Econ Test 3 Chapters 23-25

Refer to Exhibit 23-2. What quantity does the profit-maximizing or loss-minimizing firm produce?

Q2, where the difference between "what is coming in" on the last unit and "what is going out" is zero.

Refer to Exhibit 23-7. At the profit-maximizing output level, average fixed cost is

This cannot be determined based on the information provided

Some economists contend that a monopolistic competitor tends to produce too __________ output, charges a price that is too __________ and __________ its present plant size.

little; high; underutilizes

If MR > MC, then

the firm can increase its profits or minimize its losses by increasing output.

Refer to Exhibit 23-2. For the firm that faces the demand curve in the exhibit,

Amarginal revenue is constant. b. price equals marginal revenue. c. if the firm maximizes profits, it produces the quantity of output at which price equals marginal cost. (A,B, & C)

Consider the following data: equilibrium price = $8.50, quantity of output produced = 100 units, average total cost = $10, and average variable cost = $9. What will the firm do and why?

Shut down in the short run, because price is below average variable cost.

Why can't an economist say for certain that a monopolistic competitive firm will always earn zero economic profits in the long run?

The firms in the industry do not produce identical products.

Which of the following is the best example of a monopoly?

a local public utility

Which of the following is an example of a legal barrier to entry?

a public franchise Incorrect a patent A and B

A right granted to a firm by government that permits the firm to provide a particular good or service and excludes others from doing the same is called

a public franchise.

Which of the following statements is true?

a. The monopolist can sell all it can produce at the market price. b. The marginal revenue curve of the single-price monopolist lies above its demand curve. c. The marginal revenue curve of the single-price monopolist is the same as its demand curve. ******d. The marginal revenue curve of the single-price monopolist lies below its demand curve. (True) The marginal revenue curve of the single-price monopolist lies below its demand curve.

Which of the following statements is false?

a. The monopolist has the ability to control to some degree the price of the product it sells. b. The monopolist faces a downward-sloping demand curve. ******c. The monopolist is a price taker. d. The monopoly firm is the industry. (False) The monopolist is a price taker.

Which of the following statements is false?

a. The monopolistic competitor is a price searcher. b. The monopolistic competitor produces a product that differs slightly from the products of the other firms in the industry. *****c. The monopolistic competitor faces a horizontal demand curve. (False) d. The monopolistic competitor produces an output at which price is greater than marginal cost.

Which of the following statements is false?

a. The perfectly competitive firm and the perfectly price-discriminating monopolist both exhibit resource-allocative efficiency. b. The perfectly competitive firm, unlike the single-price monopolist, exhibits resource-allocative efficiency. c. The perfectly competitive firm charges the same price for each unit of the good it sells. ********d. The perfectly price-discriminating monopolist charges the same price for each unit of the good it sells. (False) The perfectly price-discriminating monopolist charges the same price for each unit of the good it sells.

Which of the following is an assumption of the theory of oligopoly?

a. There are barriers to entry. c. Firms produce and sell either homogeneous or differentiated products. A and C

Which of the following is not an assumption of the theory of monopolistic competition?

a. There are high barriers to entry. Incorrect b. There are many sellers and few buyers. c. Each firm in the industry produces and sells a homogeneous product. All of the Above

If two firms that form a cartel agreement are in a prisoner's dilemma game, then

a.both firms will have an incentive to break the agreement. c. both firms will be better off if they hold to the agreement than if they break it. A and C

Demand increases in an increasing-cost industry that is initially in long-run competitive equilibrium. After full adjustment, price will be

above its original level.

The key behavioral assumption of the cartel theory is that oligopolists in an industry

act in a manner consistent with there being only one firm in the industry

If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing that unit the firm

added more to total revenue than it added to total cost

The price at which a perfectly competitive firm sells its product is determined by

all sellers and buyers of the product.

Refer to Exhibit 24-1. If the product is produced under single-price monopoly, what do total costs equal at the profit maximizing level of output?

area 0P1BQ1

Refer to Exhibit 24-1. If the product is produced under single-price monopoly, what does total revenue equal at the profit maximizing level of output?

area 0P2CQ1

Refer to Exhibit 24-1 The deadweight loss of the profit-maximizing monopoly is identified by what area?

area BCA

Refer to Exhibit 24-1. According to economist Gordon Tullock, what area is subject to rent seeking activity?

area P1P2CB

Refer to Exhibit 24-1. If the product is produced under single-price monopoly, what do profits equal at the profit maximizing level of output?

area P1P2CB

Refer to Exhibit 23-4. Where can you find the lowest price that will motivate the firm to produce Q1 in the short run

at the horizontal line running to "AVC"

In order for a monopolist to be earning a profit, price must be greater than

average total cost

The perfectly competitive firm charges a price equal to __________ while the monopolist charges a price __________.

b. marginal cost; greater than marginal cost c. marginal revenue; greater than marginal revenue b and c

Perfectly competitive firms are price takers for all of the following reasons except that

barriers to exit force firms to sell at the market price.

