug for some number of years.

government-imposed ownership of a key input economies of scale

In a perfectly competitive market, average revenue is equal to the market price.

true

In a perfectly competitive market, marginal revenue is equal to the market price.

true

In general, an individual firm in a perfectly competitive market faces a perfectly elastic demand curve.

true

One thing that distinguishes the short run from the long run is

whether any costs are fixed.