Microeconomics chapter 4

When a firm has little ability to influence market prices it is said to be in .a competitive market. b.a strategic market. c.a thin market. d.a power market.

.a competitive market.

In a competitive market the current price is $7, and the typical firm in the market has ATC = $7.50 and AVC = $7.15. a.In the short run firms will shut down, and in the long run firms will leave the market. b.In the short run firms will continue to operate, but in the long run firms will leave the market. c.New firms will likely enter this market to capture any remaining economic profits. d.In the long run the market will cease to exist.

a.In the short run firms will shut down, and in the long run firms will leave the market.

For a monopolist, when does marginal revenue exceed average revenue? a.Never b.When output is less than the profit-maximizing level of output c.When output is greater than the profit-maximizing level of output d.For all levels of output greater than zero.

a.Never

When firms are said to be price takers, it implies that if a firm raises its price a.buyers will go elsewhere. b.buyers will pay the higher price in the short run. c.competitors will also raise their prices. d.firms in the industry will exercise market power.

a.buyers will go elsewhere.

In markets characterized by oligopoly, a.the oligopolists earn the highest profit when they cooperate and behave like a monopolist. b.collusive agreements will always prevail. c.collective profits are always lower with cartel arrangements than they are without cartel arrangements. d.pursuit of self-interest by profit-maximizing firms always maximizes collective profits in the market.

a.the oligopolists earn the highest profit when they cooperate and behave like a monopolist.

An oligopoly is a market in which a.there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market. b.firms are price takers. c.the actions of one seller in the market have no impact on the other sellers' profits. d.there are many price-taking firms, each offering a product similar or identical to the products offered by other firms in the market.

a.there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market.

Assume a firm is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is a.$-1,600. b.$1,600. c.$3,200. d.$8,000.

b.$1,600.

If the market price is $8, how many units should the firm produce to maximize profit? a.5 b.6 c.7 d.8

b.6

Which of the following statements regarding a competitive market is false? a.There are many buyers and many sellers in the market. b.Because of firm location or product differences, some firms can charge a higher price than other firms and still maintain their sales volume. c.Price and average revenue are equal. d.Price and marginal revenue are equal

b.Because of firm location or product differences, some firms can charge a higher price than other firms and still maintain their sales volume.

Which of the following is not a characteristic of monopolistic competition? a.A large number of sellers. b.Firms are price takers. c.There is free entry into the market. d.Sellers offer products that are, in some way, different from their competitors' products.

b.Firms are price takers.

Whenever a perfectly competitive firm chooses to change its level of output, holding the price of the product constant, its marginal revenue a.increases if MR < ATC and decreases if MR > ATC. b.does not change. c.increases. d.decreases.

b.does not change.

Monopoly firms have a.downward-sloping demand curves and they can sell as much output as they desire at the market price. b.downward-sloping demand curves and they can sell only a limited quantity of output at each price. c.horizontal demand curves and they can sell as much output as they desire at the market price. d.horizontal demand curves and they can sell only a limited quantity of output at each price.

b.downward-sloping demand curves and they can sell only a limited quantity of output at each price.

For a monopolist, a.average revenue is always greater than the price of the good. b.marginal revenue is always less than the price of the good. c.marginal cost is always greater than average total cost. d.marginal revenue equals marginal cost at the point where total revenue is maximized.

b.marginal revenue is always less than the price of the good.

Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms a.marginal revenue will equal average total cost. b.price will exceed marginal cost. c.marginal cost will exceed average revenue. d.average variable cost will be declining.

b.price will exceed marginal cost.

Suppose that in a competitive market the market price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market? a.Less than $2.50. b.More than $2.50. c.$2.50. d.The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm.

c.$2.50.

The primary claim of defenders of advertising is that it a.conveys information about firm profitability. b.is psychological rather than informational. c.enhances the information available to consumers. d.reduces the elasticity of demand for a firm's product.

c.enhances the information available to consumers.

In a duopoly situation, the logic of self-interest results in a total output level that a.equals the output level that would prevail in a competitive market. b.equals the output level that would prevail in a monopoly. c.exceeds the monopoly level of output, but falls short of the competitive level of output. d.falls short of the monopoly level of output.

c.exceeds the monopoly level of output, but falls short of the competitive level of output.

The prisoners' dilemma game a.is a situation in which two players both have dominant strategies which lead to the highest total payoff for the two players. b.has no Nash equilibrium since players, after agreeing to play their dominant strategy, will have an incentive to switch to another strategy. c.has a Nash equilibrium, but the Nash equilibrium outcome is not the outcome the players would agree to if they could cooperate with each other. d.Both a and c are correct.

c.has a Nash equilibrium, but the Nash equilibrium outcome is not the outcome the players would agree to if they could cooperate with each other.

Competitive firms have a.downward-sloping demand curves and they can sell as much output as they desire at the market price. b.downward-sloping demand curves and they can sell only a limited quantity of output at each price. c.horizontal demand curves and they can sell as much output as they desire at the market price. d.horizontal demand curves and they can sell only a limited quantity of output at each price.

c.horizontal demand curves and they can sell as much output as they desire at the market price.

A firm will shutdown in the short run if, for all positive levels of output a.its loss exceeds its fixed costs. b.its total revenue is less than its variable costs. c.the price of its product is less than its average variable cost. d.All of the above are correct.

d.All of the above are correct.

When determining whether to shutdown in the short run, a competitive firm should a.ignore fixed costs. b.ignore variable costs. c.ignore sunk costs. d.Both a and c are correct

d.Both a and c are correct

Which of the following is not a reason for the existence of a monopoly? a.Sole ownership of a key resource b.Patents c.Copyrights d.Diseconomies of scale

d.Diseconomies of scale