Third-degree price discrimination is discrimination among

buyers

The theory of perfect competition generally assumes that

buyers and sellers act independently of other buyers and sellers.

Arbitrage is

buying a good in one market and selling it in another for a profit

In the prisoner's dilemma, both prisoners end up __________, which turns out to be __________ confessed.

confessing; worse for them than if they had both not

The market demand curve in a perfectly competitive market is

downward sloping.

The monopolistic competitive firm faces a __________ demand curve and therefore is a price __________.

downward-sloping; searcher

A natural monopoly exists when

economies of scale are so large that only one firm can survive and achieve low unit costs.

"In equilibrium, a monopolistic competitor will produce an output level that is less than the level that would minimize its average total costs." This is a statement of the

excess capacity theorem

Which of the following is not an example of a legal barrier to entry?

exclusive ownership of raw materials

The theory of monopoly assumes that the monopoly firm

faces a downward-sloping demand curve

Refer to Exhibit 23-1. The data in this table are relevant to a perfectly competitive firm because

it doesn't have to lower price to sell additional units of the product.

Public franchises, patents, and government licenses are examples of __________ barriers to entry.

legal

If you were to rank the four market structures in terms of lowest concentration ratio to highest concentration ratio, which of the following rankings would be correct?

perfect competition, monopolistic competition, oligopoly, monopoly

One of the ways in which monopolistic competitors differ from perfect competitors is that

perfect competitors produce a homogeneous product and monopolistic competitors do not

Suppose Johnny, seven years old, is selling lemonade and he sells each of his buyers the refreshment for the maximum price that each buyer is willing to pay. Johnny is practicing

perfect price discrimination.

The seller of good X sells 1,000 units of the good. Each unit is being sold for the highest price each consumer is willing to pay for the good. The seller practices

perfect price discrimination.

The perfectly competitive firm's short-run supply curve is the

portion of its marginal cost curve that lies above its average variable cost curve.

If firms are earning zero economic profits, they must be producing at an output level at which

price equals average total cost.

For a firm that perfectly price discriminates,

price equals marginal revenue

Resource allocative efficiency occurs when a firm

produces the quantity of output at which price equals marginal cost

Refer to Exhibit 24-3. The profit-maximizing single-price monopolist produces output

q1

Refer to Exhibit 24-5. What area represents the revenue gained when price goes from P2 to P1?

q2CAq1

Refer to Exhibit 24-3. The level of output the profit-maximizing perfectly price-discriminating monopolist produces is

q3

Second-degree price discrimination is discrimination among

quantities

he major economic objective of cartels is to

restrict output, push up price, and increase profits.

A seller that has the ability (to some degree) to control the price of the product it sells is called a price

searcher.

A cartel is an organization of firms

that reduces output and increases price in an effort to increase joint profits

Marginal revenue is

the change in total revenue brought about by selling an additional unit of the good.

X-inefficiency refers to

the increase in costs and organizational slack in a monopoly resulting from the lack of competitive pressure.

For a perfectly competitive firm,

the marginal revenue curve and the demand curve are the same.

For the monopoly firm that does not engage in perfect price discrimination,

the marginal revenue curve lies below the demand curve.

In the theory of perfect competition,

the single firm's demand curve is horizontal. and the market demand curve is downward sloping. (b and d)

Cartels often dissolve because

their members often cheat on the cartel agreements because they have incentive to

Suppose the local pharmacy charges lower prices to senior citizens than it charges to younger customers. The pharmacy is practicing

third-degree price discrimination

A public franchise is a right granted

to a firm by government that prevents other firms from producing the same product or service.

Refer to Exhibit 23-4. The firm sells its product at P1 and produces Q1. Given this situation,

total cost is equal to areas 1 + 2 + 3.

Perfect price discrimination is discrimination among

units

Which of the following is the best example of a homogeneous good?

wheat

Suppose a monopolist practices perfect price discrimination. Its marginal revenue curve

will coincide with the demand curve.

