Econ unit 10, chapter 12
Profit for the monopoly firm is maximized where _____.
MR = MC
Marginal revenue product cannot be calculated as MP x P for the firm with market power because _____.
MR =/= P
Marginal revenue product is calculated as _____ for the firm with market power.
MR x MP
The firm with market power will hire variable input until _____.
MRP = wage
Industry and firm demand are the same for the _____ firm.
Monopoly
Monopolistic competition is similar to _____ because output of firms is differentiated.
Monopoly
A firm in a monopolistic competition will have _____ profits in the long run.
Zero
In the short-run, a firm in a monopolistic competition behaves like ______.
A monopoly
T/F: Advertising does not contribute to brand loyalty.
False
T/F: Economies of scale is a barrier to entry in an industry with a very high demand for product.
False
When the cost to learn about a new product is high, this can lead to the barrier to entry called _____.
Consumer lock-in
If the MC of production from plant A is greater than the MC of production from plant B, the manager should _____.
Decrease production at plant A and increase production at plant B
_____ ensure that a monopoly maintains its market power.
Entry barriers
Click and drag: Order the steps for the profit-maximizing output and pricing decision for the firm with market power.
Estimate the demand equation; Find the inverse demand equation; Solve for marginal revenue; Estimate AVC and MC; Find the output and price where MR - SMC; Check the shut-down rule
Select all that apply: Examples of government-created barriers to entry include _____.
Exclusive franchises; Licenses; Patents
Select all that apply: A firm wishing to enter an industry in which the long-run average costs curve continues to decline over ranges of output that are high relative to the market demand for the good would find entry prohibitive because of _____.
Government created entry barriers; Economies of scale
A low Lerner Index means that firms _____.
Have little market power
The Lerner Index is _____ when demand is inelastic.
Higher
Select all that apply: A strong barrier to entry _____.
Hinder the introduction of goods to compete with those that already exist; Protect the profits of existing firms; Exists when it is difficult for new firms to enter a market
In the long-run, a firm in monopolistic competition will produce _____.
LAC = P
In the long-run, the monopoly firm will choose plant size so that _____.
LMC = MR
Substitutes for a good can be identified by finding goods with _____ cross-price elasticities.
Large, positive
An inelastic demand curve indicates that as prices increase, consumers will decrease _____ they would if the demand curve were elastic.
Less than
Elasticity of demand can measure market power because the ______ elastic is demand, the ______ competitors firm has.
Less; fewer
For the firm with market power, the marginal revenue curve _____ the demand curve.
Lies below
The monopoly firm will never operate on the inelastic portion of the demand curve because _____.
MR < 0
A monopoly firm maximizes profit where MR = MC
MR < P
A firm in monopolistic competition will maximize profit where _____.
MR = MC
The firm with market power will employ all variable inputs at the level where _____.
MRP = input price
A _____ identifies the producers and products or service types that compete in a particular geographic area that is large enough to include all competing sellers.
Market definition
Select all that apply: In the long-run the monopoly firm _____.
May leave the industry if earning losses; Will adjust plant size as demand conditions warrant; Can continue to earn a profit as no new firms can enter
Under _____, the market consists of a large number of relatively small firms that produce similar but differentiated products and have some market power.
Monopolistic competition
A _____ firm produces a product for which there are no close substitutes.
Monopoly
When the value of a good is enhanced when many people use the good, that good is characterized by _____.
Network effects
A firm in monopolistic competition will have zero profits in long run because _____.
New firms will enter when profits are earned in the short run
The Lerner Index is calculated _____.
P - MC / P
The monopoly firm will shut down in the short run when _____.
P < AVC
The monopoly firm will earn a profit in the short-run if _____.
P > ATC
The monopoly firm will continue to operate even if earning losses in the short-run if _____.
P > AVC
The slope of the linear MR curve is _____ the slope of the linear demand curve.
twice as steep as
A monopolistic competitive firm is one that _____.
Sells a produce with similar, but not perfect, substitutes, but low entry barriers
Select all that apply: The characteristics of monopolistic competition include _____.
Similar product; Unrestricted entry and exit; Large number of relatively small firms
Costs of setup that can be so high that a manager may reasonably conclude that entering business may not be profitable are a barrier to entry called _____.
Sunk costs
When a firm produces output in two plants, the manager should allocate production between the two plants so that _____.
The MCs of the last unit produced in each plant are equal
If the wage is greater than the average revenue product for the firm _____.
The firm should shut down in the short-run
The relevant portion of the MRP curve for hiring is _____.
The portion below ARP
A network effect occurs when _____.
The value of a good increases as more people use the product
A firm in a monopolistic competition faces a ______ demand curve.
Relatively elastic
Select all that apply: Sunk costs _____.
Can be a barrier to entry; Should be ignored because they do not affect post-entry profit
Customers may create a barrier to entry through always buying the same brand of a product. This is called _____.
Brand loyalty
When one firm or a few firms controls all the known supply of an input, this _____.
Is a barrier to entry
Select all that apply: Market power _____.
Is the power to change prices without losing all their sales; Is something competitive firms don't have; Makes long-run economic profit possible
The monopoly firm's demand curve ______.
Is the same as the market demand
_____ causes firms in monopolistic competition to have some market power.
Product differentiation
Firms with market power sell _____.
Products that are different from other firms' products
A large, positive cross-price elasticity measures that consumers view the two goods as _____.
Readily substitutable