Micro test 3 practice problems
If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue
$5
Suppose a purely competitive, increasing-cost industry is in long-run equilibrium. Now assume that a decrease in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price
and industry output will be less than the initial price and output.
If for a firm P = minimum ATC = MC, then
both allocative efficiency and productive efficiency are being achieved.
Marginal revenue is the
change in total revenue associated with the sale of one more unit of output.
The primary force encouraging the entry of new firms into a purely competitive industry is
economic profits earned by firms already in the industry
Long-run adjustments in purely competitive markets primarily take the form of
entry or exit of firms in the market.
If production is occurring where marginal cost exceeds price, the purely competitive firm will
fail to maximize profit and resources will be overallocated to the product.
An increasing-cost industry is the result of
higher resource prices that occur as the industry expands.
If a purely competitive firm is maximizing economic profit,
it may or may not be maximizing per-unit profit.
If a pure monopolist is producing at that output where P = ATC, then
its economic profits will be zero
In the short run, the individual competitive firm's supply curve is that segment of the
marginal cost curve lying above the average variable cost curve.
A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating
marginal revenue and marginal cost
75. If a purely competitive firm is producing at some output level less than the profit-maximizing output, then
marginal revenue exceeds marginal cost.
how do you maximize profit
maximize difference between total revenue and total cost
In long-run equilibrium, purely competitive markets
maximize the sum of consumer surplus and producer surplus.
The supply curve for a monopolist is
nonexistent
When is price discrimination illegal?
only illegal if used to lessen or eliminate competition.
f a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing
price and average variable cost.
In the short run, a purely competitive seller will shut down if
price is less than average variable cost at all outputs.
A purely competitive seller is
price taker
An industry comprising a very large number of sellers producing a standardized product is known as
pure competition
In which one of the following market models is X-inefficiency least likely to be present? A. pure competition B. oligopoly C. monopolistic competition D. pure monopoly
pure competition
In which one of the following market models is X-inefficiency most likely to be the greatest? A. pure competition B. oligopoly C. monopolistic competition D. pure monopoly
pure monopoly
what industry structure is new firm entry most difficult
pure monopoly
Output Marginal Revenue Marginal Cost 0 -- -- 1 $16 $10 2 16 9 3 16 13 4 16 17 5 16 21 The data in the accompanying table indicates that this firm is selling its output in a(n)
purely competitive market
A constant-cost industry is one in which
resource prices remain unchanged as output is increased.
Balin's Burger Barn operates in a perfectly competitive market. Balin's is currently earning economic profits of $20,000 per year. Based on this information, we can conclude that
short run not long run
Suppose you find that the price of your product is less than minimum AVC. You should
shut down b/c by producing your losses will exceed your total fixed costs
If at the MC = MR output, AVC exceeds price,
some firms should shut down in the short run.
For a purely competitive firm, marginal revenue graphs as a
straight line parallel to the horizontal axis
For a purely competitive firm, total revenue graphs as a
straight upsloping line
The lowest point on a purely competitive firm's short-run supply curve corresponds to
the minimum point on its AVC curve.
The term productive efficiency refers to
the production of a good at the lowest average total cost.
The term allocative efficiency refers to
the production of the product mix most desired by consumers.
Economists use the term imperfect competition to describe
those markets that are not purely competitive.
The MR = MC rule applies
to firms in all types of industries
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.
to maximize profits and minimize losses when should a firm produce?
when demand is highest
A nondiscriminating pure monopolist finds that it can sell its 50th unit of output for $50. We can surmise that the marginal A. cost of the 50th unit is also $50. B. revenue of the 50th unit is also $50. C. revenue of the 50th unit is less than $50. D. revenue of the 50th unit is greater than $50.
C. revenue of the 50th unit is less than $50.
What distinguishes the short run from the long run in pure competition?
Firms can enter and exit the market in the long run but not in the short run.
Which of the following is true concerning purely competitive industries?
In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.
The theory of creative destruction was advanced many years ago by
Joseph Schumpeter.
The short-run supply curve of a purely competitive producer is based primarily on its
MC curve.
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
T/F In a purely competitive industry, competition centers more on advertising and sales promotion than on price.
False
what is na example of pure competition
agriculture
What is the us. automobile industry described as by economists
an oligopoly
An industry comprising four firms, each with about 25 percent of the total market for a product, is an example of
oligopoly
The demand schedule or curve confronted by the individual, purely competitive firm is
perfectly elastic
A dilemma of regulation is that A. the regulated price that achieves allocative efficiency is also likely to result in persistent economic profits. B. the regulated price that results in a "fair return" restricts output by more than would unregulated monopoly. C. regulated pricing always conflicts with the "due process" provision of the Constitution. D. the regulated price that achieves allocative efficiency is also likely to result in losses.