The excess capacity theorem states that a monopolistic competitor

will produce an output level smaller than the one that would minimize its unit costs.

Refer to Exhibit 23-1. The dollar amounts that go in blanks (A) and (B) are, respectively,

$12 and $12.

Refer to Exhibit 23-3. What is the increase in profit that would result from producing 43 units of the product rather than producing 40 units?

$13

Refer to Exhibit 23-7. At the profit-maximizing output level, the firm's total revenue is

$360.00

Refer to Exhibit 24-4. The profit-maximizing single-price monopolist's maximum profit is

$42

Refer to Exhibit 23-7. At the profit-maximizing output level, average total cost is

$5.00.

Refer to Exhibit 23-3. What is the maximum profit?

$59

Refer to Exhibit 23-7. At the profit-maximizing level of output, marginal cost is

$6.00.

Refer to Exhibit 23-7. What is the profit at 60 units of output?

$60

Consider the following data: equilibrium price = $9, quantity of output produced = 1,000 units, average total cost = $7, and average variable cost $5. Given this, total revenue is __________, total cost is __________, and total fixed cost is __________.

$9,000; $7,000; $2,000

Which of the following statements is false?

******a. The monopolist faces a horizontal demand curve******* (False) b. For the single-price monopolist, marginal revenue is less than price. c. For the monopolist, revenue maximization and profit maximization are usually not the same. d. The monopolist is a price searcher. The monopolist faces a horizontal demand curve.

Which of the following statements is true?

******a. The perfectly competitive firm produces a level of output at which P=MC. (True) ******b. The single-price monopolist produces a level of output at which P > MC. (True) c. The perfectly price-discriminating monopolist produces a level of output at which P>MC. *****d. a and b Correct (True) e. all of the above

Refer to Exhibit 23-1. The marginal revenue curve represented by the information in this table is

. horizontal

Total industry sales are $80 million. The top four firms (A, B, C, and D) account for sales of $15 million, $3.2 million, $1.3 million and $0.4 million, respectively. What is the four-firm concentration ratio?

0.25

Refer to Exhibit 24-4. The profit-maximizing single-price monopolist will produce

3 units.

Refer to Exhibit 23-3. What quantity of output should the profit-maximizing firm produce?

44 units

To engage in price discrimination, it is necessary that

a. a seller be a price searcher. b. there be no arbitrage. A and B

Refer to Exhibit 23-7. The perfectly competitive, profit-maximizing firm will produce __________ units of output.

60

Refer to Exhibit 25-3. Which of the following points represents the profit-maximizing quantity and price of a monopolistic competitor?

A

Refer to Exhibit 23-8. Which of the following is true in the short run of A and B, two perfectly competitive firms?

Both A and B will continue to produce in the short run.

Consider the following data: equilibrium price = $10, quantity of output produced = 100 units, average total cost = $13, and average variable cost = $7. What will the firm do and why?

Continue to produce in the short run, because price is greater than average variable cost.

Which of the following is not an assumption of the theory of perfect competition?

Each firm produces and sells a differentiated product.

Firm X is a single seller of good X. There are, however, two substitutes for good X. Given this,

Firm X can be a monopolist because we do not know if the two substitutes are close substitutes; additionally, it may be that Firm X acts as if the assumption of no close substitutes holds.

Why must profits be zero in long-run competitive equilibrium?

If profits are not zero, firms will enter or exit the industry.

Which of the following is not a necessary condition of price discrimination?

It must cost the seller more to service some customers than others.

For a perfectly competitive firm, profit maximization or loss minimization occurs at the output at which

MR = MC

Generally, the monopolistic competitor is in long run equilibrium when

MR = MC and P = ATC

Which of the following is not a condition of long-run competitive equilibrium?

Marginal revenue is greater than marginal cost.

Refer to Exhibit 23-2. If the firm produces the quantity of output at which marginal revenue (MR) equals marginal cost (MC), is it guaranteed maximum profit or minimized loss?

No, at the quantity of output at which MR = MC, it could be the case that average variable cost is greater than price and the firm would do better to shut down.

Does the monopolistic competitive firm exhibit resource-allocative efficiency?

No, because at its chosen quantity of output, price is greater than marginal cost

Does a real-world market have to meet all the assumptions of the theory of perfect competition before it is considered a perfectly competitive market?

No, probably no real-world market meets all the assumptions of the theory of perfect competition. All that is necessary is that a real-world market behave as if it satisfies all the assumptions.

