MICRO ECO Chapter 23, 24, 25
in order to price discriminate, a firm must
face a downward-sloping demand curve.
Other things being equal, a price - discriminating firm will charge less to the customers who
have the most elastic demand for the product.
When the perfect competitor earns less than normal profits in the long run, the firm will
Exit the industry The competitor will move resources to a market where normal profits can be earned.
CH25. If the average total costs are the same for a perfectly competitive firm and a monopolistically competitive firm, then we know that
The monopolistically competitive firm will produce fewer units than the perfectly competitive firm.
C23. Profit-Maximizing rate of production
is the rate of production that maximizes total profits, or the difference between total revenues and total costs. Also, it is the rate of production at which marginal revenue equals marginal cost.
In a monopoly market structure, the firm
is the whole industry.
Ch.24 Monopoly producers are faced with
no competitive producers of the same product.
CH25. Consider the table above and graph to the right. Suppose that after long-run adjustments take place in the used-book market, the business ends up producing 4 units of output. In the long run, the market price will be $ 3.28 and economic profits will be $0.00
$ 3.28; $ 0.00
C23. The graph to the right depicts the per unit cost curves and demand curve facing a shirt manufacturer in a competitive industry. How much profit is this firm making per minute.
$-108.9 4.78(MR) - 6.76(ATC) =-1.98 * 55(quantity) = $-108.9
Consider the diagram at the right depicting the revenue and cost conditions faced by a monopolistically competitive firm. What are the total revenues experienced by this firm? What are the total costs experienced by this firm? What are the economic profits experienced by this firm? This firm is more likely in ___ - run equilibrium because ________.
$2800 $2800 $0 Long. Normal profits will not stimulate entry, which is a long-run change.
Ch.24 A monopolist maximized rate of economic profits is $800 per week. Its weekly output is 400 units, and at this output rate, the firm's marginal cost is $37 per unit. The price at which it sells each unit is $49 per unit.
$800/400 = 2 Thus P - ATC = $2. But P is given to be $49. so ATC = 49-2 or $47 Profit maximized at an output level where MC= MR. since MC is $37, MR must be 37
C23. Four fundamental characteristics of a perfectly competitive industry
(1)There is a large number of buyers and sellers, (2)Firms in the industry produce and sell a homogeneous product, (3)Information is equally Accessible to both buyers and sellers, and (4)There are insignificant barriers to industry entry or exit.
C23. Values are at the profit maximizing out at
(MR = P = MC)
Consider the short-run cost curve shown on the graph. the U-shaped curve is perfectly competitive firm's short-run average variable cost curve, and the upward -sloping curve is its marginal cost curve. The market price is equal to $30. What is the firms profit-maximizing output in the short run?
0 If MP is $30 per unit, the firm should shut down and produce no output in the short run.
The graph to the right depicts the per unit cost curves and demand curve facing a shirt manufacturer in a competitive industry. How much profit is this firm making per minute?
4.95(MR) - 6.73(ATC) = - 1.78 1.78 * 56(QTY) = -99.68 -99.68 Per minute. In the long run, Firms will EXIT this industry until there is a tendency for the firms in the industry to be making ZERO economic profit.
Given the information in the table.
6 units max profit. MC=MR
Which of the following goods would most likely be advertised using largely informative advertising.
A car
CH25. All of the following are key characteristics of a monopolistically competitive industry except
A homogenous product.
Ch.24 Given the cost curves in the diagram, what market situation would you expect to occur.
A natural monopoly
Ch.24 Which of the following is not necessary for price discrimination to exist?
A perfectly elastic demand curve. A perfectly elastic Demand curve is horizontal.
Which of the following is an example of an experience good?
A restaurant meal.
Ch.24 A monopolist is defined as
A single supplier of a good or service for which there is no close substitute.
When marginal cost is less than marginal revenue, the firm will always make more profit by
INCREASING production.
C23. The short-run break-even price for the perfectly competitive firm occurs when price equals
ATC. When P = ATC the firm will have sufficient revenue to cover their variable and fixed costs, and will break even earning zero economic or normal profits.
Which of the following markets has a barrier to entry?
An aluminum company owns all bauxite mines, an essential input. There are large economies of scale in the production widgets. crystal develops a new product and patents it. Joes bar owns the only liquor license issued by the town.
