Econ 102 final

Refer to the diagram for a purely competitive producer. If product price is P3,

economic profits will be zero.

Refer to the diagram for a purely competitive producer. The firm will produce at a loss at all prices

between P2 and P3.

Refer to the diagram for a pure monopolist. Monopoly price will be

c.

Refer to the diagram for a pure monopolist. Monopoly output will be

f.

"Price makers" refers to firms that

face a downward-sloping demand curve.

Monopolistic competitive firms are productively inefficient because production occurs where

average total cost is not at its lowest.

Barriers to entry

can result from government regulation.

The Herfindahl index

gives much greater weight to larger firms than to smaller firms in an industry.

Monopolistic competition resembles pure competition because

in both industries barriers to entry are either weak or nonexistent.

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm will realize an economic

profit of $480.

In which market model would there be a unique product for which there are no close substitutes?

pure monopoly

If the four-firm concentration ratio for industry X is 80,

the four largest firms account for 80 percent of total sales.

A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating

with a loss. Firms earn economic profits when price exceeds average total cost, and incur losses when P < ATC. The firm is at the optimal level when MR = MC. If, for example, ATC = $4$4.50, P = $4.00, MR = $2.50, and MC = $2.50, then the firm is operating with a loss., but is at the optimal level of output.

Answer the question on the basis of the accompanying demand schedule.

Marginal revenue is the change in total revenue from selling an additional unit of output. If, for example, a firm sells 2 unit(s) of output at $9 per unit, or 3 units of output at $8 per unit, selling the third unit increases revenue from $18 (= 10 × $9 to $24 (= 3 × $8), so the marginal revenue of the third unit is $6 (= $24 − $18).

Allocative inefficiency happens in a monopoly because at the profit-maximizing output level,

P > MC.

What do economies of scale, the ownership of essential raw materials, and patents have in common?

They are all barriers to entry.

The MR = MC rule applies

in both the short run and the long run.

The pure monopolist's demand curve is relatively elastic

in the price range where marginal revenue is positive.

As a general rule, oligopoly exists when the four-firm concentration ratio

is 40 percent or more.

Game theory

is the analysis of how people (or firms) behave in strategic situations.

Oligopoly is more difficult to analyze than other market models because

of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models.

An industry comprising four firms, each with about 25 percent of the total market for a product, is an example of

oligopoly

One major barrier to entry under pure monopoly arises from

ownership of essential resources.

Concentration ratios measure the

percentage of total industry sales accounted for by the largest firms in the industry.

Which of the following industries most closely approximates pure competition?

agriculture

The firm described in the accompanying diagram is selling in

an imperfectly competitive market.

A natural monopoly occurs when

long-run average costs decline continuously through the range of demand.

Monopolistic competition means

many firms producing differentiated products.

In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies?

oligopoly

Mutual interdependence would tend to limit control over price in which market model?

oligopoly

The goal of product differentiation and advertising in monopolistic competition is to make

price less of a factor and product differences more of a factor in consumer purchases.

Because the monopolist's demand curve is downsloping,

price must be lowered to sell more output.

Excess capacity implies

productive inefficiency.

In which of these continuums of degrees of competition (lowest to highest) is oligopoly properly placed?

pure monopoly, oligopoly, monopolistic competition, pure competition

Which of the following is not a basic characteristic of monopolistic competition?

recognized mutual interdependence

Which industry would be best characterized as monopolistically competitive?

web design consulting

A pure monopolist

will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.

If firms enter a purely competitive industry, then in the long run this change will shift the industry

supply curve to the right, and the individual firm's demand curve will shift down.

Nonprice competition refers to

advertising, product promotion, and changes in the real or perceived characteristics of a product.

Refer to the graph for a profit-maximizing monopolist. The firm will produce a quantity equal to the distance:

0 V.

The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the product price is $290, the per-unit economic profit at the profit-maximizing output is

Per unit economic profit (or loss, in the case of negative numbers) is found by subtracting average total cost (ATC) from the product price (which also measures average revenue). If, for example, the market price is $290 per unit, the profit-maximizing quantity of output is 9 units. At 9 units, ATC is $171. Profit per unit is then $119 (= $290 − $171).

Long-run competitive equilibrium

results in zero economic profits.

The accompanying table shows cost data for a firm that is selling in a purely competitive market. The firm will produce its output only if the price is at least equal to what minimum level?

$4

In monopolistic competition there is an underallocation of resources at the profit-maximizing level of output, which means that

price is greater than MC.

Which of the following distinguishes the short run from the long run in pure competition?

