Mircoeconomics - Test 4 Chapters 12,13,14
The demand curve of a monopolistically competitive producer is
more elastic than that of a pure monopolist, but less elastic than that of a pure competitor.
Given a downward-sloping linear demand curve, if total revenue decreases as quantity rises, marginal revenue must be
negative and demand is inelastic.
With respect to the pure monopolist's demand curve, it can be said that
price exceeds marginal revenue at all outputs greater than 1.
A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from
product differentiation.
Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm will realize an economic
profit of $480.
Long-run equilibrium for a monopolistically competitive firm where economic profits are zero results from
relatively easy entry.
Refer to the graph, which shows a total revenue curve for a monopolist. The profit-maximizing firm will produce in that output level where total revenue is
rising.
If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will
shift to the right.
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.
For an imperfectly competitive firm,
the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.
Refer to the two diagrams for individual firms. Line A represents the firm's
total revenue curve in both figures.
In the long run, the price charged by the monopolistically competitive firm attempting to maximize profits
will be equal to ATC.
A nondiscriminating profit-maximizing monopolist
will never produce in the output range where demand is inelastic.
In short-run equilibrium, the monopolistically competitive firm shown will set its price
below ATC.
Which of the graphs shows the correct relationship between demand and marginal revenue?
B
Which of the diagrams correctly portrays the demand (D) and marginal revenue (MR) curves of a purely competitive seller?
C
Refer to the graphs of D and MR for a monopolist. Which of the following statements is true?
Demand is elastic at a price of P1.
Which of the following is correct for a monopolistically competitive firm in long-run equilibrium?
P exceeds minimum ATC.
Which of the following is not characteristic of long-run equilibrium under monopolistic competition?
Price equals minimum average total cost.
The marginal revenue curve for a monopolist
becomes negative when output increases beyond some particular level.
Refer to the two diagrams for individual firms. Figure 1 pertains to __________, while Figure 2 refers to ________.
a purely competitive firm; an imperfectly competitive firm
In the long run, a profit-maximizing monopolistically competitive firm sets it price
above marginal cost.
Excess capacity refers to the
amount by which actual production falls short of the minimum ATC output.
The firm described in the accompanying diagram is selling in
an imperfectly competitive market.
The MR = MC rule
applies both to pure monopoly and pure competition.
The monopolistically competitive firm shown in the figure
cannot operate profitably in the short run.
The larger the number of firms and the smaller the degree of product differentiation, the
more elastic is the monopolistically competitive firm's demand curve.
Refer to the diagrams, which pertain to monopolistically competitive firms. Short-run equilibrium entailing economic loss is shown by
diagram c only.
An important similarity between a monopolistically competitive firm and a purely competitive firm is that
economic profit tends toward zero for both.
In long-run equilibrium, both purely competitive and monopolistically competitive firms will
equate marginal cost and marginal revenue.
In the long run, the price charged by a monopolistically competitive firm seeking to maximize profit will
exceed MC but equal ATC.
"Price makers" refers to firms that
face a downward-sloping demand curve.
An important similarity between a monopolistically competitive firm and a pure monopolist is that both
face demand curves that are less than perfectly elastic.
A purely monopolistic firm
faces a downsloping demand curve.
In the long run, economic theory predicts that a monopolistically competitive firm will
have excess production capacity.
The less elastic a monopolistic competitor's long-run demand curve, the
higher its price relative to that of a pure competitor having the same cost curves.
In the accompanying diagram, demand is relatively elastic
in the P2P4 price range.
Under pure monopoly, a profit-maximizing firm will produce
in the elastic range of its demand curve.
The pure monopolist's demand curve is relatively elastic
in the price range where marginal revenue is positive.
In the accompanying diagram, if price is reduced from P1 to P2, total revenue will
increase by C −A.
When a firm is on the inelastic segment of its demand curve, it can
increase profits by increasing price.
A monopolistically competitive firm's marginal revenue curve
is downsloping and lies below the demand curve.
Answer the question on the basis of the accompanying demand schedule. At the point where 3 units are being sold, the coefficient of price elasticity of demand
is greater than unity (one).
The nondiscriminating pure monopolist's demand curve
is the industry demand curve.
A significant difference between a monopolistically competitive firm and a purely competitive firm is that the
latter's demand curve is perfectly elastic.
If the firm in the diagram lowers price from P1 to P2, it will
lose P1P2ba in revenue from the price cut but increase revenue by Q1bcQ2 from the increase in sales.
When a monopolistically competitive firm is in long-run equilibrium,
marginal revenue equals marginal cost and price equals average total cost.
For a pure monopolist, the relationship between total revenue and marginal revenue is such that
marginal revenue is positive when total revenue is increasing, but marginal revenue becomes negative when total revenue is decreasing.
The quantitative difference between areas Q1bcQ2 and P1P2ba in the diagram measures
marginal revenue.
In the short run, the price charged by a monopolistically competitive firm attempting to maximize profits
may be either equal to ATC, less than ATC, or more than ATC.
