ECON - 111 - Test 3

Elias works at an ice cream stand. He collects data on his firm's demand as shown in the table. What is the marginal revenue from selling the third ice cream cone? |Quantity (Q) | Price (P) | | 1 | $7 | | 2 | $6 | | 3 | $5 | | 4 | $4 |

$3

How can successful product differentiation give you more market power?

By making it less likely that there is a useful substitute to your good

Rank these firms from least market power to most market power: Airplane manufacturers, farmers, and computer manufacturers

Farmer, computer manufacturer, airplane manufacturer

What type of market structure do most businesses operate in?

Imperfect competition

Does it make sense for a firm in perfect competition to charge a price for its product that is less than the prevailing market price? Why?

No, because the firm should charge the market price because lowering the price will only lower the profit margin.

Which of the following lists the order of market structures from the least market power to the most market power?

Perfect competition, oligopoly, monopoly

TRICKY - If you own one of four gas stations at a busy intersection, what gas price can you set so that you will not lose your customers to the other three rivals?

The market price

What is NOT true about oligopolistic businesses in terms of market power?

They have similar market power to the monopolist.

Under perfect competition, your firm has no market power. What would happen if you raise the price of your product by 2%?

You will lose all your customers.

When you are buying a car, you must choose between a handful of makes, such as Ford, GMC, and Toyota. Because your options are limited, this is an example of:

an oligopoly

Many managers use the marginal principle in operating their business because the marginal principle helps them:

break big decisions into smaller marginal decisions.

Marginal revenue is calculated:

by finding the additional revenue earned from selling an extra unit of the item.

If you can create a product that is very different from those of your rivals, you can raise your price because:

customers are less likely to find a substitute product.

Although a single company dominates the zipper market, its customers could always use button flies for their clothes. This means that the company:

has competitors in the broader market for fasteners.

When they have market power, managers need to make decisions on what is the best price. They face a trade-off between selling a _____ quantity of items and making _____ money on each item.

larger; more

In general, companies with an identical product have _____ market power ____ those with a unique product.

less; than

Hans works in a sales department of a vacuum manufacturer. He collects data on vacuum sales and the price of the vacuums sold each day. He can use the data to plot the firm marginal revenue curve which _____ the firm demand curve.

lies below

A clothing company makes its own unique style of dress shirt and competes with other businesses that also sell dress shirts but do not have the same style. This type of market is an example of:

monopolistic competition.

The firm demand curve of a company with higher market power is _____ than the firm demand curve of a company with lower market power.

more inelastic

Long-run profitability of a company depends on all of the following EXCEPT:

operating in an imperfectly competitive market.

The market structure in which firms have the least market power is:

perfect competition.

Perfect competition is rare because:

sellers rarely sell products that are identical to their competitors'.

If you own the only gas station in town, then you can raise the gas price slightly above the market price because you have _____ market power.

some

Market Power

the ability to raise your price without losing many of your customers to competing businesses

Jolanta owns a bakery. She found out that to sell one extra batch of bread, she has to lower the price a bit, which cuts down the total revenue of the firm. This is an example of:

the discount effect

A paper company experimented by charging different prices for a ream at different locations. The first store set a price of $3.99 and sold 547 units. The other two stores sold 438 units at a price of $4.99, and 219 units at a price of $5.99. The results of this experiment can be depicted in a graph that reveals:

the firm demand curve.

Marginal Revenue equals?

the output effect minus the discount effect