Economics Test 3

Price=

Average Total Cost

Which of the following outcomes is consistent with a purely competitive market in long-run equilibrium?

Combined consumer and producer surplus will be maximized.

Which of the diagrams correctly portrays the demand (D) and marginal revenue (MR) curves of a purely competitive seller?

D=MR, horizontal

A monopolistically competitive industry combines elements of both competition and monopoly. The competition element results from

Low entry barriers

How do we find a rate of output?

MR=MC

Competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating

Marginal Revenue and marginal cost

During the basis of the provided demand and cost data for a pure monopoly, the way to calculate

Multiply all Price *Quantity Demanded. then subtract that number with the number below. The QD and P below 0 is where we find Total Revenue. Then take that number and subtract it by the total cost

Assuming no change in product demand, a pure monopolist

Must lower price to increase sales

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then

New firms will enter this market

Which of the following statements is correct? A.) The demand curves are perfectly elastic for both a purely competitive firm and a purely competitive industry. B. demand curves are downsloping for both a purely competitive firm and a purely competitive industry. C. demand curve for a purely competitive firm is downsloping, but the demand curve for a purely competitive industry is perfectly elastic. D. demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping.

The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping

Economists use the term imperfect competition to describe

Those markets are not purely competitive

A dilemma of regulation is that:

the regulated price that achieves allocative efficiency is also likely to result in losses.

7 1 6 2 5 3 4 4 3 5 A.5 B. 6 C. 3 4. 1

3

If the question says "The (whatever number) firm concentration ratio for this industry is...

Add the first however many the question says to get the percentage

Not a basic characteristic of pure competition?

Considerable Non price Competition

In the short run, a purely competitive firm will earn a normal profit when

P=ATC

In the short run, a purely competitive firm will always make an economic profit if

P>ATC

Which of the following is a barrier to entry?

Patent and licenses

0 50 1 90 2 120 3 140 4 170 5 210 6 260 7 330 If product price is $60, the firm will

Produce 6 units and realize a 100 dollar economic profit

An industry comprising a very large number of sellers producing a standardized product is known as

Pure Competition

When looking at a table that gives cost data for a firm that is selling in a purely competitive...

Put the product price to the side, whenever marginal cost is over the product price, multiply the output and product price to the number above it... then subtract by 360 to get the economic profit

When trying to find the Herfindahl index...

Square all Market Share numbers in the industries and add the numbers after

Which is not true of price discrimination?

Successful price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly

Purely competitive industry X has constant costs and its product is an inferior good. The industry is currently in long-run equilibrium. The economy now goes into a recession and average incomes decline. The result will be

an increase in output, but not in the price, of the product.

The variety of products and features that consumers may choose from in monopolistically competitive industries

at least partially offsets the economic inefficiencies of this market structure.

X-inefficiency is said to occur when a monopolist's

average cost is greater than the minimum possible average cost.

In the long run, the representative firm in monopolistic competition tends to have

excess capacity.

An increasing-cost industry is the result of

higher resource prices that occur as the industry expands

Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then there is a decrease in market demand for the product. After all economic adjustments to this new situation have taken place, product price will be

higher, but total output will be lower

The marginal revenue curve of a purely competitive firm

is horizontal at the market price

In the short run, a purely competitive seller will shut down if product price

is less than AVC

Monopolistic competition is characterized by...

large number of firms and low entry barriers.

Assume a purely competitive, increasing-cost industry is in long-run equilibrium. If a decline in demand occurs, firms will

leave the industry and price and output will both decline.

When compared with the purely competitive industry with identical costs of production, a monopolist will produce

less output and charge a higher price.

When trying to find the Herfindahl index if all firms merge into one...

multiply 100^2

Economic profit in the long run is

possible for a pure monopoly but not for a pure competitor.

Assume that the market for corn is purely competitive. Currently, firms growing corn are suffering economic losses. In the long run, we can expect

some firms to exit, causing the market price of corn to rise.

The short-run supply curve for a purely competitive industry can be found by

summing horizontally the segments of the MC curves lying above the AVC curve for all firms.

In a purely competitive industry:

there may be economic profits in the short run but not in the long run.

Refer to the diagrams. With the industry structures represented by diagram

there will be only a normal profit in the long run, while in (B) an economic profit can persist.

In monopolistically competitive markets, resources are

underallocated because long-run equilibrium occurs where price exceeds marginal cost.

A purely competitive firm's short-run supply curve is

upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve

A pure monopolist

will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.