ch. 8 econ 525
which of the following is an inverse linear demand function -Q(P)=a+2bQ -Q(P)=a-bP -P(Q)=a+bQ2 -P(Q)=a+bQ
-P(Q)=a+bQ
long-run properties of perfect competition include (select all that apply) -P=MC -P<min AVC -P>MC -P>min AVC -P= min AC
-P=MC -P=min AC
which of the following is NOT a reason why economies of scope can lead to monopolies -higher capital costs serve as a barrier to entry -larger firms have greater access to working capital -larger firms have more access to investment funds -average costs fall as output increases
-average costs fall as output increases
which of the following is not a source of monopoly power? -economies of scale -free entry and exit -economies of scope -patents
-free entry and exit
how does the US patent system create monopolies? -removes barriers to entry for a specified period of time -the system creates cost complementaries -grants an inventor exclusive right to sell the product -integrates many producers to create one, large firm
-grants an inventor exclusive right to sell the product
how can cost complementaries create monopolies? -decreasing long-run average costs allow a single, large firm to earn profits -cost complementaries protect producers from competition -increasing long-run average costs allow a single, large firm to earn profits -greater capital requirements of multi product firms act as a barrier to entry
-greater capital requirements of multi product firms act as a barrier to entry
determine a key difference between monopolistic competition and monopoly -there is free entry and exit in monopoly -in monopoly, there are other firms that sell similar products -in monopolistic competition, there are other firms that sell similar products -firms in monopolistic competition face a downward-sloping demand curve
-in monopolistic competition, there are other firms that sell similar products
when a monopolist increases output by one unit, total revenue -does not change -increases by the amount of the price -increases by less than price -increases by more than price
-increases by less than price
for a monopolist, the marginal revenue curve has twice the slope of the demand curve. This implies -marginal revenue is greater than price -marginal revenue is less than price -marginal revenue is unrelated to price -marginal revenue equals price
-marginal revenue is less than price
how is price determined in a perfectly competitive market? -market supply only -individual supply and individual demand -market supply and market demand -market demand only
-market supply and market demand
since a monopolist is the sole provider of a good or service, it has -a perfectly elastic demand curve -less market power than if it faced competition -more market power than if it faced competition -unlimited market power since it faces competition
-more market power than if it faced competition
what do the key assumptions of a perfectly competitive market imply? -there will only be one seller of the good or service -products are similar but differentiated -each firm can influence price -no one firm can influence market price
-no one firm can influence market price
in order to maximize profits in the short run, a manager must determine how much output to produce given -the cost of fixed inputs -only fixed inputs within his control -both variable and fixed inputs -only variable inputs within his control
-only variable inputs within his control
if the market for corn contains many buyers and sellers (none of whom can influence price), a homogeneous product, and free entry in the market, we consider the market to be ___________. -oligopolistic -monopolistic -monopolistically competitive -perfectly competitive
-perfectly competitive
what is the price elasticity of demand facing an individual firm in perfect competition? -relatively inelastic -perfectly inelastic -between 0 and 1 in absolute value -perfectly elastic
-perfectly elastic
determine a fundamental difference between monopolistic competition and perfect competition -products in monopolistic competition are differentiated -products in perfect competition are differentiated -free entry and exit in monopolistic competition -many buyers and sellers in 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 -profits do not change -profits equal zero -profits decrease due to decreased market price
-profits increase due to increased market price
in a perfectly competitive market, where firms choose output based on price -demand curves do not exist -demand curves are perfectly inelastic -supply curves exist -supply curves do not exist
-supply curves exist
the demand curve faced by a monopolist is -less elastic than the market demand curve -more elastic than the market demand curve -below the market demand curve and twice as steep -the same as the market demand curve
-the same as the market demand curve
what is the key difference in determining the profit-maximizing price and output under monopoly versus monopolistic competition? -monopolists accept the market price as given, but not monopolistic competition -in monopolistic competition, output occurs where MR>MC -the market determines price in monopoly -there is no difference