D. the regulated price that achieves allocative efficiency is also likely to result in losses.
9. A natural monopoly occurs when A. long-run average costs decline continuously through the range of demand. B. a firm owns or controls some resource essential to production. C. long-run average costs rise continuously as output is increased. D. economies of scale are obtained at relatively low levels of output.
A. long-run average costs decline continuously through the range of demand.
Under what conditions would an increase in demand lead to a lower long-run equilibrium price?
The firms in the market are part of a decreasing-cost industry.
T/F Price and marginal revenue are identical for an individual purely competitive seller
True
Price discrimination refers to
the selling of a given product to different customers at different prices that do not reflect cost differences.
what does long run competitive equilibrium result in
zero economic profits
Other things equal, in which of the following cases would economic profit be the greatest? A. an unregulated monopolist that is able to engage in price discrimination B. an unregulated, nondiscriminating monopolist C. a regulated monopolist charging a price equal to average total cost D. a regulated monopolist charging a price equal to marginal cost
A. an unregulated monopolist that is able to engage in price discrimination
Which of the following is characteristic of a pure monopolist's demand curve? A. Average revenue is less than price. B. Its elasticity coefficient is 1 at all levels of output. C. Price and marginal revenue are equal at all levels of output. D. It is the same as the market demand curve.
D. It is the same as the market demand curve.
The MR = MC rule A. applies only to pure competition. B. applies only to pure monopoly. C. does not apply to pure monopoly, because price exceeds marginal revenue. D. applies both to pure monopoly and pure competition.
D. applies both to pure monopoly and pure competition.
In the short run, a monopolist's economic profits A. are always positive because the monopolist is a price-maker. B. are usually negative because of government price regulation. C. are always zero because consumers prefer to buy from competitive sellers. D. may be positive or negative depending on market demand and cost conditions.
D. may be positive or negative depending on market demand and cost conditions.
Assuming no change in product demand, a pure monopolist A. can increase price and increase sales simultaneously because it dominates the market. B. adds an amount to total revenue that is equal to the price of incremental sales. C. should produce in the range where marginal revenue is negative. D. must lower price to increase sales.
D. must lower price to increase sales.
A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the 10th unit of sales per week is
1,000
81. (Consider This) The average life expectancy of a U.S. business is approximately A. 2 years. B. 9.5 years. C. 10.2 years. D. 22 years.
10.2
Output Marginal Revenue Marginal Cost 0 -- -- 1 $16 $10 2 16 9 3 16 13 4 16 17 5 16 21 Refer to the data in the accompanying table. If the firm's minimum average variable cost is $10, the firm's profit-maximizing level of output would be
3
10. Which of the following statements applies to a purely competitive producer? A. It will not advertise its product. B. In long-run equilibrium, it will earn an economic profit. C. Its product will have a brand name that elicits customer loyalty. D. Its product is slightly different from those of its competitors.
A
Which of the following would not be expected to occur in a purely competitive market in long-run equilibrium? A. Consumer and producer surplus will be minimized. B. P = MC = lowest ATC. C. The maximum willingness to pay for the last unit equals the minimum acceptable price for that unit. D. We would expect all of these to occur in the long run in a purely competitive market.
A. Consumer and producer surplus will be minimized.
Which of the following will not hold true for a competitive firm in long-run equilibrium? A. P equals AFC. B. P equals minimum ATC. C. MC equals minimum ATC. D. P equals MC.
A. P equals AFC.
Allocative efficiency is achieved when the production of a good occurs where A. P = minimum ATC. B. P = MC. C. P = minimum AVC. D. total revenue is equal to TFC.
B. P = MC.
When a pure monopolist is producing its profit-maximizing output, price will A. be less than MR. B. equal neither MC nor MR. C. equal MR. D. equal MC.
B. equal neither MC nor MR.
The demand curve faced by a pure monopolist A. may be either more or less elastic than that faced by a single purely competitive firm. B. is less elastic than that faced by a single purely competitive firm. C. has the same elasticity as that faced by a single purely competitive firm. D. is more elastic than that faced by a single purely competitive firm.
B. is less elastic than that faced by a single purely competitive firm.
"Big Data" A. has completely eliminated the monopoly pricing power of online retailers. B. is used by firms to price discriminate through personalized pricing. C. is a significant barrier to entry to new Internet retailers. D. makes it easier for government to regulate monopolistic industries.
B. is used by firms to price discriminate through personalized pricing.
Economic profit in the long run is A. possible for both a pure monopoly and a pure competitor. B. possible for a pure monopoly but not for a pure competitor. C. impossible for both a pure monopolist and a pure competitor. D. only possible when barriers to entry are nonexistent.