The services of a carpet cleaning company A new cancer treatment Athletic socks a silk necktie
An experience good, since people must actually consume before they can determine their qualities. a credence good, with qualities that might be difficult for consumers lacking expertise to assess. A search good, easy for consumers to assess. A search good, easy for consumers to assess.
In several markets for digital devices that can be viewed as perfectly competitive, persistent increases in demand eventually have generated long-run reductions in the market prices of these devices. Which of the following explanations best describes the types of adjustments that must have occurred in these markets to have brought about this outcome? Such digital device industries can be characterized as
An increase in demand initially leads to an increase in price and profits of the firms. New firms enter the market and the equilibrium quantity increases with a reduction in market price along a downward sloping long-run industry supply curve. Decreasing cost-industries.
In a competitive market, positive economic profits act to
Attract new entrants into the industry. Positive economic profits would attract competitors.
CH25. Search goods are goods that consumers
Can easily evaluate before consumption.
Ch.24 Suppose a monopolist is producing where the marginal cost curve intersects the demand curve. The monopolist
Can increase profits by selling fewer units since marginal cost is greater than marginal revenue.
Ch.24 A monopoly is socially inefficient because it
Charges a price greater than marginal cost.
Consider a price discriminating monopolist. Which of the following is true.
Charging different prices to different customers does not mean the monopoly is necessarily using a price discrimination. a monopoly will engage in price discrimination whenever feasible o increase profits. the monopolist will sell some of its output at higher prices to consumers with less elastic demand.
CH25. A monopolistically competitive firm
Chooses output first, then charges the highest price they can.
C23. The decision making process for the perfectly competitive firm boils down to
Deciding how much to produce.
CH25. Existing firms will see a decrease in demand for their products:
Demand curve for each firms product shifts to the left Price falls Each firm produces less output ATC rises Profits fall
Ch.24 Which of the following is not a barrier to entry into a market.
Diseconomies of scale.
C23. The demand curve for the perfectly competitive industry is
Downward sloping. The demand curve for a perfectly competitive industry is downward sloping. The demand schedule for a perfectly competitive firm is horizontal.
C23. Economic profits
EX. Price per unit of $20 minus the average total cost of 15.75 multiplied by the output level of : 10000= 4.25 x 10000=42,500
CH25. The monopolistically competitive firm at a level of output of Q 1 in the diagram is
Earning positive economic profits
In a perfectly competitive market, if P > ATC in the short run, there is apt to be
Entry of new firms into the market. Positive economic profits will attract.
C23. For a perfectly competitive firm, price
Equals both average revenue and marginal revenue.
Ch.24 In order to price discriminate, a firm must
Face a downward-sloping demand curve.
CH25. Mass Marketing.
Firms aim advertising messages at as many consumers as possible via media such as television, newspapers, radio, and magazines.
CH25. Direct marketing
Firms engage in personalized advertising using postal mailing, phone calls, and e-mails. Targets specific consumers.
The graph to the right shows demand, marginal revenue, and marginal cost curves for a monopolistically competitive firm. Draw and label the profit max price and quantity. ID the profits or losses for the firm. If every firm in this industry is like the representative firm above,
Firms will exit the industry.
CH25. Information products entail relatively high ___ costs associated with the use of knowledge and other information-intensive inputs as a key factors of production Once the first unit has been produced it is possible to produce additional units at a relatively low per-unit cost. The sum of all these up-front costs constitutes a relatively sizable ____ cost that the company must incur to generate the first copy of the computer game Therefore, for the producer of an information product such as a computer game, the short-run average total cost curve slopes downward. When this occurs the marginal cost is ____ the average total cost. Marginal cost pricing is not feasible since it would result in losses for the firm. After all entry or exit from the market has occurred, the price of the computer game will equal the producers ____.
Fixed; Fixed; Downward; Below; Average.
C23. Suppose that the market price in a perfectly competitive industry is $40 per unit. Plot a possible MR line given this price.
In a perfectly competitive industry, each firms MR = MP at any given output rate. Thus, the marginal revenue schedule is horizontal at the market price.
Monopolistic competition is similar to monopoly because
In both industry structures, the firms demand curve is downward sloping.
Monopolistic competition is similar to perfect competition because
In both industry structures, there are no barriers to entry.
