Practice 7

(Figure 24.2) The profit-maximizing monopolist will earn a profit per unit of

$1.50.

(Table 24.1) According to the profit maximization rule, at the profit-maximizing level of output marginal, cost is

$300

(Table 24.1) The marginal revenue at the profit-maximizing level of output is

$300.00

(Figure 23.1) A perfectly competitive firm should shut down in the short run if the market price is below

$5.

A patent gives a firm the exclusive right to produce a product for

20 years.

(Figure 24.2) The profit-maximizing level of output is

4 units.

(Figure 24.1) The total profit is represented by the area

ABDC

(Figure 23.2) A perfectly competitive firm will maximize profits by producing the level of output that corresponds to point

C.

(Figure 24.2) The total profit at the profit-maximizing rate of output is

CDHG.

Which of the following characterizes a firm that is in long-run perfectly competitive equilibrium?

Firm's price equals minimum ATC.

Which of the following is true about a competitive market supply curve?

It is the sum of the marginal cost curves of all the firms.

Which of the following rules is satisfied when a monopoly maximizes profits?

MR = MC.

Which of the following is an argument in favor of a competitive market structure rather than monopoly?

Monopolies produce less goods at a higher price than competitive markets, ceteris paribus.

In which of the following cases would a firm exit from a market?

P < long-run ATC.

If a firm decides to make the investment decision to expand its capacity, then it must have discovered that

P > ATC.

In which of the following cases would a firm enter a market?

P > long-run ATC.

(Figure 23.5) For a perfectly competitive firm, if more efficient production techniques were developed in this market, which of the following changes would we expect to occur, ceteris paribus?

The ATC, MC, and market price would all decrease.

(Figure 23.5) Which of the following is not true for a perfectly competitive firm at a price of $200?

The firm should leave this market in an effort to earn economic profits.

Which of the following is likely to occur if a monopoly suddenly loses its ability to deny potential competitors entry into the market?

The market price of the product will fall.

(Figure 23.4) For a perfectly competitive market and firm, which of the following is likely to occur in the market in the long run, ceteris paribus?

a decrease in supply

In a competitive market where firms are earning economic losses, which of the following should be expected as the industry moves to long-run equilibrium, ceteris paribus?

a higher price and fewer firms

(Figure 23.6) If a perfectly competitive firm produces the level of output corresponding to point B in the short run, it will earn

a loss greater than necessary.

In a competitive market where firms are earning economic profits, which of the following should be expected as the industry moves to long-run equilibrium, ceteris paribus?

a lower price and more firms

Which of the following is a common barrier to entry in a monopoly market?

a patent on a new product

In a perfectly competitive market where firms are currently experiencing economic profits in the short run, which of the following is least likely to occur during the long run?

an increase in marginal revenue

Which of the following is a consequence of competition?

an unrelenting squeeze on prices and profits

b. At what rate of output does marginal revenue turn negative? c. If marginal cost is constant at $8, what is the profit-maximizing rate of output? d. What price should this monopolist charge for that rate of output?

b. 6 c. 4 d. 17

Any firm that has economies of scale will

be able to produce at a lower unit cost as it increases production.

High profits in a particular industry indicate that

consumers want more of that industry's goods.

When economic profits exist in the market for a particular product, this is a signal to producers that

consumers would like more scarce resources devoted to the production of this product.

In a competitive market, if the market price is equal to the minimum point of the firm's ATC curve, the firm may seek to earn economic profits by

decreasing production costs through technological improvements.

Which of the following is a barrier to entry into a monopoly market?

economies of scale

Which of the following is a common barrier to entry in a monopoly market?

economies of scale

Reductions in minimum average costs that come about through increases in the size of plants and equipment are called

economies of scale.

In long-run perfectly competitive equilibrium, marginal cost

equals the minimum of the ATC.

A monopolist has market power because it

faces a downward-sloping demand curve for its own output.

(Figure 23.3) Diagram "a" presents the cost curves that are relevant to a firm's production decision, and diagram "b" shows the market demand and supply curves for the market. At a price of p2, in the long run

firms will enter the market.

