micro test 3
which of these is a variable cost for owning a bar?
labor
which of the following is not a demand-side strategy to prevent competitors from entering a market?
mass production
_____ have the most market power, because _____
monopolists; there is only one seller of a unique product
companies with market power can control the price and quantity they want to produce. this lease to market failure because market power leads to ____ and ____ prices
underproduction; higher
patents and copyrights are examples of _____ barriers to entry.
regulatory
product differentiation means that a business tries to make their product unique in order to
set it apart from their rivals products and create more market power
under perfect competition, what will happen to your firm if your competitors lower their price by 1%?
you will lose all your customers to your competitors
economic profits encourage firms to _____ the industry, and losses encourage firms to _____ the industry.
enter; exit
if there is free exit from and entry into an industry, long-run economic profits will be _____ for firms in that industry.
equal to zero
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
to create barriers to free entry in a market, existing companies can employ any of these strategies EXCEPT:
respond passively to new entrants in the market (deterrence strategies)
if you do not have much market power, then raising your price will _____ reduce the quantity you sell and your firm's demand curve is highly _____
sharply; elastic
Mr. Parker sells 10 bottles of wine per week at $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity effect of the sale of an additional bottle would be _____, whereas the price effect of the sale of an additional bottle would be _____.
$45; -$50
davids financial planner tells him that he made a profit of $31,300 running a ballroom dance studio in Sacramento. David's wife, an actuary, claims that david lost $31,300 running his ballroom dance studio. this means his wife is claiming that he incurred _____ in _____ costs.
$62,600; implicit opportunity
a firm in an oligopoly knows that its _____ affect its _____ and that the reactions of its rivals will affect it
actions; rivals
if a monopolist produces a quantity that generates MC < MR, then profit:
can be increased by increasing output
the entry of a new rival _____ the demand for products from existing businesses, which _____ their economic profits.
decreases; lowers
the output in a market with market power is:
inefficient, since the marginal benefit to society of extra output exceeds the marginal cost.
the larger the quantity you sell, the _____ the discount effect. therefore, the marginal revenue curve declines _____ sharply than the firm's demand curve
larger; more
In a particular suburban area, suppose customers have a lot of choices in internet providers. they can choose a variety of products from small local providers, regional providers, or national providers. what is the market structure for the internet services in this suburban area?
monopolistic competition
the market for orthodontic services in most communities is _____ because it offers a large number of smaller but not identical options
monopolistically competitive
which market type has the largest number of firms?
perfect competition
barrier to entry:
prevent the entry of new firms into the market
policies that are _____ will help existing businesses survive. policies that are _____ will bolster competition and make markets more competitive. economists will prefer policies that are _____ because they will lead to the best outcomes for society
pro-business; pro-market; pro-market
if american airlines purchased all of its competitors to become a monopoly, all else equal, price will _____, and output will _____
rise; fall
the mile end deli serves traditional delicatessen food in brooklyn. which cost is MOST likely fixed at the deli?
the chairs customers sit on
which scenario BEST illustrates an oligopolistic industry?
the coca-cola company and pepsi sell most of the soft drinks consumed around the world
which statement is NOT true about a monopoly
the monopolist is a price-taker
pharmaceutical companies can charge high prices for a life-saving drug, or raise the price of the drug without losing a lot of customers because
they have a lot of market power
the demand curve for a monopoly is
above the marginal revenue curve
a situation in which a business would lose all of its customers if it raised prices is called
perfect competition
if a market is trading at prices below the average cost, it is likely that _____.
sellers will leave the market
market power is
the extent to which a firm can charge a higher price without losing many customers
the opportunity costs of a business include forgone _____.
wages and interest
an oligopoly is a market that has
a small number of large sellers
accounting profit is different than economic profit because
accounting profit ignores the opportunity cost of launching a new business
the decision to start a business and the decision to attend college
are similar in that in both cases, you will want to consider the cost-benefit principle and the opportunity cost principle
when it is difficult for a new business to compete away economic profits from an economically profitable market, there must be:
barriers to free entry
when you have market power, raising your price will _____ the profit margin on each item you sell, _____ reducing the number of items you sell
boost; while
many managers use the marginal principle in operating their business because the marginal principle helps them
break big decisions into smaller marginal decisions
companies may signal to potential entrants that they are willing to "crush" their competition by making credible threats. which of the following would be considered a credible threat?
building excess capacity so that the firm could flood the market with product
marginal revenue is calculated
by finding the additional revenue earned from selling an extra unit of the item
which of the following is not a supply-side strategy for preventing entry?
credible threats
the initial AIDS durg market is a real example of how businesses with _____ market power can _____ market forces
large; distort
if you run a coffee shop and a new starbucks opens down the street, you would have _____ market power
less
when new firms enter a market, existing firms will see _____ than before, and their market power will _____.
less; decrease
if you own the only gas station in your part of town, then you can raise the gas price slightly above the market price because you have _____ market power
limited
Monopolistic competition is BEST described as
many firms with some control over price, and some product differentiation
a book seller should keep selling books until marginal revenue equals marginal cost, which occurs where the _____ and _____ curves intersect
marginal revenue; marginal cost
the ability to charge higher prices without losing a large amount of customers is called
market power
the shape of the demand curve of a firm can be relatively flat or steep, depending on
market power
being open to international trade helps a country foster competition for all the following reasons EXCEPT that there will be:
more bias toward domestic production
in the united states, the top brands of kitchen appliances include samsung and LG, which are south korean companies, and general electric and whirlpool, which are american companies. without international trade, general electric and whirlpool would have _____ market power, and american consumers would face _____ prices
more; higher
when firms exit a market, remaining firms will sell _____ than before, and their market power will _____.