A firm in a monopolistic competitive market will produce a level of output at which

P > MR

In the long run, a firm earns zero economic profit, given the condition that

P = ATC

Refer to Exhibit 24-5. What area represents lost revenue when price goes from P2 to P1?

P1P2BC

Refer to Exhibit 24-2. The profit-maximizing monopolist produces Q0 units and charges a price of

P3

Refer to Exhibit 24-3. The profit-maximizing single-price monopolist charges price

P5

Which of the following conditions does not characterize long-run competitive equilibrium?

Price is greater than marginal cost.

Refer to Exhibit 24-1. If the product is produced under single-price monopoly, what quantity will be produced and what price will be charged in order to maximize profit?

Q1 units at P2

Which of the following is not a condition of price discrimination?

The seller must have zero fixed costs.

Which of the following statements is false?

The theory of perfect competition is completely and accurately descriptive of most real-world firms. (False)

Which of the following is an assumption of the theory of monopoly?

There are extremely high barriers to entry.

If the perfectly competitive firm is producing an output level at which price equals marginal cost, it is

There is not enough information to answer the question.

In the short-run, if P < ATC, a perfectly competitive firm should

There is not enough information to answer the question.

Refer to Exhibit 23-4. The firm sells its product at P1 and produces Q1. Given this situation,

a. total variable cost is equal to areas 1 + 2. Incorrect b. total revenue is equal to area 1 (A & B)

Refer to Exhibit 24-2. Total cost at the profit-maximizing quantity of output is the

area 0P2CQ0.

The perfectly competitive firm charges a price equal to __________ while the monopolistic competitor firm charges a price __________.

b. marginal cost; greater than marginal cost c. marginal revenue; greater than marginal revenue B and C

In long run equilibrium, the monopolistic competitor will most likely

be earning zero economic profit.

A seller is a price taker. This means that the seller sells his product at the price

determined in the market.

A "price taker" is a firm that

does not have the ability to control the price of the product it sells

Compared to a monopolistic competitor, a monopolist produces a good with __________ substitutes and so has a __________ elastic demand curve.

fewer; less

If a perfectly competitive firm and a single-price monopolist face the same demand and cost curves, then the competitive firm will produce a

greater output and charge a lower price than the monopolist.

In maximizing profits, a single-price monopolist will charge a price that is

greater than marginal cost

Suppose Firm X is a monopolist and is receiving positive economic profits. What prevents other firms from directly competing away the profits?

high barriers to entry

Refer to Exhibit 23-1. The firm's demand curve represented by the information in this table is

horizontal

Assume a constant-cost industry that is initially in long-run competitive equilibrium. An increase in demand will cause a(n) __________ in prices and profits, and as a result, firms will __________ the industry, causing the market supply curve to shift __________, which, in turn, will eventually cause the equilibrium price to be __________ before.

increase; enter; rightward; the same as

The "prisoner's dilemma" game illustrates a case in which

individually rational behavior leads to a collectively inefficient outcome

The demand curve for a perfectly competitive firm

is perfectly horizontal

If a monopolistic competitive firm raises its price, then

it should expect to lose some, but not all, of its customers.

The perfectly competitive firm will seek to produce the output level for which

marginal cost equals marginal revenue.

The relationship between a monopolistic competitor's marginal revenue curve and its demand curve is that the

marginal revenue curve lies below the demand curve and both are downward sloping.

The monopolistic competitive firm produces the output at which

marginal revenue equals marginal cost.

A perfectly competitive firm should increase its level of production as long as

marginal revenue is greater than marginal cost.

If economies of scale are so pronounced in an industry that only one firm can survive in the industry, this firm is called a(n) __________ monopoly.

natural

In the prisoner's dilemma, each prisoner would be best off if

neither confesses.

A monopolist maximizes profits at the output at which

none of the above

There are few sellers and many buyers in the

oligopoly market structure

Economic rent is a payment in excess of

opportunity cost

A concentration ratio indicates the

percentage of total sales accounted for by the (for example) four largest firms.

Your school pays one rate for the first one million kilowatts of electricity and a lower rate for any power it uses over one million kilowatts. What is occurring here?

second-degree price discrimination

The perfectly competitive firm will produce in the

short run if price is below average total cost but above average variable cost.

Real-world markets that approximate the four assumptions of the theory of perfect competition include

some agricultural markets. and the stock market. ( a and c)

Refer to Exhibit 23-4. Equilibrium price is P1, and the firm produces Q1. At this level of output, average variable cost and average total cost are indicated by the dots. Given this situation, the firm is

taking a loss equal to areas 2 + 3