CH25. The monopolistically competitive firm at a level of output of Q 1 in the diagram is
In long-run equilibrium
A anger of a monopoly argues that the firm must not be maximizing its economic profits.
Incorrect, since profit maximization requires that marginal revenue equals marginal cost but does not require the average total cost to be at any particular level.
CH25. Advertising is used to
Increase demand; Make demand more inelastic.
A perfectly elastic long-run supply curve
Indicates that input prices do not change when firms enter or exit the industry. Industry uses a small percentage of the total supply inputs required for industry-wide production that firms can enter the industry without bidding up input prices, so the long -run industry supply curve is therefore horizontal or perfectly elastic.
Ch.24 You observe that the revenue of a monopolist vary directly with changes in price. This firm _____ maximizing its economic profits because.
Is NOT When demand is elastic, as price falls the Q rises and R rise When demand is inelastic, price falls, Q rises and R falls When demand is elastic, P rises and Q falls and R falls When demand is inelastic as P rise, the Q falls and revenues rise.
Ch.24 The demand curve of the monopolist
Is the same as the industry demand curve.
Ch.24 In a monopoly market structure, the firm (the monopolist)
Is the whole industry.
For a monopolist, marginal revenue is Show a possible marginal revenue curve.
Less than the price of the product.
The decline in the price of lithium following the entry of more firms in response to increasing demand indicates that the long-run lithium supply curve slopes downward. Thus, it can be surmised that
Lithium industry is a decreasing-cost industry.
Ch.24 Given the information in the table to at right.
MC= TC-TC/ output MR = Revenue/output or TR-TR/output. 6 units of output is the profit maximizing level.
experience goods are goods that consumers
Must consume in order to assess them properly.
Classify each of the following as an example of direct. interactive. and mass marketing. A cosmetics firm pays for full page display ads a magazine distributor mails a fold out fly advertising its products An online gambling operation arranges for pop-up ads on computers A car dealership places ads in newspapers.
MM; D; I; MM
Using the line drawing tool and the data above, draw 3 industry supply curves assuming there are 10, 15 and 20 firms. Label these lines S1, S2, and S3, respectively.
MR=3 Max Price = 8 Firm * minimum Output = starting units. Firm * Maximum output = ending units.
CH25. In the long run, monopolistically competitive firms
Make zero economic profits.
Ch.24 In the graph to the right, the monopoly is
Making a economic profit.
In a perfectly competitive industry in the short run, if wages increase, which of the following will occur.
Marginal costs will increase, and industry supply will decrease.
C23.If the price is less than the average variable cost, the firm should..
Minimize loss by shutting down and paying only the fixed costs because its average variable costs are not covered by the price of the product.
How can makers of TVs earn economic profits during the first few months after the introduction of new models? What economic forces result In the dissipation of economic porfits earned by the manufacturers.
New models create product differentiation that increases demand and raises prices above average total cost. Thus, firms will earn positive economic profits in the short run. Positive profits induce new firms to enter the market causing existing firms' demand to fall, which lowers prices toward average total cost.
C23. Suppose that a firm in a perfectly competitive industry finds that at its current output rate, marginal revenue exceeds the minimum average total cost of producing any feasible rate of output. Furthermore, the firm is producing an output rate at which marginal cost is less than the average total cost at that rate of output.
No, if the firm was maximizing its economic profits the marginal cost would not be less than the average total cost at that rate of output. If the MC is less than the AVC, than the average cost must be declining at the output level where the firm is producing. To maximize its economic profits the MC must also exceed the Minimum Average total cost(ATC). Therefore, both MR and MC would be greater than ATC.
C23. A perfectly competitive firm wants higher profits and has decided to raise the price of its product. As an economic consultant you would advice them to
Not do this since they would lose all of their sales to competitors.
The efficient allocation of scarce and productive resources
Occurs when the price of a good equals the cost of producing that quantity, rather than a larger quantity of some other good. Occurs when all resources are used in the most advantageous way possible. means that is impossible to increase the production of one good without lowering the value of total output produced in the economy.
Ch.24 If we were to compare the amount produced by firms in a competitive industry to the output produced by a monopoly, the monopolist will produce.
On the elastic portion of the demand curve and charge a higher price.
