MICRO ECON TEST 3
Refer to the Figure. If the monopoly firm perfectly price discriminates, then the deadweight loss amounts to
$0
Refer to the scenario . What is Marco's profit on a typical day?
$1,025
Refer to the scenario. A movie theater knows that there are two types of moviegoers: senior citizens and everyone else. For a particular movie, there are 20 senior citizens who will pay $6 for a ticket while there are 100 other people who will pay $10 for a ticket. There are 120 seats available in the theater. Suppose the cost to the movie theater of running the movie is $500, which includes the cost of the rights to the movie, a person to run the film, etc. How much profit will the movie theater earn if it engages in price discrimination?
$620
Q / P 0 $5 1 $5 2 $5 3 $5 4 $5 5 $5 6 $5 7 $5 8 $5 9 $5 Refer to the table. What is average revenue at a quantity of 5 units?
$5
Q / P 0 $5 1 $5 2 $5 3 $5 4 $5 5 $5 6 $5 7 $5 8 $5 9 $5 Refer to the table. What is marginal revenue for this firm from selling the 5th unit?
$5
Refer to the Figure. If the monopoly firm does NOT perfectly price discriminates, then consumer surplus amounts to
$781.25
Profits for a firm can be calculated using which of the following formulas?
(P - ATC)*Q
A monopoly can sell 200 units of output for $40 per unit. Alternatively it can sell 201 units of output for $38 per unit. The marginal revenue of the 201st unit of output is
-$362.
Which of the following is not true about patents and copyrights?
If a firm has a patent or copyright, its fixed costs are reduced.
Refer to the Figure. If the price in this competitive market is $30, this firm will
be indifferent between producing and shutting down and will lose $2,400.
A monopolistically competitive firm operates
below the efficient scale creating excess capacity in the long run.
A competitive market where firms currently earn positive economic profit will see firms exit the industry from increased competition.
false
A firm can exit an industry in the short run.
false
A firm in a competitive market can change the market price by changing its own production level.
false
A firm should continue to operate if price is below average variable cost.
false
A monopolistically competitive firm and a perfectly competitive firm each operate at excess capacity in the long run.
false
A monopolistically competitive firm operates at its efficient scale in the long run.
false
Firms with identical cost structures in a competitive market will have an upward sloping market long-run supply curve.
false
For all firm types price equals marginal revenue, and for competitive firms price equals average revenue.
false
In the long run in a monopolistically competitive market firms can earn positive economic profits.
false
Marvin's Motors is a monopoly provider of automotive service in the small town of Nowhere. When Marvin reduces his price for oil changes from $25 to $20, he sells 10 additional oil changes per month. If Marvin's total revenue from oil changes decreases, the output effect is stronger than the price effect.
false
The monopolist's supply curve is shown by the marginal cost curve above the minimum point of average total cost, like the competitive firm's supply curve.
false
Which of the following describes why the market long-run supply curve would be upward sloping?
firms have different cost structures.
In the long run market supply will be horizontal if
firms have identical cost structures.
A monopolistically competitive firm observes a downward-sloping demand curve because
firms produce a differentiated product.
Suppose that PF Pharmaceuticals has a patent for a new drug that will cure heart failure. Which of the following reasons describes the fundamental barrier to entry for this industry?
government regulation
A contrast between perfect competition and monopolistic competition is that
monopolistic competition generates a deadweight loss while perfect competition does not.
If a firm in a monopolistically competitive market lowers price, then
quantity demanded for the good will increase.
Q / AVC / ATC / MC 4 $1.50 $3.75 $0.00 5 $1.40 $3.20 $1.00 6 $1.50 $3.00 $2.00 7 $1.71 $3.00 $3.00 8 $2.00 $3.13 $4.00 Refer to the table. If the price in this competitive market is $1.00, in the short run this firm will choose to
shut down and incur a loss.
Firms that spend a substantial amount of money on famous actors for advertisements are
signaling to consumers about the quality of the good.
Which of the following describes an imperfectly competitive firm?
some price setting ability
One way a firm can indicate the quality of a good is by
spending large amounts on celebrity endorsements.
Fixed costs that are not relevant to production decisions are known as
sunk cost
Which of the following costs should be ignored by a firm when making production decisions in the short run?
sunk costs
Signaling theory suggests consumers can indirectly measure quality from an advertisement
that is expensive and provides little information.
