Exam 3

Because barriers to entry are low in monopolistic competition markets, in the long run, a firm's price will be equal to A) average variable cost. B) marginal revenue. C) average fixed cost. D) average total cost.

A) Average total cost

When a firm is operating in a perfectly competitive marginal revenue is A) equal to price. B) always less than price. C) equal to zero when the market is in long-run equilibrium. D) equal to the change in output divided by the change in total revenue.

A) equal to price

The term price searcher applies to all firms that A) face a downward-sloping demand curve. B) operate in a purely competitive environment. C) purchase resources in a noncompetitive market. D) face an upward-sloping demand curve.

A) face a downward-sloping demand curve.

If a firm is making zero economic profit, it A) is doing as well as typical firms in other markets. B) will also generally be making zero accounting profit. C) will not survive in the long run. D) will be forced to shutdown and leave the market.

A) is doing as well as typical firms in other markets.

A monopolistic competition market is best described as A) many firms with some control over price, and some product differentiation. B) a few firms with no control over price, producing similar products. C) many firms with no control over price, producing identical products. D) a few firms with some control over price, producing highly differentiated products. E) a single firm producing all of the output for the industry, with strong control over price.

A) many firms with some control over price, and some product differentiation.

Which of the following is a term that is sometimes used to describe markets with low entry barriers and firms that are price searchers? A) monopolistic competition B) pure competition C) oligopoly D) monopoly

A) monopolistic competition

When a single firm has control over the market supply of a resource that is essential to the production of a good, A) monopoly is frequently the result. B) economies of scale are usually important. C) competition for the resource makes monopoly almost impossible D) diseconomies of scale are the usual cause.

A) monopoly is frequently the result.

The supply curve of a price-taker firm in the short run is the A) portion of the firm's marginal cost curve that lies above average variable cost curve. B) firm's average variable cost curve. C) portion of the firm's average total cost curve that lies above average variable cost curve. D) firm's marginal revenue curve.

A) portion of the firm's marginal cost curve that lies above average variable cost curve.

In the short run, a profit-maximizing firm in a price-taker market will definitely stop production if A) price is less than average variable cost. B) economic profit is zero. C) price falls below average total cost. D) it cannot completely cover its fixed costs.

A) price is less than average variable cost.

Airlines generally charge travelers willing to stay over Saturday night lower fares because A) the demand of these travelers is elastic, and therefore, the lower fares generate more revenue. B) the demand of these travelers is inelastic, and therefore, the lower fares generate more revenue for the airlines. C) these travelers have lower incomes, and therefore, the airlines would like to help them. D) it cost less to transport travelers willing to stay over a Saturday night.

A) the demand of these travelers is elastic, and therefore, the lower fares generate more revenue.

There are 1,000 identical firms in a perfectly competitive industry. In the short run, total revenues of each firm exceed total costs. What will happen in the long run? A) Many firms will enter the market and each firm will eventually operate at a loss. B) Additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business. C) Additional firms will enter the market, but the price will remain the same because the existing firms will not allow price to decrease. D) Nothing, because each firm is already maximizing its profits.

B) Additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business.

Firms that are price takers A) have downward-sloping demand curves. B) are small relative to the total market. C) can sell only a portion of their output at the market price. D) produce products that are different than their competitors.

B) are small relative to the total market.

New York City limits the number of taxi cabs that can legally operate in the city. The most likely result of this practice is that A) the cost of operating a taxicab will be lower. B) cab fares will be higher. C) cab fares will be lower. D) subway fares will decrease.

B) cab fares will be higher

An organization of sellers designed to coordinate their supply decisions to maximize joint profits is called a A) consumer cooperative. B) cartel. C) regulatory agency. D) marketing association.

B) cartel

If mutual interdependence among firms is present, each profit-maximizing firm in the market A) faces a perfectly elastic demand curve for its product. B) must consider the reactions of its rivals when it determines its price policy. C) faces a perfectly inelastic demand curve for its product. D) produces a product that must be identical to the products of its rivals.