Firms can enter and exit the market in the long run but not in the short run.

A perfectly elastic demand curve implies that the firm

can sell as much output as it chooses at the existing price.

Which of the following is not a basic characteristic of pure competition?

considerable nonprice competition

Refer to the graph for a profit-maximizing monopolist. At equilibrium, the firm will be earning

positive profits.

If firms are losing money in a purely competitive industry, then the long-run adjustments in this situation will cause the market supply to

decrease, and consequently the representative firm's profits will increase.

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be

160

If the four-firm concentration ratio in an oligopolistic five-firm industry is 80 percent, and each firm has an equal percentage of sales, the Herfindahl index is

2,000. The Herfindahl index is the sum of the squared percentage market shares of all firms in the industry. While the 4-firm concentration ratio is the sum of the percent of sales of the four largest firms.

Collusion refers to a situation where rival firms decide to

agree with each other to set prices and output.

A firm that has the long-run cost curves shown in the graph would be able to do or have the following, except

attain lower unit costs by reducing its output level.

Refer to the diagram for a non-collusive oligopolist. Suppose that the firm is initially in equilibrium at point E, where the equilibrium price and quantity are P and Q. Which of the following statements is correct?

Demand curve D1 assumes that rivals will match any price change initiated by this oligopolist.

Refer to the diagram. To maximize profits or minimize losses, this firm should produce

E units and charge price A.

Which of the following is characteristic of a pure monopolist's demand curve?

It is the same as the market demand curve.

The diagram indicates that the marginal revenue of the sixth unit of output is

$-1

At which of the following prices will the firm shown in the accompanying graph make an economic profit?

$10

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be

$16.

The table shows the demand schedule facing Nina, a monopolist selling baskets. What is the change in total revenue if she lowers the price from $20 to $18?

$30 To find the change in total revenue over a certain price range, calculate total revenue (= price × quantity) at both prices; then take the difference. For example, if Nina sells 3 baskets at $20 per unit, total revenue is $60; if she sells 5 baskets for $18 each, total revenue will be $90. Therefore, lowering the price from $20 to $18 will cause total revenue to rise from $60 to $90, a change of $30.

This purely competitive firm shown in the accompanying graph will not produce unless price is at least

$5

Refer to the diagram. At the profit-maximizing level of output, total revenue will be

0 AJE.

In the accompanying graph, at what level of output will the firm earn a maximum unit-profit margin (or profit per unit)?

0 B

The Herfindahl index for a pure monopolist is

10,000.

Refer to the game theory matrix, where the numerical data show the profits resulting from alternative combinations of advertising strategies for Ajax and Acme. Ajax's profits are shown in the upper right part of each cell; Acme's profits are shown in the lower left. Without collusion, the outcome of the game is cell

A

Refer to the diagram for a monopolistically competitive firm. Long-run equilibrium price will be

A.

A monopoly results in productive inefficiency because at the profit-maximizing output level,

ATC is not at its minimum level.

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 800 units is $3.50. The minimum possible average variable cost is $2.00. The market price of the product is $4.00. To maximize profits or minimize losses, the firm should

As long as the market price is above minimum average variable costs, the firm should produce, as any loss will be smaller than shutting down. Assuming the firm should produce, if MR = MC at its current level of output, it should continue to produce that level of output. If MR > MC, it should expand production; if MR < MC, it should reduce output. If, for example, the market price is $4.00, marginal cost is $3.50, and minimum average variable cost is $2.00, the firm should increase production.

The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $80, the firm will

As long as the market price is above minimum average variable costs, the firm should produce. The profit-maximizing firm produces to the level of output where MR = MC. (or, as long as MR > MC, but stopping short of producing where MR < MC). If, for example, price (also marginal revenue in pure competition) and marginal cost are both $80 at produce 4 units units of output, then the firm should produce 4 units.

The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $180, the firm will produce

As long as the market price is above minimum average variable costs, the firm should produce. The profit-maximizing firm produces to the level of output where MR = MC. (or, as long as MR > MC, but stopping short of producing where MR < MC). Once the profit-maximizing output level has been determined, total revenue is equal to that output times the market price. Total cost is found by multiplying ATC by output. The difference between total revenue and total cost is the economic profit (or loss, if the number is negative).

The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the price of the product is $6, what output level will the firm produce?

As long as the market price is above minimum average variable costs, the firm should produce. The profit-maximizing firm produces to the level of output where MR = MC. If, for example, price (also marginal revenue in pure competition) and marginal cost are both $6 at 14 units of output, then the firm should produce 14 units.