One explanation for why the market long-run supply curve slopes upward is because
the inputs in production are only available in limited quantities.
An increase in market demand in a competitive market will have which effect in the short run?
the market price will increase
Which of the following is a likely effect from firms entering into a competitive market?
the profits for existing firms will decline.
One way consumers can infer quality about a product is through
the reputation of a brand name.
Refer to the Figure. What is the area of deadweight loss?
the triangle ½[(B-A)*(D-F)]
Which of the following is considered a characteristic of a competitive market?
there are many buyers and sellers in the market
The breakfast cereal industry spends a substantial amount of revenue on advertising. It is likely that
there is a large variety of breakfast cereals available in the market.
The dog food industry spends a substantial amount of revenue on advertising. It is likely that
there is a large variety of dog foods available in the market.
When a monopolist is regulated on the basis of cost,
there is no incentive for the monopolist to reduce its cost.
What is economic welfare generally measured by?
total surplus
A firm in a monopolistically competitive market creates a similar deadweight loss to a monopoly.
true
A firm in a monopolistically competitive market in the long run equates price with average total cost.
true
A firm that is currently producing at a level of output where marginal revenue is greater than marginal cost can increase profits by producing one more unit of output.
true
A monopolistically competitive firm operates where price is greater than marginal cost.
true
An increase in market demand for a product in a competitive market will raise profits for firms currently in the market.
true
Brand names provide information about the quality and reputation of a good.
true
Firms in a market with a highly differentiated product tend to spend a substantial amount of revenue on advertising.
true
Fixed costs that cannot be recovered are known as sunk costs.
true
If P > ATC then economic profits are positive.
true
If a firm in a competitive market doubles the quantity of units sold, total revenue will exactly double.
true
In the short run a monopolistically competitive firm operates like a monopoly
true
It is possible to have positive accounting profit and zero economic profit for a firm.
true
Refer to the figure. A single firm in a competitive market is willing to supply 300 units at a price of $2. The market quantity supplied for a competitive market with 200 identical firms is 60,000 units.
true
The intersection of the demand curve and the marginal-cost curve is equivalent to the socially-optimal level of output.
true
When deciding what price to charge consumers, the monopolist may choose to charge them different prices based on the customer's gender.
true
Refer to the scenario. OrangeTV is able to purchase an exclusive right to sell a premium sports channel (PSC) in its market area. Let's assume OrangeTV pays $100,000 a year for the exclusive marketing rights to PSC. Since OrangeTV has already installed cable to all of the homes in its market area, the marginal cost of delivering PSC to subscribers is zero. The manager of OrangeTV needs to know what price to charge for the PSC service to maximize her profit. Before setting price, she hires an economist to estimate demand for the PSC service. The economist discovers that there are two types of subscribers who value premium sports channels. First are the 5,000 die-hard sports fans who will pay as much as $250 a year for the new PSC premium channel. Second, the PSC channel will appeal to 25,000 occasional sports viewers who will pay as much as $15 a year for a subscription to PSC. If OrangeTV is able to price discriminate, what would be the maximum amount of profit it could generate? A Tragedy of the commons will most likely occur
$1,525,000
Refer to the Table. If the firm produces the profit-maximizing level of output, it will earn
$12
Refer to the scenario. A movie theater knows that there are two types of moviegoers: senior citizens and everyone else. For a particular movie, there are 20 senior citizens who will pay $6 for a ticket while there are 100 other people who will pay $10 for a ticket. There are 120 seats available in the theater. Suppose the cost to the movie theater of running the movie is $500, which includes the cost of the rights to the movie, a person to run the film, etc. How much additional profit can the movie theater earn by charging each customer their willingness to pay relative to charge a flat price of $10 per ticket?
$120
Refer to the Table. Suppose the monopolist has fixed costs equal to $5 and a variable cost equal to $4 per unit for all units produced. What is the profit-maximizing price?
$18
Refer to the figure. If the price in this competitive market is $60, this firm will earn profits of
$2,000.
A new movie is being released that you are excited to see. The personal value you receive from seeing the movie is $20. You purchase an advanced ticket for $10. If you lose the ticket, what is the most you should be willing to pay for a new ticket if losing the ticket does not change the value received from watching the movie?