-there is no difference
a firm should shut down when P ______ AVC
<; less than
the profit maximizing, advertising to sales ratio is given by
A/R=Eqa/Eqp
define the competitive firm's demand
Df=P=MR
Given a revenue function: R(Q) = P(Q)Q; The monopolist's marginal revenue (MR) is geven by
MR = P((1+E)/E); MR=(Dp/Dq)Q+Pç MR=dR;dQ
profit maximization for the two-plant monopolist occurs when the monopolist uses resources such that
MR(Q)=MC2(Q2) MC1(Q1)=MC2(Q2) MR(Q)=MC1(Q1)
when the slope of the revenue function R(Q), equals the slope of the cost function C(Q) -MR=MC -MR<MC -MR>MC -TR=TC
MR=MC
In the long run, firms in monopolistic competition produce a level of output where -P=ATC -P>MC -P<ATC -P=MC -ATC>minimum average costs -P>ATC
P=ATC P>MC ATC>minimum average costs
To maximize profits, a perfectly competitive firm should produce in the range of increasing marginal cost where P=MC and
P> or = AVC
the inverse demand function for a monopolist is given by: P=50-4Q Costs are given by C(Q) = 10+2Q The monopolist's profit-maximizing price equals $_____
$26 1. Find MR(PxQ) and MC 2. Set equal and solve for Q 3. Plug Q into the inverse demand function to find the price
suppose the inverse linear demand function is (P=20-4Q) the maximum price a monopolist can charge to sell 3 units is $______; the marginal revenue when Q=3 is $____
$8; $4
to maximize profits, at what level does a monopolistically competitive firm produce? -where MR(Q)<MC(Q) -Where MR(Q)=MC(Q) -Where MR(Q)>MC(Q) -Where MR(Q)=P(Q)
Where MR(Q)=MC(Q)
suppose an organic salad shop attempts to increase demand for its food by differentiating it as a healthy alternative to fast-food hamburgers. This is an example of _______ advertising
comparative
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 it is called -economies of scale -economies of scope -diseconomies of scale -cost complementarity -diseconomies of scope
cost complementarity
given a profit-maximizing level of output, Qm, the monopoly price is the price on the ______ curve that corresponds to Qm units of output
demand
when long-run average costs rise as output increases, we say that the firm experiences _________ _________ ___________
diseconomies of scale
at the point where the cost curve C(Q) and the revenue line R(Q) are the farthest vertical distance apart, the marginal cost (MC) is _______ marginal revenue (MR) -greater than -equal to -less than -unrelated to
equal to
the profit-maximizing level of output occurs where marginal revenue (MR) ______ marginal costs (MC)
equals
A perfectly competitive firm maximizes profits at a point where P _____ MC over the range where MC is _____
equals;increasing
when firms in monopolistic competition sustain economic losses, firms tend to ______ the market
exit
indicate methods firms in monopolistic competition use to differentiate their products -input-output inversion -green marketing -brand myopic -niche marketing -niche myopic
green marketing niche marketing
A monopolist charges a _______ price and produces _______ output in a monopolistic competitive industry
higher; less
in monopolistic competition, each firm uses the _______ (individual/market) demand curve and the marginal revenue curve to establish output and price. In monopoly, the firm uses the ____________(individual/market) demand curve and the marginal revenue curve to establish output and price
individual;market
in the long run, a firm in monopolistic competition produces _____ output than is socially desireable
less
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
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
fast-food hamburgers are characterized by a large group of sellers producing slightly different goods. What type of market is this?
monopolistically competitive
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 generates ______ revenue than the cost per unit of the variable inputs
more
if the marginal cost of producing in Plant 1 exceeds the marginal cost of producing in plant 2, the monopolist should -produce more in Plant 1 and less in Plant 2 -produce more in Plant 2 and less in Plant 1 -produce equal amounts in each plant such that MC<MR -Produce equal amounts in each plant such that MC=MR
produce more in Plant 2 and less in Plant 1
Pie = P(Q)-C(Q) defines
profits
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
A period of time during which at least one input is fixed is called the _____ run
short
marginal revenue is the _______ of the total revenue curve
slope
in a monopoly, where the firm chooses output based on marginal revenue (which is less than price) -the demand curve does not exist -demand is perfectly elastic -supply curves do not exist -the supply curve is upward sloping
supply curves do not exist
what happens to the industry supply as firms exit a perfectly competitive industry in the long run?
supply decreases
marginal revenue is
the change in total revenue from a one-unit change in output
If consumers are willing to pay more for "Roper's Rice" than they are for "Rice by Russel", "Roper's Rice" is enjoying additional value due to _____ -green marketing -brand myopia -brand equity -niche marketing
brand equity