more; increase
total revenue is calculated by
multiplying the price charged by the quantity the firm sells
sellers in a market will become less profitable when:
new sellers enter the market
you and your classmates have cellphone services from a limited number of different providers. what type of market structure is the market for cellphone service?
oligopoly
according to the cost-benefit principle, the time and money associated with opening or expanding a business are a(n) _____ cost.
opportunity
marginal revenue is equal to
output effect minus the discount effect
how does output for a seller who has market power compare to output for a seller who does not have market power, assuming both follow the rational rule for sellers?
output is higher for the seller without market power than the one with market power
it is illegal for a company to use _____ by charging an extremely low price in order to drive its competitors out of business, with the goal of raising the price later
predatory pricing practices
building excess capacity acts as an entry deterrent for all these reasons EXCEPT it:
prevents a new entrant from finding a profitable niche.
_____ signal a potential opportunity for entrepreneurs, so _____ firms will enter a market. this continues until there are _____ economic profits in the long-run.
profits; more; zero
variable costs are _____ multiplied by _____ cost per unit.
quantity; variable
when economic profits are negative, the rational rule for exit says that a firm should _____ or _____.
shut down; shift to other markets
the short-run average variable cost curve:
slopes downward at low rates of output and then slopes upward at higher rates of output.
market power creates a market failure because the quantity produced is _____ the quantity that is in society's best interest
smaller than
exclusivity contracts with suppliers are examples of _____ barriers to entry
supply-side
marginal revenue is defined as
the addition to total revenue you get from selling one more unit
pharmaceutical companies can charge high prices for a life-saving drug, or raise the price of the drug without losing a lot of customers, because
the demand for life-saving drugs is very inelastic
after a formula for HIV medication had been developed, a daily dose for a person cost the manufacturer less than a dollar per day. why was this medication priced at $10,000 per year per person?
the drug company is effectively a monopolist
the marginal revenue curve of a firm with market power will always lie below its demand curve because of
the output effect and the discount effect
Kendrick, a recent high school graduate, is trying to decide between going to college or running his family's food catering business. Which would be an implicit opportunity cost of going to college?
the profit he would earn running the catering business
What would happen to the pharmaceutical industry if any pharmaceutical firm could copy the drugs that their competitors invented?
there would no longer be incentives to make the large investment to invent new drugs
the maximum price you can charge is all about
what your customers are willing to pay
when, if ever, would a monopoly in a particular industry be preferred to competition within that industry?
when it would be less costly for one firm rather than many firms to provide a good, as in a natural monopoly
under perfect competition, what will happen to your competitors if your firm lowers its price by just a penny<
your firm will have a large boost in sales, at the expense of a lower profit margin
which of the following are factors that can create market power for a firm
-being able to differentiate one's product -having fewer competitors in the market
examples of implicit costs
-forgone yearly salary of $40,000 -using office space to run your business that was previously rented out for income
examples of explicit costs
-the expense of buying textbooks -purchases of office supplies
Suppose a local Home Depot has explicit financial costs of $2 million per year and implicit opportunity costs of $44,000 per year. If the store earned an economic profit of $50,000 last year, its accounting profit was:
$94,000
a higher degree a market power can be detrimental for consumers because higher prices
lead to fewer purchases, and less consumer surplus
U.S. patent laws establish property rights for inventors of new products for _____ years
20
if you sell one more unit, your revenue will rise by the price you get for it. this is the
output effect
in contrast to perfect competition, a monopoly:
produces less at a higher price
average cost is
total cost divided by quantity
the simplest way to predict whether new rivals will enter a market is to:
us the rational rule for entry
as a monopolist, its firm demand curve is also the market demand curve. why then can raising the price still lower the quantity demanded?
customers still have the option of not buying the product
Candice's stand-up paddleboard company will earn profits producing and selling at any output level where the company's:
demand curve is above its average cost curve
having extensive financial resources acts as a _____ strategy.
deterrence
marginal revenue is the output effect minus the _____ effect for a given quantity
discount
in the case of the market for a life-saving, patented drug, the:
drug companies supply less than the efficient quantity
in the long run, each firm in an industry will:
earn only enough to cover the opportunity costs of all resources used in production.
which list correctly ranks firms from least market power to most market power?
farmer, computer manufacturer, airplane manufacturer
the more market power you have the
higher the price you can charge without losing a lot of customers
what type of market structure do most businesses operate in
imperfect competition
activist groups launched a successful campaign to end the patent protection for AIDS drugs. as a result, many competitors were able to supply these drugs. this situation affected the market price for AIDS drugs by _____ competition, lowering the drug price to the _____.
increasing; marginal cost
which statement is NOT about demand curves
a firm demand curve describes the price charged by all firms and quantity demanded by all buyers
which of the following are examples of a natural monopoly?
a local utility company
why can a merger of two major companies benefit the firms involved, but not society?
a merger can increase market power, which harms society