$20
Refer to the Table. If the monopolist has a constant marginal cost for her product equal to $7, what is her profit-maximizing price?
$24
Refer to the Figure. A profit-maximizing monopoly would earn profits of
$240
Refer to the figure. The deadweight loss caused by a profit-maximizing monopoly amounts to
$250.
Refer to the scenario. OrangeTV is able to purchase an exclusive right to sell a premium sports channel (PSC) in its market area. Let's assume OrangeTV pays $100,000 a year for the exclusive marketing rights to PSC. Since OrangeTV has already installed cable to all of the homes in its market area, the marginal cost of delivering PSC to subscribers is zero. The manager of OrangeTV needs to know what price to charge for the PSC service to maximize her profit. Before setting price, she hires an economist to estimate demand for the PSC service. The economist discovers that there are two types of subscribers who value premium sports channels. First are the 5,000 die-hard sports fans who will pay as much as $250 a year for the new PSC premium channel. Second, the PSC channel will appeal to 25,000 occasional sports viewers who will pay as much as $15 a year for a subscription to PSC. If OrangeTV is unable to price discriminate, it will maximize profit by charging a price of ______ which leads to a profit of _______
$250; $1,150,000
Refer to the Table. At what price will the firm maximize its profit?
$3
Refer to the Figure. If there are no fixed costs of production, monopoly profit with perfect price discrimination equals
$3,125
Consider a profit-maximizing monopoly pricing under the following conditions. The profit-maximizing quantity is 30 units, the profit-maximizing price is $150, and the marginal cost of the 30th unit is $120. If the good were produced in a perfectly competitive market, the equilibrium quantity would be 50, and the equilibrium price would be $140. The demand curve and marginal cost curves are linear. What is the value of the deadweight loss in this situation?
$300
Refer to the Table. Suppose the monopolist has fixed costs equal to $5 and a variable cost equal to $4 per unit for all units produced. What is the total profit if she operates at her profit-maximizing price?
$37
Refer to the scenario. OrangeTV is able to purchase an exclusive right to sell a premium sports channel (PSC) in its market area. Let's assume OrangeTV pays $100,000 a year for the exclusive marketing rights to PSC. Since OrangeTV has already installed cable to all of the homes in its market area, the marginal cost of delivering PSC to subscribers is zero. The manager of OrangeTV needs to know what price to charge for the PSC service to maximize her profit. Before setting price, she hires an economist to estimate demand for the PSC service. The economist discovers that there are two types of subscribers who value premium sports channels. First are the 5,000 die-hard sports fans who will pay as much as $250 a year for the new PSC premium channel. Second, the PSC channel will appeal to 25,000 occasional sports viewers who will pay as much as $15 a year for a subscription to PSC. What is the deadweight loss associated with the non-discriminating pricing policy compared to the price discriminating policy?
$375,000
You purchase a ticket to a baseball game that you value at $40. You pay $35 for the ticket. Unfortunately you lose the ticket. What is the maximum you would be willing to pay for a new ticket if the value of seeing the baseball game remains the same?
$40
Refer to the Figure. In order to maximize profits, the monopolist should charge a price of
$40.
Refer to the Figure . In order to maximize profits, the monopolist should produce
12 units.
Refer to the figure. How many units of output will be supplied to the market if there are 200 identical firms and a market price of $4.00?
120,000
Refer to the figure. How many units of output will be supplied to the market if there are 400 identical firms and a market price of $2.00?
120,000
Refer to the Figure. To maximize total surplus, a benevolent social planner would choose _____ units of output and a price of ____ per unit.
150; $15
Refer to the figure. How many units of output will be supplied to the market if there are 400 identical firms and a market price of $4.00?
240,000
Q / TR / TC 0 0 2 1 5 3 2 10 5 3 15 8 4 20 12 5 25 17 6 30 23 7 35 30 Refer to the table. At what quantity are profits maximized?
5
Quantity / TR / TC 0 0 2 1 5 3 2 10 5 3 15 8 4 20 12 5 25 17 6 30 23 7 35 30 Refer to the table. What is the marginal revenue for the 3rd unit?
5
Q / TR / TC 0 0 2 1 5 3 2 10 5 3 15 8 4 20 12 5 25 17 6 30 23 7 35 30 Refer to the table. What is the marginal cost to produce the 6th unit?