Which of the diagrams correctly portrays a nondiscriminating pure monopolist's demand ( D) and marginal revenue (MR) curves?

B

Balin's Burger Barn operates in a perfectly competitive market. Balin's is currently earning economic profits of $20,000 per year. Based on this information, we can conclude that

Balin's is operating in the short run, but not the long run.

Refer to the diagram for a monopolistically competitive firm. Long-run equilibrium output will be

D.

If you sum the squares of the market shares of each firm in an industry (as measured by percent of industry sales), you are calculating the

Herfindahl index.

Which of the following statements concerning a monopolistically competitive industry is correct?Which of the following statements concerning a monopolistically competitive industry is correct?

If there are short-run losses, firms will leave the industry and the demand curves of the remaining firms will shift to the right.

The total revenue of a purely competitive firm from selling 6 units of output is $48. Based on this information, the unit price of the output must be

In a purely competitive market, because the firm is a "price taker," the marginal revenue from selling an additional unit is constant at the market price. Total revenue is found by multiplying the quantity of output by the market price, so the price can be found by dividing the total revenue by the number of units sold. If, for example, 6 units are sold, generating a total revenue of $48, then the market price is $8 (= $48/6.)

The total revenue of a purely competitive firm from selling 6 units of output is $48. Based on this information, total revenue for 7 units of output must be

In a purely competitive market, because the firm is a "price taker," the marginal revenue from selling an additional unit is constant at the market price. Total revenue is found by multiplying the quantity of output by the market price, so the price can be found by dividing the total revenue by the number of units sold. If, for example, 6 units are sold, generating a total revenue of $48, then the market price is $8 (= 48/48). If 7 units are sold at $8, total revenue is $56 (= 6 × 8).

A purely competitive seller is

a "price taker."

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1,000 units is $2.5. The minimum possible average variable cost is $2. The market price of the product is $2.5. To maximize profits or minimize losses, the firm should

continue producing 1,000 units.

In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is below

average variable cost.

The primary force encouraging the entry of new firms into a purely competitive industry is

economic profits earned by firms already in the industry.

Many people believe that monopolies charge any price they want to without affecting sales. In fact, the output and sales level for a profit-maximizing monopoly is codetermined with price where

marginal cost = marginal revenue.

In the short run, a monopolist's economic profits

may be positive or negative depending on market demand and cost conditions.

If you want to enjoy a Major League Baseball game at the stadium in St Louis, you must patronize the Cardinals. This makes the Cardinals organization a

monopoly firm in St Louis.

An oligopolistic firm tends to have less control over its own pricing decisions than a firm in

monopoly only.

Large minimum efficient scale of plant combined with limited market demand may lead to

natural monopoly

The graphs are for a purely competitive market in the short run. The graphs suggest that in the long run, assuming no changes in the given information,

new firms will be attracted into the industry.

An industry comprising a very large number of sellers producing a standardized product is known as

pure competition.

The accompanying graphs are for a purely competitive market in the short run. The graphs suggest that in the long run, assuming no changes in the given information, the market

supply curve will shift to the right.

Suppose that the corn market is purely competitive. If the corn farmers are currently earning negative economic profits, then we would expect that in the long run the market

supply will decrease

Refer to the diagram for a monopolistically competitive firm. If more firms were to enter the industry and product differentiation were to weaken, then

the demand curve would become more elastic.

The accompanying table gives cost data for a firm that is selling in a purely competitive market. The data are for

the short run.

Firms in an industry will not earn long-run economic profits if

there is free entry and exit of firms in the industry.

In a purely competitive industry,

there may be economic profits in the short run but not in the long run.

Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. We thus know that

total revenue is increasing.

Mergers of firms in an industry tend to

transform monopolistic competition into oligopoly.

Consider the purely competitive firm whose data are shown in the accompanying graph. At its short-run equilibrium point, the firm is earning

zero economic profits.

A monopolist can sell 20 toys per day for $8.00 each. To sell 21 toys per day, the price must be cut to $7.00. The marginal revenue of the 21st toy is

−$13.00. Marginal revenue is the change in total revenue from selling an additional unit. To calculate marginal revenue, it is first necessary to calculate total revenue (= price × quantity) at each price point. If, for example, a monopolist can sell 20 units for $8.00 each, or 21 units for $7.00 each, they are faced with total revenue of either $160.00 (= 20 × $8.00) or $147.00 (= 21 × $7.00). To sell the 21st unit, this firm would see total revenue fall from $160.00 to $147.00, a marginal revenue of −13 (= $147.00 − $160.00).