ch8 managing in competitive, monopolistic, and monopolistically competitive markets

True or false: In the long-run, firms in a monopolistically competitive market earn positive economic profits.

false

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

price

key conditions for perfect competition

1. there are many buyers and sellers in the market, each of which is "small" relative to the market 2. each firm in the market produces a homogeneous (identical) product 3. buyers and sellers have perfect information 4. there are no transaction costs 5. there is free entry into and exit from the market

perfectly competitive market

A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.

When firms in monopolistic competition earn positive economic profits, how will additional firms react?

Additional firms enter and produce variations of the product.

Define the competitive firm's demand.

Df = P = MR

Determine a key difference between monopolistic competition and monopoly.

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

What does the free entry and exit assumption imply for a perfectly competitive market?

New firms will leave if they incur losses. New firms will enter when profits exist. In the long run, economic profits are zero.

Which is a strategy firms use to tailor goods and services to meet the needs of a particular segment of the market?

Niche marketing

In the long run, firms in monopolistic competition produce a level of output where

P > MC P = ATC > minimum average costs

The inverse demand function for a monopolist is given by P = 50 - 4Q. If the profit-maximizing output level is 5 (QM = 5), the monopoly price is

30

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

Free entry and exit

Given a revenue function: R(Q) = P(Q)Q The monopolist's marginal revenue (MR) is given by

MR = (dP/dQ)*Q + P MR = P(1+E/E) MR = dR/dQ

A monopolist's linear inverse demand curve is P(Q) = 750 - 3Q. Which of the following is the monopolist's marginal revenue?

MR = 750 - 6Q

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.

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

decrease; decreases

When long-run average costs fall as output increases, we say that the firm experiences

economies of scale

When the total cost of producing two goods within the same firm is less than the cost of producing them in separate firms, Blank______ exist.

economies of scope

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

higher; less

The demand curve for a perfectly competitive firm is a ______ line at the market _______

horizontal, price

If MR is greater than MC, a profit-maximizing monopolist should ___.

increase output to maximize profits

When a monopolist increases output by one unit, total revenue

increases by less than price.

In monopolistic competition, each firm uses the ___________ demand curve and the marginal revenue curve to establish output and price. In monopoly, the firm uses the __________ demand curve and the marginal revenue curve to establish output and price.

individual, market

If P exceeds AVC but is less than ATC, the firm

is sustaining a loss. should remain open.

The market structure where a firm has a large degree of market power is called

monopoly

Economies of scale and scope, cost complementarity, and patents are all sources of

monopoly power

In order to maximize profits in the short run, a manager must determine how much output should be produced, given

only variable inputs within his or her control.

If P is less than AVC, the firm _____.

should shut down is sustaining a loss

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

supply curves do not exist.

marginal revenue

the change in revenue attributable to the last unit of output; for a competitive firm, MR is the market price

The demand curve faced by a monopolist is

the same as the market demand curve.

True or false: P(Q) = 1,000 - 6Q is a linear inverse demand curve.

true

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