6
Q / AVC / ATC / MC 4 $1.50 $3.75 $0.00 5 $1.40 $3.20 $1.00 6 $1.50 $3.00 $2.00 7 $1.71 $3.00 $3.00 8 $2.00 $3.13 $4.00 Refer to the table. If the price in this competitive market is $2.00, what is the profit-maximizing level of output for this firm?
6 units
Refer to the figure. How many units of output will be supplied to the market if there are 200 identical firms and a market price of $2.00?
60,000
Refer to the Table. In order to maximize profits, the firm should produce
8 units of output.
Refer to the Table. The monopolist has fixed costs of $5,000 and has a constant marginal cost of $3 per unit. If the monopolist were able to perfectly price discriminate, how many units would it sell?
800
Which of the following is not an example of price discrimination?
A hair salon charges a higher price for a haircut if you get your hair washed than if you don't.
Which of the following is correct for a monopolist and monopolistically competitive firm?
A monopolist and monopolistically competitive firm each maximize profits when marginal revenue is equal to marginal cost.
Which of the following statements is not correct?
A monopolist can charge any price and sell any quantity that it chooses.
Which of the following is a difference between a monopolistically competitive firm and a firm in a competitive market in the long-run?
A monopolistically competitive firm operates where average total cost is decreasing, while a firm in a competitive market operates where average total costs are minimized.
Which of the following is not an example of a barrier to entry?
A new pastry chef opens a popular new bakery
Which of the following is an example of price discrimination?
AAA members receive a discount at certain retail shops if they show their card.
Which of the following would be an example of a firm in a competitive market?
An Iowa corn farmer
Which of the following is not an example of price discrimination?
An ice cream shop charges more money for ice cream in a cone versus a cup.
Which of the following statements about antitrust laws is true?
Antitrust laws can reduce social welfare if they prevent mergers that would lower costs through more efficient joint production.
The condition that firms use to exit a competitive market in the long run is
P < ATC
Which of the following is not a difference between monopolies and perfectly competitive markets?
Average revenue is equal to the market price for a competitive firm but not for a monopoly.
Which of the following statements is true?
Average revenue is the same as price for both competitive and monopoly firms.
Which of the following is correct concerning the effects of advertising?
Brand names offer consumers information based on reputation when there is uncertainty about product quality.
Refer to the Figure. A profit-maximizing monopoly's total revenue is equal to
P1 x Q3
Which legislation was passed by Congress in 1914 to strengthen the government's powers and authorize private lawsuits?
Clayton Act
Which of these arguments supports splitting up monopolies?
Competition is almost always more efficient.
Which of the following market structures have zero economic profits in the long run?
Competitive markets and monopolistic competition
What happens when a monopolist increases the price of its good?
Consumers buy less.
Refer to the scenario. Marco is considering changing his pricing strategy. Which of the following options results in the highest profit per day?
Continue charging each buyer his/her willingness to pay.
When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, which of the following is not true?
Deadweight loss still remains in this market.
Refer to the Figure. Profit will be maximized by charging a price equal to
P1.
George Stigler expressed concern about the trade-offs between market failure and political failure in the American economy. This concern supports which of the following solutions that policymakers can take to respond to the problem of a monopoly?
Do nothing
Which of the following represents a difference between a monopoly and a monopolistically competitive firm in the long run?
Economic profits for a monopolist can be positive, while economic profits for a monopolistically competitive firm are zero in the long run.
If P < ATC then economic profits are positive.
False
Which of the following describes a benefit from brand names?
Firms have an incentive to maintain high quality goods to preserve their reputation.
Which of the following conditions describes an oligopoly?
Firms in the market have some price setting ability.
Which of the following correctly describes profits in the long run for a monopolistically competitive firm?
Firms maximize profits when marginal revenue is equal to marginal cost and demand is equal to average total cost.
Which of the following is true with respect to firms in markets with highly differentiated products?
Firms will likely spend a substantial amount on advertising.
Which of the following did Edward Chamberlin believe about brand names?
He believed brand names were a detriment to efficient markets.
Hotel rooms are usually cheaper per night if you stay for a longer period of time. Which of the one is not a reason for this price discrepancy?