Ch.24 For a monopoly
Price equals average revenue only. Total Revenue (TR) = Price (P) x Quantity ( Q); Average Revenue (AR) = TR/Q; Therefore AR = (P x Q)/Q = P
C23. Profits are maximized for the perfectly competitive firm when the firm produces the quantity where
P = MC. Total revenue exceeds total cost by the greatest amount. MC=MR.
Ch.24 Monopoly has a social costs because
P is greater than MC and this implies economic inefficiency. a monopoly produces less and charges higher prices than a perfect competitive firm. Too few resources used.
C23. A firm will continue to operate in the short run, even at an economic loss, as long as
P is greater than minimum AVC.
Ch.24 In the graph, the profit-maximizing price for a monopoly is
P1
The perfectly competitive firm in long-run equilibrium produces a level of output such that
P=MC=MR=short-run ATC-long-run ATC.
In long-run equilibrium which of the following is true for the firms in a perfectly competitive industry?
P=MR=MC=ATC
Which panels represent long run EQ for the perfect competitive firm and monopolistic competitive firm/
Panel C and B
CH25. In comparing the long-run equilibrium of perfect competition and monopolistic competition, which of the following is true?
Perfect competition: P= MC = minimum of ATC and zero economic profit Monopolistic competition: P > MC, P> minimum ATC and zero economic profit.
CH25. If there is no product differentiation at all, then the individual firm has a demand curve that is
Perfectly elastic and identical to the firm in perfect competition.
C23. The demand curve for the perfectly competitive firm is
Perfectly elastic. The firm can sell all it wants at a given price. The firms demand curve is horizontal, or perfectly elastic.
Refer to the figure at right. Profits for this firm are
Positive.
Ch.24 Charging different prices for similar products that have different marginal costs is called
Price differentiation.
CH25. The grater the monopolistically competitive firms success at product differentiation the lower is ( are ) the firms
Price elasticity of demand. This implies a more relatively inelastic demand.
Perfect competition is efficient because.
Price equals marginal cost. (P=MC). when an individual pays a price equal to the MC of production, the cost to the user of that product is equal to the sacrifice or cost to society of producing the Q of that good as opposed to more of some other good. It is impossible to increase the output of any good without lowering the Value of the total output produced in the economy.
C23. The perfectly competitive firm is said to be a.
Price taker - it takes the price given by the market.
Ch.24 The monopolist sets price by
Producing the quantity where marginal cost equals marginal revenue and charging the price that corresponds to that quantity.
CH25. The fact that a monopolistically competitive firm does not produce at the minimum ATC can be viewed as the cost of generating
Product differentiation and variety.
C23. The table to the right gives the per unit cost data for a shirt manufacturer in a competitive industry. If the market price is 9/97, how much profit is this firm making per minute?
Profit = (P-ATC)* Q = (9.97-6.87) * 77 = (round to nearest penny) $238.70
CH25. In the short run, a monopolistically competitive firm will
Select the rate of output where marginal revenue equals marginal cost.
C23.The table at right represents the hourly output and cost structure for local pizza shop. The market is perfectly competitive. Total costs include all implicit opportunity costs. Suppose the market price drops to only $5 per pizza. In the short run, this pizza shop
Should continue to make pizza at the $5 price. So, as long as there is an output level where the total revenue exceeds the total cost, the firm can earn an economic profit.
Ch.24 The table below depicts the daily output, price, and costs of a monopoly dry cleaner.
TR = P x Q(output).
C23. Average revenue =
The average revenue per unit is the same as the price.
Ch.24 If a public utility company is considered a monopolist, which of the following is not true?
The companies demand curve and supply curve are upward sloping.
What happens when new firms enter a monopolistically competitive market?
The demand curve of the existing firm shifts to the left.
C23. When the marginal revenue equals the marginal cost
The firm is maximizing its profits. MC=MR
Which is not a necessary condition for price discrimination to exist?
The firm must establish different prices to reflect marginal cost.
In long-run equilibrium in perfect competition,
The firm produces at the minimum point of its long-run and short-run and short-run average total cost curves. Because profits must be Zero in the long-run, the firms short-run Average costs(SAC) must equal P at the minimum SAC. In addition, in long-run eq. any economies of scale must be exhausted, and P must equal the minimum point of the long-run average cost curve (LAC).
CH25. In a perfectly competitive market, price equals marginal cost, but this condition is not satisfied for the firm with the revenue and cost conditions depicted in the figure on the right. In the long run, what would happen if the government decided to require the firm in the figure to charge a price equal to marginal cost at the firms long run output rate?
