AP MICRO

In order for a firm to engage in price discrimination, it must be

able to separate consumers into different groups based on demand elasticities.

In the long run, a monopolistically competitive firm is allocatively inefficient because the firm will

charge a price greater than the marginal cost.

One justification for government regulation of a monopoly is that the unregulated monopoly

charges a price higher than a competitive market price.

The typical firm in a monopolistically competitive industry earns zero profit in the long-run equilibrium because

there are no restrictions on entering or exiting from the industry.

If a firm's long-run average total cost increases as output increases, the firm is experiencing

diseconomies of scale.

Which of the following best describes an oligopolistic market?

A few competing sellers with similar products and high barriers to entry

Which of the following statements has to be true in a perfectly competitive market?

A firm's marginal revenue equals price

Which of the following statements about cost is always true for both monopolists and perfectly competitive firms?

Average total cost equals marginal cost when average total cost is at its minimum

Which of the following statements is true of perfectly competitive firms in long-run equilibrium?

Average total cost is at a minimum

Which of the following is a source of monopoly power?

Barriers to entry

Assume that a monopolist is producing in the inelastic portion of its demand curve. Which of the following will occur if the monopolist decreases its price?

Both total revenue and profits will decrease

Which of the following is true if a monopolist's marginal revenue is negative at the current level of output?

Demand for its product is price inelastic

Which of the following is a result of increasing returns to scale?

Downward sloping long run average total cost curve

Which of the following best explains why it is difficult to maintain lasting collusive agreements?

Each firm realizes that its profits would increase if it were the only firm to violate the collusive agreement by increasing its production slightly

Which of the following statements about a monopolistically competitive firm in long-run equilibrium is true?

It has excess capacity and its output price exceeds its marginal cost, even though the long-run profit is zero

Which of the following is true for a perfectly competitive firm in the long-run equilibrium?

It is allocatively efficient

If a perfectly competitive firm increases its price above market equilibrium price, which of the following will be true for this firm?

It will not be able to sell any output

A well-known fast food franchise substantially increases the price of its hamburgers and loses only some of its customers. Which of the following best explains why the franchise has not lost all of its customers?

Its hamburgers are differentiated

In the short run, a profit-maximizing firm should shut down if which of the following is true?

Its product price is less than its average variable cost

JC Pizzeria has a year remaining on an unbreakable lease on its building, requiring a payment of $20,000 per year. If JC operates over the next year, it estimates that its revenues will be $200,000 and that its expenses, in addition to the lease, will be $190,000. Which of the following statements is true?

JC should operate, since its loss is less than its fixed cost

Within the range of market demand, which of the following is consistent with the conditions of a natural monopoly?

Long-run average total cost decreases as output increases

Which of the following is true of a perfectly competitive market is in long-run equilibrium?

Marginal revenue is equal to average total cost

Which of the following is true of a monopolistically competitive firm in long-run equilibrium?

Marginal revenue is equal to marginal cost and price is equal to average total cost

In which market structure is it sometimes assumed that rival firms will match price decreases but not match price increases?

Oligopoly

Which of the following is necessarily true of the profit-maximizing equilibrium of a monopolist who sets a single price?

Price is greater than marginal cost

Which of the following describes what will happen to market price and quantity if firms in a perfectly competitive market forms a cartel and acts as a profit-maximizing monopoly?

Price:​ Increase Quantity: Decrease

Assume that a firm that produces a good in a constant-cost perfectly competitive industry is in long-run equilibrium. If the demand for the good increases, the profit-maximizing output by the firm will change in which of the following ways in the short run and the long run?

Short Run: Increase Long run: Return to original level

Which of the following statements is true for a perfectly competitive firm but NOT true for a monopoly?

The firm cannot affect the market price for its good

Under which of the following circumstances is a firm experiencing economies of scale?

The firm doubles its inputs and output triples

If the price of a firm's variable input increases, which of the following will occur?

The firm will decrease its level of production

Which of the following statements is true about a firm that sells its output in a perfectly competitive market?

The firm will earn zero economic profits in long-run equilibrium

A competitive firm produces a product using labor and plastic. The firm is initially in equilibrium. If the cost of plastic suddenly increases, which of the following will occur?

The firm's marginal costs will increase at each level of output

A constant-cost, perfectly competitive industry is in long-run equilibrium. If the demand for the good increases, which of the following will occur in the long run?

The price will remain unchanged

Assume a profit-maximizing monopoly is charging a single price. If the monopoly can price discriminate and charge each consumer what he or she is willing to pay, which of the following will occur?

The quantity of output produced will increase

A constant-cost, perfectly competitive gadget industry is in long-run equilibrium. An increase in the number of consumers of gadgets will most likely result in

a higher short-run price for gadgets, followed by an increase in the quantity produced.

A farmer produces corn in a perfectly competitive market. If price falls, in the short run the farmer should

continue to produce only if the new price covers average variable costs.

In a perfectly competitive market, an individual farmer intending to increase her revenue decides to increase the price of her crop by 20 percent. As a result, her total revenue will

decrease.

If a single firm can produce and supply an entire market at a lower unit cost than many small firms can, the long run average total cost must be

decreasing as the firm's output increases.

The long-run average total cost curve will be sloping downward of a firm experiences

economies of scale.

A profit-maximizing monopolist selects its output level in the

elastic region of its demand curve.

If total revenue is increasing as output increases, marginal revenue is always

greater than zero.

If there are many firms in an industry and each firm's product is indistinguishable from the products of all other firms, the individual firm's demand curve will be

horizontal and identical for each firm.

L & P Manufacturing Company increases all its inputs by 50% each. If L & P's output increases by 100%, then L & P is experiencing

increasing returns to scale.

The short-run supply curve for a firm in a perfectly competitive industry is

its marginal cost curve above the minimum point of its average variable cost curve.

Generally, monopolies are considered inefficient because they

lead to an under allocation of resources in the affected market.

In the short run, if the product price of a perfectly competitive firm is less than the minimum average variable cost the firm will

lose more by continuing to produce than by shutting down.

Monopolistically competitive firms are inefficient because they

produce a lower level of output at a higher average cost than do perfectly competitive firms.

If a perfectly competitive firms wishes to maximize profits and is producing where price exceeds both marginal cost and average variable cost, then the firm is

producing too little output.

If government regulators set a price such that a natural monopolist earns only normal profits, price will be set equal to

​ average total cost.

Which of the following must be true for a firm that is a natural monopoly?

​​It can produce and supply its product to an entire market at a lower cost than could a number of smaller firms

If the government imposes a per-unit tax on the output of a monopoly with a downward sloping demand curve, the burden of the tax will be

​​​shared by consumers and the monopolist.

In the long run, compared with a perfectly competitive firm, a monopolistically competitive firm with the same costs will have

​​​​​​​ a higher price and lower output.

Suppose that a firm is producing the profit-maximizing output under conditions of diminishing returns. Its output price is $25 and its marginal cost of production at its current output level is $25. Based on this information, it can be concluded that this firm must

​​​​​​​ be a perfectly competitive firm.

Monopolies are inefficient compared to perfectly competitive firms because monopolies

​​​​​​​ charge a price greater than marginal cost.

Which of the following must be true if a firm is experiencing economies of scale?

​​​​​​​Long-run average total cost decreases as the firm's output increases