Hotels are not profit-maximizing.
How does monopoly that engages in perfect price discrimination compare to a competitive market?
In both cases, total social welfare is maximized.
Which of the following is not true about a natural monopoly?
It is taking advantage of diseconomies of scale.
Which of the following is not a result of allowing drug companies to be monopolists in the drugs they discover?
It lowers the price consumers will have to pay on these drugs.
Why is monopoly profit not a social problem?
It represents a transfer from the consumer to the producer with no loss in total surplus.
Which of these is the best example of a barrier to entry?
Kevin obtains a copyright for the new app he invented.
_______ and _______ represent the two extreme cases of market structure.
Perfect competition, monopoly
Which of the following is not a possible strategy for the government to follow to remedy the inefficient allocation of resources associated with monopolies?
Mandate that the firm release more stock options
Which of the following correctly describes the profit maximizing decision in the long run for a monopolistically competitive firm?
Marginal revenue is equal to marginal cost and price is equal to average total cost
A firm in a monopolistically competitive market in the long run earns zero economic profit because
Marginal revenue is equal to marginal cost and price is equal to average total cost.
Which of the following statements is not correct about how competitive firms differ from monopolies?
Monopolies cannot make positive profit in the long run but competitive firms can.
Which of the following is a market where consumers are exposed to many differentiated products?
Monopolistic competition
Which of the following is true for monopolistic competition and perfect competition in the long run?
Monopolistically competitive firms operate at excess capacity and perfectly competitive firms operate at the efficient scale.
Which of the following is true regarding perfectly competitive firms and monopolistically competitive firms?
Monopolistically competitive firms operate where price is greater than marginal cost.
Which of the following statements about price discrimination is not true?
Price discrimination does not require the firm to separate customers according to their willingness to pay.
Which of the following characteristics describes a competitive market?
Producers sell nearly identical products.
Which of the following is not correct?
Public ownership is the most common and effective public policy toward monopolies in the United States.
Refer to the Figure. If the monopoly firm wants to maximize its profit, it should choose to produce at quantity
Q3.
Refer to the Figure . What is the price and quantity for this natural monopolist under fair return pricing?
R and X
Which of the following statements best describes the business practice of price discrimination?
Selling the same good at different prices to different customers
Which legislation was passed by Congress in 1890 in order to reduce the market power of large and powerful "trusts?"
Sherman Act
Which of the following is considered a likely result from advertising?
Signaling theory suggests that expensive testimonials from celebrities indicate a higher quality product.
Refer to the scenario. Which of the following statements is most likely to not be true?
Smith's is experiencing diseconomies of scale.
Which of these is an example of a government-owned monopoly?
The U.S. Postal Service
Which of the following is true if the content of the advertisement does not provide any information about the product?
The advertisement can signal the quality of the good.
Which of the following is true if advertising is believed to send a signal about the quality of a good to consumers?
The content of the advertisement is not relevant to consumers.
Which of the following is true for a firm in a monopolistically competitive market?
The firm creates the same deadweight loss as a monopoly.
Which of the following is true with respect to profits for a monopolistically competitive firm?
The firm earns zero economic profit in the long run.
Which of the following is true for a monopolistically competitive firm in the long run?
The firm earns zero economic profits and creates a deadweight loss.
Q / TR / TC 0 0 2 1 5 3 2 10 5 3 15 8 4 20 12 5 25 17 6 30 23 7 35 30 Refer to the table. If a firm is currently producing 7 units, what should the firm do to increase profits?
The firm should decrease output since marginal revenue is less than marginal cost at 7 units.
Q / TR / TC 0 0 2 1 5 3 2 10 5 3 15 8 4 20 12 5 25 17 6 30 23 7 35 30 Refer to the table. If a firm is currently producing 2 units, what should the firm do to increase profits?
The firm should increase output since marginal revenue is greater than marginal cost at 2 units.
Which of the following is true if price is below average variable cost for a firm in a competitive market?
The firm should shut down and limit losses to fixed costs.
If the government regulates the price that a natural monopoly can charge to be equal to the firm's average total cost, which of the following is not true?
The firm will earn positive profits.
Three grocery stores mail weekly flyers to area residents with prices for products on sale this week. The flyers also include the stores' locations and hours. Which of the following statements is not an argument defenders of advertising would make regarding these flyers?
