Chapter 12 and 13 Microeconomics Final
A monopolistically competitive industry that earns economic profits in the short run will...
-experience the entry of new rival firms into the industry in the long run.
Both individual buyers and sellers in perfect competition...
-have to take the market price as a given.
A perfectly competitive firm faces..
-horizontal demand curve -perfectly elastic
A perfectly competitive firm faces a demand curve that is...
-horizontal.
Monopolistic competition
-is a market structure in which barriers to entry are low and many firms compete by selling but not identical products
For a monopolistically competitive firm, marginal revenue...
-is less than the price.
If a firm faces a downward−sloping demand curve,...
-it must reduce its price to sell more units.
A firm is likely to be a price taker when...
-it represents a small fraction of the total market
P<ATC
-loss
A perfectly competitive firm's supply curve is its...
-marginal cost curve above its minimum average variable cost.
For a perfectly competitive firm, at profit maximization...
-marginal revenue equals marginal cost.
The price of a seller's product in perfect competition is determined by...
-market demand and market supply.
TR<TC
-negative profit
If a typical firm in a perfectly competitive industry is earning profits, then...
-new firms will enter in the long run causing market supply to increase, market price to fall, and profits to decrease.
When a monopolistically competitive firm cuts its price to increase its sales, it experiences a gain in revenue due to the...
-output effect
TR>TC
-positive profit
When a monopolistically competitive firm cuts its price to increase its sales, it experiences a loss in revenue due to the...
-price effect.
A monopolistically competitive firm is not allocatively efficient because...
-price exceeds marginal cost.
A monopolistically competitive firm maximizes profit where...
-price > marginal cost.
P>ATC
-profit
The entry of new firms cause the demand curve of an existing firm in a monopolistically competitive market to...
-shift to the left and become more elastic.
If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm...
-should shut down in the short run.
If a typical firm in a perfectly competitive industry is incurring losses, then...
-some firms will exit in the long run causing market supply to decrease and market price to rise, increasing profits for the remaining firms.
Assuming that the total market size remains constant, a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because...
-some of its customers have switched to purchasing the products of new entrants in the market.
In the long run, a perfectly competitive market will...
-supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve.
A major difference between monopolistic competition and perfect competition is...
-that products are not standardized in monopolistic competition unlike in perfect competition.
A very large number of small sellers who sell identical products imply...
-the inability of one seller to influence the price.
In perfect competition...
-the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.
When a monopolistically competitive firm lowers its price, one good thing happens to the firm. What is this "one good thing" called?
-the output effect
Refer to the diagram to the right. Suppose the prevailing price is P1 and the firm is currently producing its loss−minimizing quantity. In the long run equilibrium,...
-there will be fewer firms in the industry and total industry output decreases.
A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until...
-the firm's demand curve is tangent to its average total cost curve.
Companies use brand management...
-to maintain product differentiation and earn economic profits in the short run.
What is the relationship among the following variables for a perfectly competitive firm: the market price, average revenue and marginal revenue?
The market price is equal to both average revenue and marginal revenue.
Firms in perfect competition are price takers because...
-each firm is too small relative to the market to be able to influence the price.
If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is...
-25
If the market price is $25, the average revenue of selling five units is...
-25
Writing in the New York Times on the technology boom of the late 1990s, Michael Lewis argues, 'The sad truth, for investors, seems to be that most of the benefits of new technologies are passed right through to consumers free of charge.' What does Lewis means by the benefits of new technology being "passed right through to consumers free of charge'?
-In the long run, price equals the lowest possible average cost of production. In this sense, consumers receive the new technology 'free of charge.'
Which of the following is true for a firm with a downward−sloping demand curve for its product?
-Price equals average revenue but is greater than marginal revenue.
In the short run, a firm should shut down production if...
-TR<VC
Which of the following describes a difference between the marginal revenue and demand curves of a perfectly competitive firm and a monopolistically competitive firm?
-The perfectly competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a monopolistically competitive firm lies below its demand curve.
Which of the following is not a characteristic of a perfectly competitive market structure?
-There are restrictions on exit of firms.
Why are firms willing to accept losses in the short run but not in the long run?
-There are sunk costs in the short run but not in the long run.
You have just opened a new Italian restaurant in your hometown where there are three other Italian restaurants. Your restaurant is doing a brisk business and you attribute your success to your distinctive northern Italian cuisine using locally grown organic produce. What is likely to happen to your business in the long run?
-Your success will invite others to open competing restaurants and ultimately your profits will be driven to zero.
Which of the following is the best example of a perfectly competitive firm?
-a corn farmer in Illinois
A price taker is...
-a firm that is unable to affect the market price.
A perfectly competitive firm earns a profit when price is...
-above minimum average total cost.
A monopolistically competitive firm is not productively efficient because it produces a level of output where...
-average total cost is not at a minimum.
In the short run, a firm's shutdown point is the minimum point on the...
-average variable cost curve, while in the long run, a firm's exit point is the minimum point on the average total cost curve
In the long run, the entry of new firms in an industry...
-benefits consumers by forcing prices down to the level of average cost.
Unlike perfectly competitive firms, in the long run monopolistically competitive firms...
-charge a price greater than marginal cost and do not produce at minimum average total cost.
Nike has used Michael Jordan to create the impression that Air Jordan basketball shoes are superior to any other basketball shoe. Nike is attempting to
-differentiate Air Jordan basketball shoes from other types of basketball shoes.