BUSI620 Chapter 8

A firm in monopolistic competition faces a demand curve with own-price elasticity equal to -2 and an advertising elasticity equal to 0.2.This firm should devote % of its revenues to advertising.

10

When firms in monopolistic competition earn positive economic profits, how will additional firms react?

Additional firms enter and produce variations of the product.

A firm in monopolistic competition faces a demand curve with own-price elasticity equal to -5 and an advertising elasticity equal to 0.15.This firm should devote % of its revenues to advertising.

Blank 1: 3 or three

The monopolist is restricted to price-quantity combinations that lie on the demand curve as a result of decisions made by

Blank 1: consumers, customers, or buyers

The welfare loss to society due to the level of output produced by a monopolist is called the

Blank 1: deadweight , dead weight, or dead-weight

When firms in monopolistic competition earn positive economic profits, other firms tend to

Blank 1: enter or join

The demand curve for a perfectly competitive firm is a line at the market .

Blank 1: horizontal or flat Blank 2: price

The market structure where a firm has a large degree of market power is called

Blank 1: monopoly

Economies of scale and scope, cost complementarity, and patents are all sources of (one word) power.

Blank 1: monopoly or monopolistic

For a perfectly competitive firm, marginal revenue is equal to the market

Blank 1: price

In a perfectly competitive market, the individual producer's demand curve is the market

Blank 1: price

On a graph, profits are given by the vertical distance between the cost function and the

Blank 1: revenue

A period of time during which at least one input is fixed is called the

Blank 1: short

Marginal revenue is the of the total revenue curve.

Blank 1: slope or derivative

Define the competitive firm's demand.

Df = P = MR

Which of the following is NOT a source of monopoly power?

Free entry and exit

A monopolist's linear inverse demand curve is P(Q) = 750 - 3Q. Which of the following is the monopolist's marginal revenue?

MR = 750 - 6Q

Given a revenue function: R(Q) = P(Q)Q The monopolist's marginal revenue (MR) is given by

MR = P(1+EE)1+EE MR = dPdQdPdQQ + P MR = dRdQ

What is the marginal revenue (MR) of the inverse linear demand function, P(Q) = a + bQ?

MR = a + 2bQ

Given a revenue function, R = R(Q), what is the marginal revenue (MR)?

MR = dRdQ

Suppose a market contains one supplier of a good that has no close, available substitutes. What type of market structure is this?

Monopoly

What does the free entry and exit assumption imply for a perfectly competitive market?

New firms will leave if they incur losses. New firms will enter when profits exist. In the long run, economic profits are zero.

Which is a strategy firms use to tailor goods and services to meet the needs of a particular segment of the market?

Niche marketing

As firms exit a perfectly competitive industry in the long run, what happens to the profits of the remaining firms?

Profits increase due to increased market price.

What happens to the industry supply as firms exit a perfectly competitive industry in the long run?

Supply decreases

What is the key difference in determining the profit-maximizing price and output under monopoly versus monopolistic competition?

There is no difference.

If MR is less than MC, a profit-maximizing monopolist should:

decrease output to maximize profits

For a monopolist, it is necessary to _______ price to increase output by one unit. As a result, the price received from all previous units _________

decrease; decreases

In order to maximize profits, a monopolist should produce where marginal revenue is ________ marginal cost.

equal to

A monopolist charges a ________ price and produces ________ output than a perfectly competitive industry.

higher; less

If MR is greater than MC, a profit-maximizing monopolist should ___.

increase output to maximize profits

When a monopolist increases output by one unit, total revenue

increases by less than price.

In monopolistic competition, each firm uses the ___________ demand curve and the marginal revenue curve to establish output and price. In monopoly, the firm uses the __________ demand curve and the marginal revenue curve to establish output and price.

individual; market

A monopolist faces a downward-sloping demand curve. As a result,

it can choose a price or a quantity, but not both.

For a monopolist, the marginal revenue curve has twice the slope of the demand curve. This implies

marginal revenue is less than price.

When many buyers and sellers freely enter and exit a market having similar, yet differentiated products, it is called ___

monopolistic competition

Fast-food hamburgers are characterized by a large group of sellers producing slightly different goods. What type of market is this?

monopolistically competitive

In order to maximize profits in the short run, a manager must determine how much output should be produced, given

only variable inputs within his or her control.

A market with many "small" buyers and sellers, identical products, no transaction costs, and free entry and exit where buyers and sellers have perfect information is called __________.

perfect competition

π = P(Q) - C(Q) defines

profits

Marginal revenue is

the change in total revenue from a one-unit change in output.

The price an individual producer in a perfectly competitive market faces is determined by:

the market supply and market demand

The demand curve faced by a monopolist is

the same as the market demand curve.

If consumers are willing to pay more for "Roper's Rice" than they are for "Rice by Russell", then "Roper's Rice" is enjoying additional value due to ______

brand equity