The flyers foster brand loyalty.
Which of the following statements is not correct?
The government should never intervene to improve monopoly inefficiency.
Which of the following is an example of price discrimination?
The local movie theater charges less money for a ticket to a senior citizen than to an adult.
ABC Co. brings in $3,400 in revenue from selling 425 units of its product and $3,404 in revenue from selling 426 units of its product. Which of the following conclusions can be drawn from this information?
The marginal revenue of the 426th unit is $4 and ABC Co. does not operate in a competitive market.
Marvin's Motors is a monopoly provider of automotive service in the small town of Nowhere. When Marvin reduces his price for oil changes from $25 to $20, he sells 10 additional oil changes per month and his total revenue increases by $40. Which of the following statements is correct?
The output effect is stronger than the price effect.
Which of the following is a likely effect from firms exiting from a competitive market?
The profits for existing firms should increase.
Refer to the figure. Which of the following statements is not true?
The shape of the average-total-cost curve indicates that this monopoly stems from ownership of a key resource by a single firm.
Which of the following is not a requirement for allowing a local theater to increase its profits through price discrimination by charging a higher price to adults and a lower price to children?
The theater must offer a matinee and an evening show.
Which of the following is an example of a sunk cost?
The unrecoverable fixed costs associated with production decisions.
Monopoly pricing prevents some mutually beneficial trades from taking place. Which of the following is not true about those unrealized, mutually beneficial trade?
They are offset by the higher profits earned by a monopolist.
What is one reason to regulate electric companies instead of using antitrust laws to break up these monopolies?
They are usually natural monopolies.
Which of the following is not true about patents, copyrights, and trademarks?
They cause a firm to earn lower profit.
How do natural monopolies differ from other monopolies?
They do not need to worry about competition eroding their monopoly position.
In a monopoly market, which of these occurs when marginal revenue equals zero?
Total revenue is maximized.
Q / P 0 $5 1 $5 2 $5 3 $5 4 $5 5 $5 6 $5 7 $5 8 $5 9 $5 Refer to the table. What is the change in total revenue if output doubles from 4 units to 8 units?
Total revenue will increase by exactly $20.
When a monopolist increases the number of units it sells, there are two effects on revenue: the output effect and the price effect. Which of the following statements describes the output effect?
When a monopoly increases the amount it sells, more output is sold, which tends to increase total revenue.
Which of the following statements comparing monopoly with competition is correct?
With perfect price discrimination, the total surplus under monopoly can be the same as under competition.
Refer to the Figure. Which area represents the deadweight loss from monopoly?
X
Which of the following profit scenarios is possible for a firm in a monopolistically competitive market in the long run?
Zero economic profit
Markets where firms typically spend between 10 to 20 percent of revenue on advertising sell
a differentiated product.
A firm in a monopolistically competitive market is similar to a monopoly in that they each observe
a downward-sloping demand curve.
Which of the following would be most likely to have monopoly power?
a local water and sewer company
Which of the following characteristics does not describe a competitive market?
a market where firms sell a differentiated product
Which of the following markets is most likely to be monopolistically competitive?
a market with differentiated products
Which of the following best describes the concentration ratio?
a measure of the level of competition in an industry
The simplest way for a monopoly to arise is for
a single firm to own a key resource.
When we compare economic welfare in a monopoly to a competitive market, what do the profits earned by a monopolist represent?
a transfer of benefits from the consumer to the producer
An argument in support of advertising suggests that
advertising leads to more informed consumers.
Which of the following explains why the market long-run supply curve would be upward sloping?
all inputs and resources are only available in limited quantities
A market characterized with only a few firms selling a similar product would be considered
an oligopoly.
The four major producers of washing machines in the U.S. are General Electric, Kenmore, Maytag, and Whirlpool. The market for washing machines is likely characterized as
an oligopoly.
Which of the following is an example of a market force that can prevent firms from successfully price discriminating?
arbitrage
Accounting profit and economic profit
are different since economic profits recognize opportunity costs and accounting profits do not.
Most firms in the U.S.
are in an imperfectly competitive market.
A monopolistically competitive firm in the long run will operate
at excess capacity.
Excess capacity describes a situation where
average total cost is decreasing.
