Test 3 121 question
What is collusive behavior?
When companies work together to fix parties
monolopist always earn high profits
f
Firms with monopoly power in the product market are likely to leverage their power in the resource market, _____.
reduce the earnings of specialized resources, and charge higher prices
The source of monopoly power for a firm with economies of scale is:
the ability to supply a product at a lower average cost per unit than two or more firms, each producing less.
A monopolist is likely to shut down in the short run if:
the average variable cost curve is above the average revenue curve at all output rates.
Allocative efficiency occurs when firms produce the output corresponding to the point:
where marginal benefit equals marginal cost.
What is the kinked demand curve?
Two different curves with different elasticities
in an oligopoly with a dominat firm
price is set by the dominate firm
A _____ is a firm that faces a given market price and whose actions have no effect on the market price.
price taker
why in some perfect competitive industries does the the market supply curve slope upwards?
...
Which of the following is an example of product differentiation based on services offered by firms in a monopolistically competitive market?
A cash back guarantee offered by a watch manufacturer in case of manufacturing defects
Which of the following makes it difficult to form a cartel?
A large number of firms in an industry
Identify a statement that is true of price leadership.
A price leader may lose business if other firms do not follow its pricing decisions.
Identify a statement that is true of an oligopoly.
Any change in the price of a product by an oligopoly firm may prompt a reaction from its rivals.
Which of the following is true of a monopolistically competitive firm in the short run?
As long as price exceeds average variable cost, the firm in the short run loses less by producing than by shutting down.
Why are oligopolists interdependent?
Cannot afford to consider what other companies can do, they must depends on other firms
Which of the following is an example of price discrimination?
Charging lower admission prices to movies from senior citizens
Suppose there are two groups of consumers that a monopolist can identify. Which of the following forms of price discrimination would increase profit relative to charging each group the same price?
Charging the group with the higher price elasticity a lower price and charging the group with the lower price elasticity a higher price
Which of the following is a possible effect of costly advertisement campaigns by a new firm to promote a new product in a market dominated by well established brands?
Costly advertisement campaigns may cripple a new firm if the product fails.
What are the conditions for price discrimination?
Demand elasticity
IF price is below ATC but higher than AVC and remains so in the long-run. What should the firm do?
EXIT
a monolist selling te eighth unit of product for 150 should expect a marginal revenue greter than 150
F
bc a monopoly industry is so big, it is usually more efficient than a purely competitive industry
F
consumer surplus cannot exist in the presence of monolopy
F
A monolopist is a proice taker with a perfectly elastic demand curve
F price maker
What is an oligopoly
Few sellers who control the entire market
Which of the following is true of the long-run equilibrium for firms and an industry in perfect competition?
Firms produce output where price equals marginal cost, which also corresponds to the point where the marginal cost curve intersects the long-run average cost curve.
What is the demand curve like in a perfect competitive market?
Horizontal line, perfectly elastic
In what case a firm should minimize the loss?
If revenue is higher than marginal cost
Why a competitive firm is a price taker?
In perfect market conditions (also called perfect competition) a firm is a price taker because other firms can enter the market easily and produce a product that is indistinguishable from every other firm's product.
What does the kinked demand show?
To show how stable the oligopolist prices are
Which of the following is true of a patent in the United States?
It grants the holder the exclusive right to sell a product for 20 years.
Which of the following is true of perfect competition?
It guarantees both allocative efficiency and productive efficiency in the long run.
What is profit maximizing?
MR = MC
Which of the following is true of a perfectly competitive market?
Marginal revenue equals market price.
What is the MR in a competitive firm?
Market price
How does monopolist competition differ from perfect competition?
Monopolistic is downward sloping, perfect is horizontal Monopolistic has control of the price, perfect is a price taker
What happens if a competitive firm raises its price?
No one will buy from them
What is the objective of game theory?
Pricing strategy
What is price discrimination?
Pricing strategy that charges customers different prices for the same product or service.Difference in demand elasticity
What is the main feature of a monopolist competition?
Product diffiaration
Which of the following correctly describes price discrimination?
Selling the same good or service for different prices to different consumers for reasons unrelated to cost
What is the role of advertising?
Show the difference of the company's product
Which of the following most likely leads to an oligopoly?
Some form of barrier to entry
A monolist can increase revenue by lowering prices when operating in the elsastic range of the demand curve
T
T?F Monolopy is on one end of the market, and pure competition is on the other?
T
a monolopist firm with costs identical to a firm in pure competition will charge a higher price than the purely competitive firm
T
What is the welfare loss?
The economic welfare that is lost as a result of too much or too little production and consumption of a good or resource.Loss in consumer surplus that is not received by any other group
_____ will ensure that each firm produces at the minimum point of its long-run average cost curve in a perfectly competitive market.
The entry and exit of firms
What is the long run equilibrium like?
The long-run equilibrium of a perfectly competitive market occurs when marginal revenue equals marginal costs, which is also equal to average total costs
Which of the following correctly explains why sellers in a perfectly competitive market are price takers?
There are many small sellers, and so the market process generates an equilibrium price that cannot be influenced by any one seller.
What is the shut-down decision?