The firm will incur a loss of $8 per unit and this and other firms will leave the industry.
Two years ago, a large number of firms entered a market in which existing firms had been earning positive economic profits. By the end of last year, the typical firm in this industry had begun earning negative economic profits. No other events occurred in this market during the past two years. During the last year, All of the following adjustments will take place in this market beginning this year except.
The firms incurred losses, as the market output expanded and the market price fell. That price and cost will fall.
The supply curve of the perfectly competitive firm in the short run is equal to
The marginal cost curve above minimum AVC.
In the graph, the firm's supply curve is
The marginal cost curve that lies above price P2. The price or MR is equated to the MC to determine the profit maximizing output. in the short run. As long as the P is above the minimum of the AVC, the firm will supply the product.
Which of the following statements is true bout the price that a monopolist charges?
The value that society places on the last unit produced in a monopoly is greater than its cost.
Ch.24 A firm can be sole supplier of a good and still not be considered a monopoly if
There are very close substitutes for the good.
Ch.24 Issues and applications
There has been an occupational license explosion in the U.S.
CH25. Interactive marketing.
This advertising approach allows a consumer to respond directly to an advertising message; often the consumer is able to search for more detailed information and place an order as part of the response. Sales booths and some types of internet advertising, such as banner ads with links to sellers web pages.
Ch.24 Why is there a social cost of monopoly?
Too few resources are being used in a monopoly
C23. Total Profit =
Total profit (Average Revenue - Average Total Cost) * Quantity. Average Revenue = P = $10
Refer to the figure at right Which of the following is true.
Under perfect competition price equals marginal cost ( P3) while under monopoly price (P4) is greater than marginal cost (P1)
CH25. If a firm is selling a search good it is more likely to
Use informational advertising.
CH25. When a firm is selling an experience good it is more likely to
Use persuasive advertising.
The graph to the right depicts the average cost curves and the marginal cost curve for a typical firm in a competitive industry. Draw the firms demand curve at a market price such that the firm is breaking even. Draw the firms demand curve at a market price such that the firm is at its shutdown price.
When the firm is at its break even price, accounting profits are positive.
C23. A perfectly competitive firm is charging $6 and selling 1300 units a month. The firm lowers its price by a nickel below the market price. Its profit
Will decrease. Because the firm is competitive in a market, it can sell all it wants at the market price of $6. If the firm lowers the price it charges, it will sell same amount and its profit will decrease.
If markets are perfectly competitive then the production of goods
Will use the least costly combination of resources. No other combination of resources, such as labor and capital, will result in an output that is higher in total value than the value of all goods and services already being produced.
C23. Is the firm maximizing economic profits?
Yes, they are producing where the marginal revenue equals the marginal cost. ( MR=MC).
CH25. In the long run, monopolistically competitive firms earn
Zero economic profits.
In long-run equilibrium, the perfectly competitive firm makes
Zero economic profits. Long-run eq. occurs after firms have been allowed to either enter or leave. If there are zero economic profits there is no incentive for industry entry or exit. This is consistent with long-run eq.
C23.In the graph, if price is P1, the profit-maximizing rate of output is
Zero. Since the price is below the AVC(the shut-down point), the firm will not produce any output.
CH25. When the qualities of a good are relatively easy to assess in advance of their purchase, the good is known as
a search good.
a monopolist is defined as
a single supplier of a good or service for which there is no close substitute.
CH25. Assume that every time you wanted to take this quiz you were charged a fee. The publisher's cost for developing the quizzes and making them available does not vary with the number of times you or anyone else takes the quizzes. These quizzes
are known as informational product.
C23. Total revenues
are the price per unit times the total quantity sold.
Since lithium is homogenous and indistinguishable across firms, the market for lithium
is perfectly competitive.
a monopoly is socially inefficient because it
charges a price greater than marginal cost.
In a perfectly competitive market, if P = ATC in the long run, the firm will
cover direct and implicit costs and have no incentive to leave the industry.
CH25. Costs are higher for MC firms than the PC firms due to product differentiation.
developing new products marketing/advertising lack of competitive pressure to be efficient.
Ch.24 Marginal revenue for a monopolist
downward sloping and always less than price.
CH25. A firm that produces an information product will
earn zero economic profits in the long run.
