LC14: LearningCurve - Ch. 14: Market Structure and Market Power
Which statement is NOT true of market power?
Maximization of market power causes firms to compete.
An oligopoly is a market that has:
a small number of large sellers.
A firm can estimate its firm demand curve by collecting its sale data and then using the data to plot the _____ at each price.
quantity demanded
When you invent a new product, you earn a patent that gives you:
the right to be the only seller of your product for a period of time.
From the graph, the market power outcome is represented by point _____ while the perfect competition outcome is at point _____.
A; B
What does the government do to support innovation, while at the same time preventing firms from becoming monopolists in the long run?
Allow a company to get a patent for a period of time
Collusion is defined as:
an agreement among firms to limit competition.
If you start working at a company whose industry involves just a few strategic competitors, this means that you work in:
an oligopoly.
When you are buying a car, you must choose between a handful of makes, such as Ford, GMC, and Toyota. Because your options are limited, this is an example of:
an oligopoly.
If you can create a product that is very different from those of your rivals, you can raise your price because:
customers are less likely to find a substitute product.
Under perfect competition, businesses produce until the marginal benefit to consumers equals the marginal cost, which results in the _____ quantity being produced.
efficient
Under perfect competition, a firm charges a price that _____ the marginal cost.
equals
Which list correctly ranks firms from least market power to most market power?
farmer, computer manufacturer, airplane manufacturer
In reality, most businesses:
have some market power.
The initial AIDS drug market is a real example of how businesses with _____ market power can _____ market forces.
large; distort
With perfect competition, there are a _____ number of sellers and buyers, each of whom is _____ relative to the size of the market.
large; small
When they have market power, managers need to make decisions on what is the best price. They face a trade-off between selling a _____ quantity of items and making _____ money on each item.
larger; more
The _____ suggests that instead of asking the "how many" question, you should ask if you should sell one more unit.
marginal principle
Previously, the price of AIDS drugs was very high, and millions of AIDS victims in sub-Saharan Africa were unable to afford the drug. For the drug companies, this meant large profits selling the drug to people who could pay. This situation happens because of:
market power.
The market structure in which firms have the least market power is:
perfect competition.
Barriers to entry:
prevent the entry of new firms into the market.
Managers can maximize their company's profits by following the:
rationale rule for sellers
Under perfect competition, all businesses in an industry:
sell an identical good.
If you do not have much market power, then raising your price will _____ reduce the quantity you sell and your firm's demand curve is highly _____.
sharply; elastic
Market power is defined as:
the ability to raise your price without losing many of your customers to competing businesses.
Marginal revenue refers to:
the addition to total revenue you get from selling one more unit.
A paper company experimented by charging different prices for a ream at different locations. The first store set a price of $3.99 and sold 547 units. The other two stores sold 438 units at a price of $4.99, and 219 units at a price of $5.99. The results of this experiment can be depicted in a graph that reveals:
the firm demand curve.
In perfect competition, a producer is said to be a price-taker, which means that the producer charges:
the market price as given.
If you sell one more unit, your revenue will rise by the price you get for it. This is:
the output effect.
After a formula for HIV medication had been developed, a daily dose for a person cost the manufacturer less than a dollar per day. Why was this medication priced at $10,000 per year per person?
The drug company is effectively a monopolist.
If you own one of four gas stations at a busy intersection, what gas price can you set so that you will not lose your customers to the other three rivals?
The market price
Which statement is NOT true about a monopoly?
The monopolist is a price-taker.
The shape of the demand curve of a firm can be relatively flat, or steep, depending on:
The shape of the demand curve of a firm can be relatively flat, or steep, depending on:
Elias works at an ice cream stand. He collects data on his firm's demand as shown in the table. What is the marginal revenue from selling the fourth ice cream cone?
$1
Elias works at an ice cream stand. He collects data on his firm's demand as shown in the table. What is the total revenue earned per hour when selling four ice cream cones per hour?
$16
Does it make sense for a firm in perfect competition to charge a price for its product that is less than the prevailing market price? Why?
No, because the firm should charge the market price because lowering the price will only lower the profit margin.
Should you sell four watches per week? Why?
No, because the marginal cost exceeds the marginal revenue.
From the graph, _____ represents the market power price and _____ represents the competitive price. The market power quantity is represented by point _____, and the perfect competitive quantity is represented by point _____.
P2; P1; C; D