Econ Exam 2
When a monopolistically competitive firm is in long-run equilibrium, average total cost is at its minimum
False
Monopoly is a market structure in which
One firm makes up the entire market
A perfectly competitive firm in the long run earns
Positive normal profits but zero economic profits
Suppose there are 50 firms in a perfectly competitive market and each maximizes profit at 50 units of output when market price is at $15 per unit. One of the points on the market supply curve must be at
Price = $15 and Quantity supplied = 2,500
In a perfectly competitive market:
Price does more of the adjusting in the short run and quantity does more of the adjusting in the long run
Barriers to entry
Restrict the number of firms in an industry
The demand curve for a monoplist is
The market demand curve
A significant difference between monopoly and perfect competition is that
The monopolists demand curve is the industry demand curve, whereas the competitive firm's demand curve is perfectly elastic
A firm will continue to operate in the long run as long as price exceeds long run average variable cost
True
If long run average total cost exceeds marginal revenue, a perfectly competitive firm will incur losses
True
Perfectly competitive firms:
are price takers, since they are not large enough to influence the market price.
Monopoly is a price maker
true
A monopoly firm is different from a competitive firm in that
A monopolist can influence market price whereas a competitive firm cannot
During a recession, the price of restaurant meals falls by over 10 percent. The most likely cause is:
A shift of the demand curve to the left
If a monopolist increased output from 14 to 15 by lowering its price from $32 to $31, marginal revenues is
$17. (14 x $32) - (15 x $31)
Market supply is
All the firms together
Assume the smart watch industry is a perfectly competitive industry that uses a specialized input. If this industry experiences an increase in demand, we might expect that in the long run
Both input and output prices will increases
An assumption of a competitive market is that both buyers and sellers are price takers. When we go to the mall to shop for clothing or go to the grocery to buy food, what do we usually observe?
Buyers are often price takers, but sellers are usually price makers
A perfectly competitive firm facing a price of $50 decides to produce 500 widgets. It's marginal cost of producing the last widget is $50. If the firms goal is to maximize profit it should
Continue producing 500 widgets
To maximize profits, a perfectly competitive firm should produce where marginal cost:
Equals marginal revenue
A monopolist will always make a profit in the short run
False
A price discriminating monopolist will make less in profit than will one that does not price discriminate
False
If a monopolist can price discriminate among buyers, it will charge buyers with more elastic demands a higher a price
False
In a perfectly competitive market, market prices are determined by
Market supply and market demand
The demand curve for a monopolist differs from the demand curve faced by a competitive firm because the demand curve for a
Monopolist is the market demand curve
A market structure in which one firm makes up the entire market is a
Monopoly
Which of the following is one of the necessary conditions for a perfect competition
No barriers to entry
For a monopolist, the point where the marginal revenues curve intersects the horizontal axis is:
One half the distance between the origin and the point where the demand curve intersects the horizontal axis
The profit maximizing condition for a perfectly competitive firm is
P= MC
A monopolist maximizes profits by equating marginal revenue and marginal cost, not price and marginal cost
True
A monopolistically competitive firm faces a downward sloping demand curve
True
A monopolistically competitive industry has many firms that sell differentiated products
True
A profit-maximizing monopolist will always set price equal to marginal cost
True
If long run average total cost exceeds marginal revenue, a perfectly competitive form will incur losses
True
In a perfect competition, price is equal to marginal revenue. Profit maximizing levels occurs where MC= P
True
Marginal Revenue is less than price for a monopolist
True
Monopolies that exist because economies of scale create a barrier to entry are called natural monopolies
True
Significant barriers to entry exist in a monopolistcally competitive industry
True
The existence of positive economic profits in an industry attracts new entrants into the industry
True
The marginal cost curve is a competitive firms supply curve; it shows how many units of output a firm will be willing to sell at different prices
True
The profit maximizing output level minimizes average total cost
True
Under normal monopoly, P> MC, and so the marginal benefit to society of increasing output exceeds the marginal cost. This means that an increase in output will increase welfare
True
In a perfectly competitive market, an increase in market demand in a long run constant cost industry causes
an increase in price, quantity, and profit in the short run.
Suppose cookie sales fall as consumers become more carbohydrate-conscious. If the cookie industry is a constant-cost, perfectly competitive industry, this decline in market demand will cause market supply to:
decrease in the long run until the equilibrium price is again equal to minimum average total cost.
Long run competitive equilibrium requires
economic profits to be zero for all firms in the industry
In a perfectly competitive market, firms set
quantities but not prices
Each firm in perfect competition:
sets quantity based on market price.
The demand for clothing increases as a result the price of clothing increases above the minimum average cost of producing it. In the long run if the clothing industry is perfectly competitive and is a constant cost industry
the supply of clothing will increase but the price will not.
perfect competition is a price taker
true