B) must consider the reactions of its rivals when it determines its price policy

In a perfectly competitive market, if a firm offers its product at a higher price than others, it will A) maintain its profit base if the demand for the product is inelastic. B) not be able to sell any output. C) be able to expand output. D) increase its profits

B) not be able to sell any output.

In monopolistic competition markets, short-run economic profits will lead to A) long-run economic profits. B) the entry of additional firms into the market and the eventual restoration of zero long-run economic profits. C) the exit of firms from the market and the eventual restoration of zero long-run economic profits. D) the entry of additional firms into the market, which increases the demand for the product of each firm in the market.

B) the entry of additional firms into the market and the eventual restoration of zero long-run economic profits.

There are 1,000 identical firms in a perfectly competitive industry. In the short run, the total revenues of each firm are less than total costs. What will happen in the long run? A) Nothing, because each firm is already maximizing its profits. B) Additional firms will enter the market, but the price will remain the same because the existing firms will not allow it to decrease. C) Firms will exit the market, and the product price will rise. D) Additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business (cover its variable costs).

C) Firms will exit the market, and the product price will rise.

Which of the following statements best describes the price, output, and profit conditions of monopolistic competition markets? A) Price will always equal average variable cost in the short run and either profits or losses may result in the long run. B) Price will equal marginal cost at the profit-maximizing level of output; profits will be positive in the long-run. C) Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero. D) Marginal revenue will equal average total cost in the short run; long-run economic profits will be zero.

C) Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero.

When entry barriers are low, firms in a monopolistic competition market A) can never earn economic profit. B) can expect many new rivals to enter regardless of current profitability. C) can expect competing firms to enter the market if the activity is profitable. D) will always be able to earn economic profit

C) can expect competing firms to enter the market if the activity is profitable.

The demand curve of a monopolist is A) elastic because of a recognized interdependence with other firms. B) downward sloping and below the marginal revenue. C) downward sloping and above the marginal revenue curve. D) identical to the marginal cost curve.

C) downward sloping and above the marginal revenue curve

The U.S. Postal Service has a monopoly on the delivery of first-class mail due to A) a lack of initiative on the part of competing firms. B) economies of scale. C) legal barriers limiting entry. D) control over an essential resource.

C) legal barriers limiting entry

Which of the following is a unique characteristic of the oligopolistic market structure? A) low barriers to entry B) a large number of firms producing highly differentiated products that are complements to each other C) mutual interdependence among firms in demand, and thus, in price decisions D) product differentiation among the products produced by individual firms

C) mutual interdependence among firms in demand, and thus, in price decisions

A firm that is a price taker can A) substantially change the market price of its product by changing its level of production. B) decide what price to charge for its product. C) sell all of its output at the market price. D) sell some of its output at a price higher than the market price.

C) sell all of its output at the market price.

Several states require cosmetologists to undertake 1,500 hours or more of training in order to obtain a license to provide hair styling or braiding services. This is an example of A) antitrust legislation. B) government action that promotes competition. C) the legal structure that is required for the operation of price-taker markets. D) a barrier to entry

D) a barrier to entry

For effective price discrimination to occur, a seller must A) be a pure monopolist. B) have large economies of scale and control over a key natural resource. C) face a horizontal demand curve for its product. D) be able to prevent consumers from reselling the product to other consumers.

D) be able to prevent consumers from reselling the product to other consumers.

When a monopolistic competition market is in long-run equilibrium, the firms will A) operate at an output level where price is equal to marginal cost. B) operate at an output level that minimizes long-run average total cost. C) earn economic profit. D) charge a price that is equal to average total cost.

D) charge a price that is equal to average total cost.

Which of the following constitutes a barrier limiting the entry of potential competitors into a market? A) a perfectly elastic demand curve B) an elastic market demand for the product produced by the industry C) diseconomies of scale D) control over an essential resource

D) control over an essential resource

Which of the following explains why monopoly is uncommon in the real world? A) firms usually face downward-sloping demand curves. B) price is usually set equal to marginal cost by firms. C) supply curves slope upward. D) there are reasonable substitutes for most goods.

D) there are reasonable substitutes for most goods