If the price is above the long-run competitive equilibrium level,

firms will enter the market.

(Figure 23.3) Diagram "a" presents the cost curves that are relevant to a firm's production decision, and diagram "b" shows the market demand and supply curves for the market. In the long run, at prices below p3,

firms will exit the market.

Price-discriminating firms charge higher prices to those who

have lower price elasticities of demand.

Which of the following is characteristic of a perfectly competitive market?

identical products

Marginal cost is the increase in total cost associated with a one-unit

increase in production.

If a monopolist is producing a level of output where MR exceeds MC, then it should

increase its output.

A monopolist that does not practice price discrimination should never produce in the

inelastic portion of its demand curve because it can increase total revenue and reduce total costs by increasing the price.

A firm can take advantage of economies of scale through

investment decisions to increase capacity.

The ultimate market constraint on the exercise of market power

is the demand curve facing the monopolist.

The equilibrium price in a competitive market

is the price at which the quantity of a good demanded in a given time period equals the quantity supplied.

Assume a monopoly confronts the same costs and demand as a competitive industry. In this case, the monopolist produces

less output and charges a higher price than the competitive industry.

A monopolist will find that its marginal revenue curve

lies below its demand curve and is steeper than its demand curve.

When an athletic shoe company is producing a level of output at which price is greater than MC, from society's standpoint the company is producing too

little because society would be willing to give up more alternative goods in order to get additional shoes.

Investment decisions are made on the basis of the relationship of price to

long-run average total cost.

If a monopolist is producing a level of output where MR is less than MC, then it should

lower its output.

The behavior expected in a competitive market includes

marginal cost pricing.

When a computer firm is producing a level of output at which MC is greater than price, from society's standpoint the firm is producing too

much because society is giving up more to produce additional computers than the computers are worth.

(Figure 23.5) For a perfectly competitive firm, given the current market price of $200, we expect to see

no change in the number of firms in the industry and no change in the market price.

An example of a barrier to entry includes

patents.

Profit per unit is equal to

price minus average total cost.

Marginal cost pricing means that a firm

produces up to the output where P = MC for a given market price.

(Figure 24.3) Suppose this good could somehow be produced at no cost (i.e., the total cost at any level of output was zero). This single-price monopoly firm would maximize profit by

producing Q2 and charging P2.

(Figure 23.4) If the firm raised the price of its product above $4, the firm would

reduce its total revenue to zero.

A competitive market creates strong pressure for technological innovation that

shifts the supply curve to the right.

Other things being equal, as more firms enter a market, the market supply curve

shifts to the right.

To determine the market supply, the quantities

supplied at each price by each supplier are added together.

Profit per unit is maximized when the firm produces the output where

the ATC is minimized.

Which of the following markets best illustrates the practice of price discrimination?

the airline market

For a monopolist, marginal revenue equals

the change in total revenue divided by the change in quantity.

Which of the following is the same for monopoly and competition under the same cost and demand conditions?

the goal of maximizing profits

If the price of ricotta cheese, an ingredient in lasagna, increases, then

the market supply curve for lasagna will shift to the left.

Which of the following is a determinant of market supply but not the supply curve of an individual firm?

the number of firms in the market

A monopoly can have a high degree of market power because of all but

the presence of many close substitutes for its product.

Perfectly competitive firms cannot individually affect market price because

there are many firms, none of which has a significant share of total output.

(Figure 23.3) Diagram "a" presents the cost curves that are relevant to a firm's production decision, and diagram "b" shows the market demand and supply curves for the market. If the market demand curve is D2, then in the long run,

there are zero economic profits, so there will be no entry or exit.

When firms in a competitive market are experiencing zero economic profits, this is an indication that

there is currently no better way to use society's scarce resources.

Economic losses are a signal to producers that

they are not using resources in the best way.

The market supply curve in a perfectly competitive market is usually

upward-sloping.

Price-discriminating firms that sell in two markets will charge higher prices in the market, ceteris paribus,

with the more price-inelastic demand.

(Figure 23.5) If a perfectly competitive firm produces the level of output corresponding to point B in the short run, it will earn

zero economic profit.