Ch.24 As opposed to other types of monopoly, a natural monopoly typically owes it monopoly position to
economies of scale.
Information products can be produced at a relatively low and constant per-unit cost, but significant total fixed costs. Their average variable costs are constant, but average fixed costs decline as more books are produced, so publishers short-run average total cost curves slop downward, they realize
short-run economies of operation.
The role of profits in the model of perfect competition is to
signal entrepreneurs to enter the industry. If the industry is characterized by firms showing economic profits this will signal owners of capital elsewhere in the economy that they, too, should enter this industry.
Zero economic profits means
the firm is covering all of its opportunity costs and will stay in business.
Which of the following is not necessary for price discrimination to occur?
the firm must be selling a durable good.
C23. The lowest profit a firm should ever make in the short run is
the losses associated with the fixed costs of the firm
C23. If the market clearing price drops. The firm should
*Continue to produce since the price exceeds the average variable cost. *Continue to produce since the firm can pay some of its fixed cost. *Continue to produce since the loss is less than the fixed cost.
C23. For each example below, identify which statement is NOT characteristic of perfectly competitive industry.
*One Firm produces a large portion of the industry's total output. *The product differ slightly in quality from firm to firm. *The government also limits the number of taxicab companies that can operate within the city's boundaries.
Ch.24 A monopolist company
-ts price must be higher than its marginal revenue For the company to practice price discrimination, there should not be any resale of its product. Its profit maximizing quantity is determined where its marginal revenue equals its marginal cost.
CH25. The key characteristics of a monopolistically competitive industry are: A. A large number of firms that sell differentiated products that are close substitutes B. Firms can easily enter or exit a monopolistically competitive industry. C. Because monopolistically competitive firms can increase their profits if they can successfully distinguish their products from those of their rivals, they have an incentive to engage in sales promotions and advertising. For each examples below, indicate which of the above characteristics (A,B,C) Is being illustrated. 1.some restaurants cook their hamburgers over open flames, others fry their hamburgers 2.There is vast number of colleges and universities across the count. Each compete for top students.
1. A 2. A
CH25. Categorize each of the following as an experience good, a search good, or a credence good or service, and justify your answer. 1.A restaurant meal represents______________ 2.Psychotherapy represents____________ 3. A heavy-duty filing cabinet represents__________ 4. A wool overcoat represents___________
1. An experience good, since people must actually consume before they can determine their qualities. 2. A credence good, one with qualities that might be difficult for consumers lacking expertise to assess without assistance. 3. A search good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase. 4. A search good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase.
C23. In the figure to the right, the firm should produce. In the figure to the right, at the output level between 5 units and 13 units.
10 units since economic profits are the greatest. The firm's economic profits are positive. Since the Total Revenue(TR) is above the total cost(TC), there are positive economic profits.
Ch.24 Consider the revenue and cost conditions for a monopolist that are depicted in the figure at right. What is this producers profit-maximizing output? What are the firms economic profits?
4000 -4000
C23. In the figure shown at the right, what is the profit maximizing output and price in the short run?
46, $ 50 When 46 units are produced at price $50, MR = MC, so profits are maximized. What is the profit maximizing output and price? 50MR-41ATC=9 *46(quantity)=$414
Ch.24 Recently in states across the land, licensing rules have expanded with each passing year. such licensing requirements constitute
Barriers to entry.
C23. Average Total Cost =
Average Fixed Cost + Average Variable cost =$0.50 + $6.50 = $7.00
Ch.24 Suppose a monopolist faces the demand 12- 0.1 x Q the corresponding marginal revenue function is 12 - 0.2 x Q. Further suppose that marginal cost is constant $2.
Basic formula would be 12-2 = 10 [5 ]* 10 = 50 (profit maximizing Quantity) 12 +2 = 14 14 /2 = 7.00 ( Profit maximizing price) To graph this just use 12 * 10 = 120 (max output) Demand 120/2 = 60 (Marginal revenue) line
C23. Which of the following is NOT one of the assumptions of a perfectly competitive market?
Better information for producers than consumers.
Consider the monopolistically competitive firm with the revenue and cost conditions. Which statements best describe the firms behavior. The firm is charging a price over and above the minimum ATC to cover for costs of product differentiation. Consumers willingly accept the increased production costs in return for more choice and variety of output.
Both 2 and 3.