Which of the following is a characteristic of a monopoly?
barriers to entry
A new burger joint opens in Springfield. Other restaurants in the area lose customers and profits because some of their customers go to the new burger joint. The firms feel the __________ externality and consumers feel the ___________ externality.
business-stealing; product-variety
How can the economic efficiency of a monopolist not be measured?
by the monopolist's profit
A characteristic of monopolistic competition is a small number of firms.
false
A firm in the short run
cannot avoid paying fixed costs if the firm shuts down.
Which of the following do antitrust laws not allow the government to do?
collect revenues through the antitrust tax
Q / P 0 $5 1 $5 2 $5 3 $5 4 $5 5 $5 6 $5 7 $5 8 $5 9 $5 Refer to the table. What type of market can be characterized by the price and quantity values found in the table if these values represent a demand curve for a firm?
competitive market
A market with many buyers and sellers trading a nearly identical product describes a(n)
competitive market.
Which of the following represents a measure of the level of competition in an industry?
concentration ratio
Signaling theory suggests
consumers are not concerned over advertising content but rather use spending as an indicator of quality.
Q / AVC / ATC / MC 4 $1.50 $3.75 $0.00 5 $1.40 $3.20 $1.00 6 $1.50 $3.00 $2.00 7 $1.71 $3.00 $3.00 8 $2.00 $3.13 $4.00 Refer to the table. If the price in this competitive market is $3.00, in the short run this firm will choose to
continue producing and break even.
Q / AVC / ATC / MC 4 $1.50 $3.75 $0.00 5 $1.40 $3.20 $1.00 6 $1.50 $3.00 $2.00 7 $1.71 $3.00 $3.00 8 $2.00 $3.13 $4.00 Refer to the table. If the price in this competitive market is $4.00, in the short run this firm will choose to
continue producing and earn a profit.
Q / TR / TC 0 0 2 1 5 3 2 10 5 3 15 8 4 20 12 5 25 17 6 30 23 7 35 30 Refer to the table. In the short run, this firm will choose to
continue producing and earn a profit.
Q / AVC / ATC / MC 4 $1.50 $3.75 $0.00 5 $1.40 $3.20 $1.00 6 $1.50 $3.00 $2.00 7 $1.71 $3.00 $3.00 8 $2.00 $3.13 $4.00 Refer to the table. If the price in this competitive market is $2.00, in the short run this firm will choose to
continue producing but incur a loss.
If a firm in a competitive market decreases the quantity of output sold, total revenue should
decrease
If there is a reduction in market demand in a competitive market, then in the short run prices will
decrease
If there is a reduction in market demand in a competitive market, then in the short run profits will
decrease
Refer to the Figure. If the monopoly firm is currently producing Q3 units of output, then an increase in output will necessarily cause profit to
decrease.
When a monopoly decreases its output and sales, the output effect works to ______ total revenue, and the price effect works to ______ total revenue.
decrease; increase
If marginal revenue is currently less than marginal cost at the current level of output, then
decreasing output by one unit will increase profits for the firm.
Which of the following statements is not correct? Monopolies are socially inefficient because they
earn profits at the expense of consumers.
Firms will have an incentive to exit a competitive market when
economic profits are negative.
Firms will have an incentive to enter a competitive market when
economic profits are positive.
Which of the following correctly describes a firm's entry condition in the long run?
enter if P > ATC
A celebrity endorsement for a product that provides no information for the good is useless to consumers.
false
In a competitive market, an individual firm
has little to no effect on the market price.
A monopolist's profits with price discrimination will be _____ if the firm charged just one price.
higher than
The market demand curve faced by a competitive firm is ______, and it is ______ for a typical monopolist.
horizontal; downward sloping
Most firms in the U.S. would be characterized as
imperfectly competitive.
Most markets in the U.S can be characterized as
imperfectly competitive.
If a firm in a competitive market increases the quantity of output sold, total revenue should
increase
If marginal revenue is currently greater than marginal cost at the current the level of output, then
increasing output by one unit will increase profits for the firm.
A monopolistically competitive firm is
inefficient because price is greater than marginal cost.
Suppose an advertisement uses a group of well-known celebrities having a good time while consuming a new product. Defenders of advertising would argue that the advertisement
informs consumers about the existence of a new product.
