ECO 2180 Exam 3

Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is

1,600

Which of the following is a characteristic of a competitive market?

Buyers and sellers are price takers

In a monopolistically competitive industry, firms set price

above marginal cost since each firm is a price setter.

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive market when price falls below the minimum of average variable cost?

The firm will immediately stop production to minimize its losses

Which of these situations produces the largest profits for oligopolists?

The firms reach the monopoly outcome.

The amount of money that a firm pays to buy inputs is called

Total cost

When an oligopoly market reaches a Nash equilibrium

a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.

As a group, oligopolists would always be better off if they would act collectively

as a single monopolist

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not

choose the price at which it sells butter

An agreement among firms in a market about quantities to produce or prices to charge is called

collusion

In a competitive market, a firm's supply curve dictates the amount it will supply. In a monopoly market the

decision about how much to supply is impossible to separate from the demand curve it faces.

A monopolist faces a

downward-sloping curve

Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's

implicit costs

A monopoly is an inefficient way to produce a product because

it produces a smaller level of output than would be produced in a competitive market.

The total cost to the firm of producing zero units of output is

its fixed cost in the short run and zero in the long run

Suppose a firm has a monopoly on the sale of a computer game and faces a downward-sloping demand curve. When selling the 50th game, the firm will always receive

less marginal revenue on the 50th game than it received on the 49th game.

Senator Hubris wants to pass a law that would require all monopolistically competitive firms to operate at their efficient scale. If this law were to pass and be enforced, we would expect that monopolistically competitive firms would

lose money

The deadweight loss that is associated with a monopolistically competitive market is a result of

price exceeding marginal cost.

The profit-maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at which

marginal revenue is equal to marginal cost.

Oligopolies would like to act like a

monopoly, but self-interest often drives them closer to the perfectly competitive outcome.

An important difference between the situation faced by a profit-maximizing monopolistically competitive firm in the short run and the situation faced by that same firm in the long run is that in the short run,

price may exceed average total cost, but in the long run, price equals average total cost.