CH25. The advertising of credence goods contains
Both informational and persuasive advertising, so as to provide detailed information and at the same time persuade the consumer to try the product.
CH25. Why are brand names and advertising important features of monopolistic competition.
Both of these techniques can be used to increase the demand for the product.
CH25. Which of the following is NOT true of both firms in monopolistic competition and firms in perfect competition?
Both types of firm produce at minimum ATC Production occurs at minimum ATC for perfectly competitive firms only.
In the long run, all firms in a perfectly competitive industry
Break even
C23. If the Price equals the Average total cost, the firm
Breaks even earning a zero economic profit, or normal profit.
C23. To determine whether the firm should produce in the short-run.
Compare the price with average total cost and average variable cost.
C23. The campus barber faces stiff competition from the large number of shops that surround the campus area, and for practical purposes the market is perfectly competitive. He charges $8 for a haircut and cuts hair for 20 people a day. His shop is open 3 days week.
Compute the daily revenue, then multiply by the number of operating days. Daily total revenue = Price * Quantity = $_ 8 * 20 . Multiply this by the number of days = $ 160 * 3 days = $ 480 The average revenue is the total revenue/total quantity or $480/60 = $8, which is equal to the price. The marginal revenue is the additional revenue from an additional unit increase in quantity. Since this is a perfectly competitive market the barber cannot influence the price, but must accept the price as given. For each additional haircut, the increase in revenue will be $8, which is the price.
If a firm is making zero economic profit it should
Continue operating. Zero economic, or normal profits are sufficient to cover all costs and keep the firm operating.
A monopolist sells a homogenous good in several distinct submarkets, and the elasticity's of demand differ in these submarkets. If the monopolist selects the rate of output to sell in each submarket by equating marginal revenue and marginal cost then.
Customers in markets with more elastic demand will pay lower prices than customers in markets with less elastic demand.
CH25. Classify each of the following as an example of direct (D), interactive (I), and/or mass marketing (MM). A mortgage compact targets a list of specific low risk borrowers ____ The sales force of a pharmaceutical company visits physician's offices to promote new medication__ An online book seller pays fees to an internet search engine to post ad banners__ A national rental car chain runs advertisements on all nations major TV networks__
D D I MM
Ch.24 The marginal revenue curve for a perfectly competitive firm is ____ while the marginal revenue curve of the monopolist is ______.
Horizontal, downward sloping.
Which of the following is not a characteristic of a monopoly?
Free entry and exit
Ch.24 For a monopoly, the profit max level of output and price will be shown by the point Suppose what will happen in a perfectly competitive industry A society faces economic cost by allowing monopolies to exist because monopolies
G E Charge a price higher than marginal cost and produce less than what society wants.
Ch.24 The better the substitutes for a monopoly firms product, the
Greater the price elasticity of demand.
Ch.24 A natural monopoly
Has economies of scale over a very large range of output. has decreasing long run marginal costs over a very large range of output. has decreasing long run total costs over a very large range of output.
Ch.24 The demand curve faced by the monopolist
Has greater price elasticity of demand as close substitutes for the monopoly product are developed.
Information products use information-intensive inputs and are characterized by
High fixed costs but low marginal costs.
CH25. When a firm produces an information product, the initial or fixed costs are ________. Consequently the average fixed costs and average total cost ______ as the volume of output increases. Since most of the costs are initial fixed costs of development, once the product is developed, the _____ cost of producing more units of the product are typically low and _____. In this case, then, the low and constant marginal cost is ____ the average cost. If the firm set the price, or average revenue, of the product equal to the marginal cost, the firm would have _____ Since the marginal cost is _________ the average cost.
High; Decreases; Marginal; Constant; Below. Economic losses. Less than
the graph to the right shows demand, marginal revenue, and cost curves for a monopolist.
ID the max profit and draw rectangle.
Consider the market for DVD movie rentals, which is perfectly competitive. The market supply curve slopes upward, the market demand curve slopes downward, and the equilibrium rental price equals $3.50. indicate how each of the following events will have an effect on the market clear price and on the demand curve faced by the individual rental store. People's tastes change in favor of going to see more movies at cinemas with their friends and family members. National DVD-rental chains open a number of new stores in this market. There is a significant increase in the price of downloading movies on the internet.