Farmer Brown sells sweet corn in a competitive market. When Farmer Brown sells 10 dozen ears of sweet corn, his total revenue is $30. When Farmer Brown sells 20 dozen ears of sweet corn, his total revenue is $60. Farmer Brown's average revenue is ____________ per dozen and his marginal revenue from selling the 20th dozen _________________.
is $3; is also $3
A firm that shuts down in the short run
is required to pay fixed costs but not variable costs.
When a firm exits a competitive market in the long run
it avoids paying both fixed and variable costs.
Suppose a firm has a monopoly on the sale of boomerangs and faces a downward-sloping demand curve. When selling the 20th boomerang, the firm will always receive ________ on the 20th boomerang then it received on the 19th boomerang.
less marginal revenue
Deadweight loss exists when a market is operated by a monopoly because the monopolist produces at an output level that is _______ the socially optimal level.
less than
A monopolist produces ____ than the socially efficient quantity of output and at a _____ price than in a competitive market.
less; higher
When a monopolist chooses the profit-maximizing level of output, he sets the marginal cost equal to
marginal revenue and reads the price from the demand curve at that quantity.
A monopolistically competitive firm and a monopoly each maximize profits when
marginal revenue is equal to marginal cost.
Similar to a monopoly, a monopolistically competitive firm maximizes profits by choosing a level of output where
marginal revenue is equal to marginal cost.
Which of the following is true if a firm increases its level of output by one unit and profits increase?
marginal revenue is greater than marginal cost
Which of the following is true if a firm increases its level of output by one unit and profits decrease?
marginal revenue is less than marginal cost
Which of the following correctly describes the two types of imperfectly competitive markets?
monopolistic competition and oligopoly
Which of the following market structures predict zero economic profit for firms in the long run?
monopolistic competition and perfect competition
The market structure with many firms selling products that are similar but not identical is __________, which is different from _____________, a market structure with only a few firms who offer similar or identical products.
monopolistic competition; oligopoly
Which of the following market structures require that price is greater than marginal cost as a profit-maximizing condition?
monopoly and monopolistic competition
Suppose Plumber Supplies Inc. owns 75% of the world's copper, a key resource used in the production of pipes. Which of the following reasons describes the fundamental barrier to entry for the pipe supplies industry?
monopoly resource
When price is less than average total cost, profits for the firm are
negative
Firms in a competitive market are considered price takers because
no individual buyer or seller can affect the market price.
Which of the following is not a characteristic of a monopoly?
one buyer
A monopolistically competitive firm
operates with a deadweight loss since price is greater than marginal cost.
The concentration ratio of light bulb market is
over 80%.
Which of the following market structures charge a price equal to marginal cost when maximizing profits?
perfect competition
Which of the following markets is likely to be monopolistically competitive?
pizza
When price is greater than average total cost, profits for the firm are
positive
Refer to the Figure. What is the socially efficient price and quantity?
price = E; quantity = B
For a monopoly firm,
price always exceeds marginal revenue.
Which of the following is not correct with respect to firms in a competitive market in the long-run?
price is above average total cost
A firm in a competitive market will shut down in the short run if
price is below average variable cost.
Which of the following is correct with respect to firms in a competitive market in the long-run?
price is equal to average total costs
The entry decision for a firm in a competitive market in the long run depends on if
price is greater than average total cost.
Monopolistic competition creates a deadweight loss because
price is greater than marginal cost.
The exit decision for a firm in a competitive market in the long run depends on if
price is less than average total costs.
Which of the following correctly describes when a firm in a competitive market should shut down in the short run?
price is less than average variable cost
Which of the following is not an example of an oligopoly?
price taker
The positive externality conveyed on consumers when a new firm enters a monopolistically competitive market is the __________ externality, and the negative externality conveyed on producers when a new firm enters a monopolistically competitive market is the ___________ externality.
product-variety; business-stealing
If marginal revenue is equal to marginal cost at the current level of output, then
profits are maximized.
An increase in market demand in a competitive market will have which effect in the short run?
profits for the firm will increase
Which of the following markets does not exhibit product differentiation?
wheat
A monopolistically competitive firm operates
where average total cost is decreasing in the long run.
When price equals average total cost, profits for the firm are
zero
In the long-run, firms in a competitive market will have
zero economic profit.