When price is below average variable cost
Can consumer surplus exist under monopoly?
Yes
Does MR=MC rules apply to oligopolists?
Yes, all firms follow this rule. When they want to maximize profit, minimize loss.
A firm whose price is matched by other firms in the market as a form of tacit collusion is called:
a price leader.
A monopolized market is characterized by:
a sole supplier, no close substitutes, and barriers to entry.
Rent seeking can be described as:
any activity undertaken by firms to influence public policy in a way that increases their income.
What is maximize economic profit?
any profit above normal profit, by controlling the rate of output
A monopolist might keep prices below the profit-maximizing level:
because of government intervention and scrutiny.
a kinked demand curve witih the shape discussed in the text is generated when the firm
believes all competing firms will match a price reduction but not match a price increase
In a perfectly competitive market, _____.
buyers and sellers are fully informed about the price and availability of all resources and products
In comparison to a competing firm, a colluding firm:
charges a higher price.
in the oligopoly model, the kinked demand curve tries to explain why oligopolist seeks to
constantly engage in collusion
The difference between the maximum amount buyers are willing and able to pay for each unit of a good and the amount buyers actually pay is called:
consumer surplus.
A firm will be able to increase its profits by charging different prices for the same product to different groups of consumers if:
consumers who pay a lower price are not able to resell the product to those who are willing to pay a higher price.
In a perfectly competitive market, each firm tries to maximize profit by:
controlling its quantity supplied.
the is an oligopoly with three firms all charging a price of 400$$. if the firm A raises its price to 450 the kinked demand curve theory would predict that firms b and c woud
do nothing
In a perfectly competitive market, the market demand curve is _____, while an individual firm's demand curve is _____.
downward sloping; horizontal
In a constant-cost industry, _____.
each firm's per-unit costs are independent of the number of firms in an industry
In short-run equilibrium, under perfect competition, _____.
economic profit earned by firms can be negative, zero, or positive
list three barriers to entry for monolopist?
economies of scale, legal, and control over key resources
Determine the perfectly competitive firms profit maximizing output in the short run?
find it by subtracting total cost from Total revenue, another is to focus on marginal revenue and marginal cost. on a perfect competitve firms demand curve, market price, marginal revenue, and average revenue are all equal. This is found where MR equals MC
in the oligopoly model, the demand curve is kinked because of the
follow a price decrease but ignore an increase in price
in the long run, a monoplist will
go out of business if it makes zero profits or if no profit is made
To practice price discrimination, a firm must:
have different groups of customers with different price elasticities of demand.
what is the profit/loss minimizing production level for a monolopist?
if AVC is covered, profit is maximized,
what is deadweight lost?
if cost are similar, monolopists charges higher prices and supplies less output than a perfectly competitve industry. this usually results in a deadweight loss when compared to compettive
what is a firms short run supply curve?
if price exceeds avc, the firms produces the quantity are MC=MR, as long as the price covers avc, then the firm supplies the Quantity at which the upward sloping mc curve intersects the MR.
sweezy kinked demand curve isused to
illustrate the difference between pur and differentiated oligopoly
Why no profits/loses in a perfect competition in the long run?
in long run.. firms enter/leave market, adjsut scale of operations, and experience no distinction between fixed and variable cost.
A monopolistically competitive firm with excess capacity can reduce its average cost of production by:
increasing the quantity of output produced.
sources of oligopoly?
industry dominated by few firms. interdepandent, since one must consider its own actions on competitors behaviors.
The key feature of oligopoly is
interdependece of firms
The output produced by a profit-maximizing monopolist:
is less than the level that would maximize social welfare.
A firm that is the only seller in a market _____.
is likely to charge a price that is limited by consumer demand
Profit is maximized at the rate of output where _____.
marginal revenue equals marginal cost
A monopolist's profit-maximizing level of output occurs at the point where:
marginal revenue equals marginal cost.
When should a firm produce in a short run rather than shut down?
market price must atleast cover avc
If a perfectly competitive firm experiences a permanent increase in demand, ____.
market supply increases but the equilibrium price remains the same in the long run
Allocative inefficiency arises in a:
monopoly as it produces less output than a perfectly competitive firm and charges a higher price.
what the elemetns of monopolistic competition?
offer products that are subsitutes but not views as identical. product differentiation allowws for market power.
If a firm's minimum efficient scale is relatively large compared to industry output, then:
only a few firms are needed to satisfy industry demand.
Airlines charge business-class passengers much more than they charge coach-class passengers. This is an example of:
price discrimination.
The profit-maximizing rate of output for a firm in a perfectly competitive market is found where:
price equals marginal cost.
For a monopolist producing output at a level where profit is maximized, _____.
price exceeds marginal cost.
Describe market structure of perfect competition?
price is determined by market demand and supply
Each firm tries to maximize economic profit. Economic profit equals:
the difference between total revenue and total cost.
New firms may find it difficult to enter an oligopoly industry if:
the total investment required to reach the minimum efficient scale is high.
When a monopolist's marginal revenue is zero, _____.
total revenue is at a maximum
why charge different groups different prices?
two indentifible groups, each with different price elasticity, must be able to prevent customers to resale at a higher price