B. possible for a pure monopoly but not for a pure competitor.
When a purely competitive firm is in long-run equilibrium, A. marginal revenue exceeds marginal cost. B. price equals marginal cost. C. total revenue exceeds total cost. D. minimum average total cost is less than the product price.
B. price equals marginal cost.
28. With respect to the pure monopolist's demand curve, it can be said that A. the stronger the barriers to entry, the more elastic is the monopolist's demand curve. B. price exceeds marginal revenue at all outputs greater than 1. C. demand is perfectly inelastic. D. marginal revenue equals price at all outputs.
B. price exceeds marginal revenue at all outputs greater than 1.
Other things equal, a price-discriminating monopolist will A. realize a smaller economic profit than a nondiscriminating monopolist. B. produce a larger output than a nondiscriminating monopolist. C. produce the same output as a nondiscriminating monopolist. D. produce a smaller output than a nondiscriminating monopolist.
B. produce a larger output than a nondiscriminating monopolist.
68. Which of the following conditions is true for a purely competitive firm in long-run equilibrium? A. P > MC = minimum ATC. B. P > MC > minimum ATC. C. P = MC = minimum ATC. D. P < MC < minimum ATC.
C. P = MC = minimum ATC.
Resources are efficiently allocated when production occurs where A. marginal cost equals average variable cost. B. price is equal to average revenue. C. price is equal to marginal cost. D. price is equal to average variable cost.
C. price is equal to marginal cost.
15. For an imperfectly competitive firm, A. total revenue is a straight, upsloping line because a firm's sales are independent of product price. B. the marginal revenue curve lies above the demand curve because any reduction in price applies to all units sold. C. the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold. D. the marginal revenue curve lies below the demand curve because any reduction in price applies only to the extra unit sold.
C. the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.
(Consider This) Children are charged less than adults for admission to professional baseball games but are charged the same prices as adults at the concession stands. This pricing system occurs because A. children have an elastic demand for game tickets but an inelastic demand for concession items. B. children have an inelastic demand for game tickets but an elastic demand for concession items. C. the seller can prevent children from buying game tickets for adults but cannot prevent children from buying concession items for adults. D. children can personally "consume" only a single game ticket but can personally consume more than one concession item.
C. the seller can prevent children from buying game tickets for adults but cannot prevent children from buying concession items for adults.
53. The vertical distance between the horizontal axis and any point on a nondiscriminating monopolist's demand curve measures A. the quantity demanded. B. product price and marginal revenue. C. total revenue. D. product price and average revenue.
D. product price and average revenue.
Which of the following statements is correct? A. The long-run supply curve for a purely competitive increasing-cost industry will be upsloping. B. The long-run supply curve for a purely competitive increasing-cost industry will be perfectly elastic. C. The long-run supply curve for a purely competitive industry will be less elastic than the industry's short-run supply curve. D. The long-run supply curve for a purely competitive decreasing-cost industry will be upsloping.
The long-run supply curve for a purely competitive increasing-cost industry will be upsloping.
what kind of demand curve does a purely monopolistic firm have
a dowsloping curve
Pure monopoly refers to
a single firm producing a product for which there are no close substitutes.
For a purely competitive seller, price equals:
average revenue, marginal revenue, total revenue divided by output
Pure monopolists may obtain economic profits in the long run because
barriers to entry
The demand curve for a purely competitive firm is perfectly_______, but the demand curve for a purely competitive industry is _______________.
elastic downsloping
Eliminating patents would tend to
encourage innovation in products made up of many different technologies but discourage innovation of easy-to-copy products requiring large R&D costs to create.
37. Suppose that an industry's long-run supply curve is downsloping. This suggests that A. it is an increasing-cost industry. B. relevant inputs have become more expensive as the industry has expanded. C. technology has become less efficient as a result of the industry's expansion. D. it is a decreasing-cost industry.
it is a decreasing-cost industry.
In the short run, a purely competitive seller will shut down if product price
less than AVC
In a decreasing-cost industry, A. there will be no firm entry because the increased supply will reduce the long-run equilibrium price. B. the law of demand does not apply. C. greater demand leads to higher long-run equilibrium prices. D. lower demand leads to higher long-run equilibrium prices.
lower demand leads to higher long-run equilibrium prices.
An industry comprising 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example of
monopolistic competition
Assume a purely competitive firm is maximizing profit at some output at which long-run average total cost is at a minimum. Then
there is no tendency for the firm's industry to expand or contract.
A firm reaches a break-even point (normal profit position) where
total revenue and total cost are equal
If a purely competitive firm shuts down in the short run
total variable costs.
Creative destruction is least beneficial to
workers in the "destroyed" industries.
