Eco 202 test
In the long run, existing firms exit a perfectly competitive market
only if they incur an economic loss.
In which market structure does one firm sell a good or service with no close substitutes and there is a barrier blocking the entry of new firms?
only monopoly
A market in which many firms sell identical products is
only perfectly competition.
To encourage invention and innovation, the government provides
patents.
In which of the following market types do all firms sell products so identical that buyers do not care from which firm they buy?
perfect competition
The four market types are
perfect competition, monopoly, monopolistic competition, and oligopoly.
If a firm is able to convert every dollar of consumer surplus to economic profit, the firm has achieved
perfect price discrimination.
Cynthia is an Oklahoma wheat farmer. The demand for her wheat is
perfectly elastic.
If Microsoft is a monopoly and currently charges prices where its demand is elastic, then Microsoft's marginal revenue is
positive.
In order for a hotel to successfully price discriminate so that senior citizens are given a discount, the hotel must be able to
prevent senior citizens from reselling their rooms to younger customers.
A perfectly competitive firm will continue to operate in the short run when the market price is below its average total cost if the
price is at least equal to the minimum average variable cost.
Total revenue is equal to
price multiplied by the quantity sold.
Each firm in a perfectly competitive industry
produces a good that is identical to that of the other firms.
With a natural monopoly,
regulation can take the form of average cost pricing to allow coverage of costs.
The capture theory of regulation predicts that
regulation helps producers to maximize profits.
For a syrup producer in central Vermont, profit is maximized at the level of output for which total
revenue exceeds total cost by the largest amount.
When new firms enter a perfectly competitive market, the market supply curve shifts ________ and the price ________.
rightward; falls
In the long run, a perfectly competitive firm makes
zero economic profit.
Suppose the cost of a CD is $20. As online retailers enter the market with new technology, the price of CDs ________, and traditional music stores find that ________.
decreases; their AVC exceeds the new lower price and they exit the industry
Which of the following goods is the best example of a natural monopoly?
distribution of electricity
For the perfectly competitive broccoli producers in California, the market demand curve for broccoli is
downward sloping.
The demand curve for a monopoly is
downward sloping.
If we compare regulating a natural monopoly using a marginal cost pricing rule to using an average cost pricing rule, we see that output is
greater with marginal cost pricing, but average cost pricing allows for costs to be covered.
The capture theory of regulation is that regulations
help producers to maximize economic profits.
Shama is producing candles in a perfectly competitive market. When she produces 500 candles, her total cost is $250. If she produces one additional candle, her total cost increases to $260. In order to maximize her profit, she should produce the additional candle
if the market price for a candle is $12.
Under what conditions would a perfectly competitive cotton farmer who is incurring an economic loss temporarily stay in business?
if the total revenue exceeds the total variable cost
Price cap regulation is defined as regulation that
imposes a price ceiling on the regulated firm.
The rutabaga market is perfectly competitive and the price of a ton of rutabagas rises. As a result, Rudy, a rutabaga farmer, will
increase his output of rutabagas.
Patents
increase the incentive to innovate.
Consider a perfectly competitive market experiencing good times. In the short run, the equilibrium price will ________ and firms will earn a(n) ________.
increase; economic profit as the new price exceeds average total cost
If new firms enter a perfectly competitive industry, the market supply
increases.
As a perfectly competitive firm's output increases, its total revenue ________ and its total cost ________
increases; increases
A legal barrier is created when a firm
is granted a public franchise, government license, patent, or copyright.
The marginal revenue for a single-price monopoly with a downward-sloping demand curve
is less than the price.
In States where the government runs liquor stores, the monopoly results from
legal restrictions.
With an average cost pricing rule, the quantity produced by the natural monopoly is ________ the quantity produced with a marginal cost pricing rule.
less than
Suppose that each of 8,000 firms in a perfectly competitive industry produces 1,000 units of a good and maximizes profits when the price of the good is $10. If there is a permanent increase in demand, in the short run each firm produces ________ 1,000 units and in the long run the number of firms is ________ 8,000.
more than; more than
The makers of the movie Titanic have some monopoly power over this film because the
movie is protected by copyright law.
If perfectly competitive firms are making an economic profit, then
new firms will enter the market.
When firms in a perfectly competitive market are earning an economic profit, in the long run
new firms will enter the market.
Jennifer's Bakery Shop produces baked goods in a perfectly competitive market. If Jennifer decides to produce her 100th batch of cookies, the marginal cost is $120. She can sell this batch of cookies at a market price of $110. To maximize her profit, Jennifer should
not produce this additional batch.
A perfectly competitive firm is producing 50 units of output and selling at the market price of $23. The firm's average total cost is $20. What is the firm's total cost?
$1,000
Gene's Car Wash is a natural monopoly. To wash 100 cars a week, if Gene is unregulated, he would charge a price of $10. Gene's average total cost for washing 100 cars is $8, his average variable cost is $6, and his marginal cost is $4. If Gene is regulated using an average cost pricing rule, the price he is allowed to charge to wash 100 cars is
$8.
Which of the following is an example of a person or firm that is most likely to have been granted a public franchise?
the local telephone company
Which of the following is an example of a natural monopoly?
the local water company
_______ a large number of firms competing by making similar but slightly different products.
Monopolistic competition requires
What problem is caused by subsidizing a natural monopoly regulated using a marginal cost pricing rule?
The taxes required to gain the revenue used as the subsidy result in a deadweight loss that subtracts from gains in efficiency which result from use of the marginal cost pricing rule.
For a single-price monopolist, why is marginal revenue less than price?