Market clearing price DECREASES. Firm's demand curve SHIFTS DOWN. DECREASES, SHIFTS DOWN. INCREASES SHIFTSUP.
The book publishing industry exhibits the following features: Many competitive sellers, Heterogeneous products considerable advertising, easy entry and exit With these characteristics, the book-publishing industry represents
Monopolistic competition.
CH25. Unlike perfectly competitive firms...
Monopolistically competitive firms will have an incentive to advertise.
Ch.24 People in licensed occupations earn about 15% more income because consumers pay higher prices to obtain the services. Therefore, licenses create.
Monopoly profits
CH25. The downward slope of the demand curve of a monopolistically competitive firm implies that the firm has
Some monopoly power over price, and therefore advertising may increase profits.
C23. The demand curve for the perfect competitor is horizontal because
The market dictates each firm's price. The price is determined by the forces of market supply and demand. This is where the market demand curve intersects the market supply curve.
With marginal cost pricing
The price charged is equal to the opportunity cost to society of producing one more unit of the good.
With marginal cost pricing,
The price charged is equal to the opportunity cost to society of producing one more unit of the good.
CH25. What does the long-run price equal for an informational product?
The price equals average total cost.
C23. In a perfectly competitive market
The price equals the marginal revenue. P=MR
C23. Suppose that a perfectly competitive firm faces a market price of $10 per unit, and at this price the upward-sloping portion of the firm's marginal cost curve crosses its marginal revenue curve at an output level of 1,200 units. If the firm produces 1,200 units, its average variable costs equal $6.50 per unit, and its average fixed costs equal $0.50 per unit.
The price intersects the MC at 1200 units of output. This is the profit maximizing output level. Total profit (Average Revenue - Average Total Cost) * Quantity. Average Revenue = P = $10 Average Fixed Cost + Average Variable cost =$0.50 + $6.50 = $7.00 Total profit (Average Revenue - Average Total Cost) * Quantity( $10-$7) * 1200 = $3600.
Lithium's long-run supply curve must be downward sloping because.
The price of lithium declines following the entry of more firms in response to increasing demand.
C23. If a perfectly competitive firm sells the product for a profit-maximizing price of 4.76 and has average total cost per unit of $5.15, in the short run.
This firm should shut down if 4.76 is less than the AVC. This firm is losing money. This firm must hope the market price rises soon or exit the industry.
C23. Profit = Maximum profit =
Total Revenue (TR) minus Total Cost (TC). and it is maximized at the output level at which TR exceeds TC by the largest amount. EX. TR(154) - TC(154)= 1540 - 1053 = 487.00 Note: The number in parentheses is the profit maximizing quantity.
CH25. Calculate total rev, total profit, marginal rev, and marginal cost table. Based on marginal analysis, what is the profit-maximizing level of output for this business.
Total revenue equals price times output quantity. output of 7 ( MR = MC)
Ch.24 Evaluate the following statement. A profit maximizing monopolist will never operate in a price range in which price elasticity of demand is inelastic.
True.
C23. If the price is less than the average total cost, buy greater than the average variable cost, the firm
Will have a loss in the short-run, but should still operate because its average variable costs are covered by the price of the product. Loss will be minimized by producing the output level where marginal revenue equals marginal cost. In this case, the loss will be less than the fixed cost the firm would lose if it shuts down.
Ch.24 A monopolist that produces where the ATC is greater than price
Will make economic losses
CH25. Monopolistically competitive firms will
earn zero economic profits, charge higher prices than perfectly competitive firms not produce the efficient level of output.
Assuming that this firm has positive fixed costs, the firm
earned Zero economic profits. To maximize economic profits today, this firm should produce LESS THAN 10000 bricks if the price exceeds the average variable cost.
Ch.24 If a monopolist marginal cost curve shifts upward, the monopolist price will ______, the output rate will ____.
increase, decrease.
As the number of imperfect substitutes for a monopoly firms product increases, the price elasticity of demand
increases.
Ch.24 As the number of imperfect substitutes for a monopoly firms product increases, the price elasticity of demand
increases.
Books that can be produced at a relatively low and constant per-unit cost but at significant total fixed costs are known as
information products
At the long-run equilibrium the firm's average total cost is
minimized.
C23. A perfectly competitive firm charging $4 and selling 1000 units a month. The firm raises its price by a nickel above the market price. Its profit
will go to zero.
