Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

WHEN FIRMS IN A COMPETITIVE INDUSTRY SUSTAIN LOSSES, THEY WILL _____ THE INDUSTRY IN THE LONG RUN.

exit

when firms in monopolistic competition sustain economic losses, firms tend to _____ the market.

exit

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

if the market for corn contains many buyers and sellers (none of whom can influence price), a homogenous product, and free entry in the market, we consider the market to be _____

perfectly competitive

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

price

in perfect competition, marginal revenue is equal to market _____.

price

the demand curve faced by a monopolist is

the same as the market demand curve

in the long run profits in a perfectly competitive industry are _____.

zero

IN THE LONG RUN, FIRMS IN MONOPOLISTIC COMPETITION PRODUCE A LEVEL OF OUTPUT WHERE

ATC > minimum average costs P > MC P = ATC

which of the following is NOT a reason why economies of scope can lead to monopolies.

Average costs fall as output increases

long-run properties of perfect competition include:

P = MC P = min AC

assuming P > AVC, a profit-maximizing firm, in a perfectly competitive market, produces a level at which,

P = MR P = MC MR = MC

to maximize profits, a perfectly competitive firm should produce in the range of increasing marginal cost where P = MC and

P is greater than or equal to AVC

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

- horizontal - price

if p exceeds avc but is less than ATC, the firm

- is sustaining a loss - should remain open

the short-run supply curve for a perfectly competitive firm is the portion of the _____ cost curve that lies _____ the minimum average variable cost

- marginal - above

what happens in a perfectly competitive industry when firms earn profits?

- profits of remaining firms fall - price falls - supply increases

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

- reduction - decreases

If P is less than AVC, the firm ____.

- should shut down - is sustaining a loss

a firm should shut down when P ___ AVC?

<

since each producer in a perfectly competitive market has no influence on market price, the demand curve for the individual firm is

a horizontal line equal to the market price.

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

consumers

when increasing the output of one product reduces the marginal cost of another product, it is called

cost complementarity

revenues and _____ are both determinants of profits

costs

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

deadweight

when a single firm earns profits due to high volume and reduced average costs, while two competing firms sustain losses, a monopoly can result. this is due to

economies of scale

a perfectly competitive firm maximizes profits at the level of output such that market price _____ marginal cost (MC)

equals

the profit-maximizing level of output occurs where the marginal revenue (MR) _____ marginal cost (MC).

equals

what would happen to research and development of new products and technologies if the U.S. eliminated the current patent system?

firms would have less incentive to develop new products

in the short run, when a firm shuts down, losses equal _____ costs.

fixed

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

free entry and exit

how does the U.S. patent system create monopolies?

grants an investor exclusive right to sell the product

how can cost complementarities create monopolies?

greater capital requirements of multi product firms act as a barrier to entry

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

higher; less

determine a key difference between monopolistic competition and monopoly.

in monopolist competition, there are other firms that sell similar products.

if MR is greater than MC, then increasing output

increases revenue by more than cost

a monopolist faces a downward-sloping demand curve. as a result,

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

in the long run, a firm in monopolistic competition produces _____ output than is socially desirable.

less

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

marginal revenue is less than price.

how is price determined in a perfectly competitive market?

market supply and market demand

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

monopolistic competition

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

monopolistic competition

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

monopoly

when price (P) exceeds minimum average variable cost (AVC), each unit of output sold generates _____ revenue than the cost per unit of the variable inputs.

more

since a monopolist is the sole provider of a good or service, it has

more market power than if it faced competition

in order to maximize profits in the short run, a manager must determine how much output to produce given

only variable inputs within his control

in general, agriculture is considered a _____ _____ market

perfectively competitive

what is the price elasticity of demand facing an individual firm in perfect competition?

perfectly elastic

determine a fundamental difference between monopolistic competition and perfect competition.

products in monopolistic competition are differentiated

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

on a graph, profits are given by the vertical distance between the cost function and the _____ line

revenue

a period of time during which at least one input is fixed is called the _____ run.

short

in a monopoly, where the firm chooses output based on marginal revenue (which is less than price),

supply curves do not exist.

in a perfectly competitive market, where firms choose output based on price,

supply curves exist

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

supply decreases

at the point where the cost curve C(Q) and the revenue line R(Q) are the farthest vertical distance apart, what is true of the slopes of these lines?

the slopes are equal

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

there is no difference

to maximize profits, at what level does a monopolistically competitive firm produce?

where MR(Q) = MC(Q)

In order to maximize profits, firms should take production to the point where marginal profits are

zero

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