To sell another unit, the price must be lowered.
A price-discriminating monopoly charges
a different price to different types of buyers for the same product, even though there are no differences in costs.
When compared to a perfectly competitive market, a single-price monopoly with the same costs produces ________ output and charges ________ price.
a smaller; a higher
A monopoly is
able to set the price for its product.
Perfect competition ________ a fair outcome ________.
achieves; because both the fair rules and fair results conditions are met
In a market undergoing technological change, firms that
adopt the new technology temporarily make an economic profit.
A market is ________ when a small number of firms compete.
an oligopoly
Suppose that a perfectly competitive firm's marginal revenue equals $12 when it sells 10 units of output. If the marginal cost of producing the 10th unit is $14, to maximize its profit the firm should
decrease its production.
In the long run, perfectly competitive firms produce at the output level that has the minimum
average total cost.
A perfectly competitive firm will shut down when the price is just below the minimum point on the
average variable cost curve.
A monopolist can make an economic profit in the long run because of
barriers to entry.
How should a natural monopoly be regulated under the social interest theory of regulation?
by using a marginal cost pricing rule
In the short run, a perfectly competitive firm
can possibly make an economic profit or possibly incur an economic loss.
If a perfectly competitive seller is maximizing profit and is making zero economic profit, which of the following will this seller do?
continue at the current output, making zero economic profit
Compared to a similar perfectly competitive industry, a single-price monopoly
creates a deadweight loss and decreases consumer surplus.
Price discrimination is prevented in situations where
customers can resell the good.
A perfectly competitive firm is producing at the quantity where marginal cost is $6 and average total cost is $4. The price of the good is $5. To maximize its profit, this firm should
decrease its output.
For a natural monopoly, economies of scale
exist along the long-run average cost curve at least until it crosses the market demand curve.
If firms in a perfectly competitive market are incurring economic losses, then as time passes firms ________ and the market ________.
exit; supply curve shifts leftward
The cranberry market is perfectly competitive. Reports that consuming cranberries can lead to improved health result in a permanent increase in the demand for cranberries and an immediate upward jump in the price of cranberries. As time passes, the price of cranberries ________ and the initial firms' economic ________.
falls; profit will be eliminated
Which of the following is the best example of a perfectly competitive market?
farming
As a perfectly competitive firm produces more and more of a good, its economic profit
first increases, then decreases.
A perfectly competitive firm definitely makes an economic profit in the short run if price is
greater than average total cost.
A firm in perfect competition is a price taker because
many other firms produce identical products.
A profit-maximizing output for a single-price monopoly is determined by the intersection of the ________ curves and the profit-maximizing price is found on the ________ curve.
marginal cost and marginal revenue; demand
The firm's supply curve is its
marginal cost curve above the average variable cost curve.
For a perfectly competitive firm, profit maximization occurs when output is such that
marginal revenue (MR) = marginal cost (MC).
A firm maximizes its profit by producing the amount of output such that
marginal revenue equals marginal cost.
A market with a large number of sellers
might be a monopolistically competitive or a perfectly competitive market.
Monopolies ________ fair and ________ efficient.
might be; might be
A natural monopoly
might exaggerate its costs if it is regulated using rate of return regulation.
Suppose a perfectly competitive market is in long-run equilibrium and then there is a permanent increase in the demand for that product. The new long-run equilibrium will have
more firms in the market.
Suppose a perfectly competitive market is in long-run equilibrium with a price of $12. Then there is a permanent increase in demand. As a result, in the short run the market price ________ and in the long run the number of firms ________ and the price is ________ the price was in the short run.
rises; increases; lower than
A price-discriminating monopoly
sells a larger quantity than it would if it were a single-price monopoly.
A price-discriminating monopoly is a monopoly that
sells different units of a good or service at different prices
If the market price is $50 for a unit of a good produced in a perfectly competitive market and the firm's minimum average variable cost is $52, then to maximize its profit (or minimize its loss) the firm should
shut down.
As a result of firms leaving the perfectly competitive frozen yogurt market in the early 2000s, the market
supply curve shifted leftward.
When new firms enter the perfectly competitive Miami bagel market, the market
supply curve shifts rightward.
A large number of sellers all selling an identical product implies which of the following?
the inability of any seller to change the price of the product
Suppose that each of 10,000 perfectly competitive firm in an industry produces 1,000 units of a good and earns an economic profit when the price of the good is $10. In the long run, definitely
the number of firms is more than 10,000.
If a perfectly competitive firm raised the price of its product,
the quantity of output it sells decreases to zero.
Normal profit is
the return to entrepreneurship.
For a perfectly competitive corn grower in Nebraska, the marginal revenue curve is
the same as its demand curve.
The market supply in the short run for the perfectly competitive industry is
the sum of the supply schedules of all firms.
A single-price monopoly faces a linear demand curve. If the marginal revenue for the second unit is $20, then the marginal revenue for the
third unit is less than $20.
For a perfectly competitive palm tree nursery in South Carolina, the total revenue curve is
upward sloping.
Arnie's Airlines decides to offer different fares to different customers for the same trip. Arnie's price discriminates because Arnie
wants to convert consumer surplus to economic profit.
Under which of the following conditions will a profit-maximizing perfectly competitive firm shut down in the short run?
when the price is less than its minimum average variable cost
If a firm in a perfectly competitive market faces an equilibrium price of $5, its marginal revenue
will also be $5.
Allegiant Air holds a natural monopoly on most of the routes it serves in the United States. Allegiant Air ________ operate on the ________ portion of its demand curve when total revenue is ________.
will always; elastic; increasing