Microeconomics Exam 2
How are perfect competition and monopolistic competition different?
Items sold within monopolistic competition have more variation in their characteristics than items sold in perfectly competitive markets
In the context of a monopolistic competitive market, which of these actions would lead to creating the best product differentiation?
creating a unique concept for a good or service
If a manufacturer of road bikes operates in a monopolistically competitive market, what does it mean about the products offered by itself and its competitors?
each manufacturer offers bikes that have different features
Which of the following is true regarding legal monopolies?
government allows barriers to entry limit competiton
What is the calculation for total cost?
implicit cost + explicit cost
If the marginal benefits to society of the production of all goods are ________ the price of those same goods, the economy is said to be allocatively efficient.
equal to
In the ________, the perfectly competitive firm will react to losses by ________ .
long run; reducing production or exiting the market
Even if it is making economic losses, a perfectly competitive firm should keep operating in the short run so long as the price is NOT
lower than the average variable cost
Because of the downward sloping demand curve, a monopolist can increase its revenue is by ________.
increasing or decreasing price of its good
In economics, the term "shutdown point" refers to the point where the
marginal cost curve crosses the average variable cost curve
A monopolist can determine its profit-maximizing price and quantity by analyzing the marginal revenue and marginal costs of producing an extra unit. If the marginal cost curve is upwardly sloping and the marginal revenue curve is downward-sloping then it should following the ________ for profit maximizing.
marginal principle
________ is displayed with perfect competition because the social benefits of additional production (measured by the price that people are willing to pay) are in balance with the ________ to society of that production.
productive efficiency, marginal costs (incorrect)
What condition is being met when goods are being produced and sold at the lowest possible average cost?
productive efficiency?? (not allocative)
If a legal monopoly owns the exclusive rights to a good for 20 years, it has a ________ for that good.
patent
Examples of intellectual property rights provided to legal monopolies include ________
patents, trademarks, and trade secret law
Firms operating in a/an ________ market, sell their product in a market with many other firms who produce identical or extremely similar products.
perfectly competitive
In the United States, price discrimination is ________.
permitted
When the quantity demanded in a market is less than the quantity a firm would have to produce to reach the bottom of the long-run average cost curve, a ________ occurs.
natural monopoly
Total revenue equals
price times quantity
A monopolist
produces a product with no close substitutes
If a business has fixed costs of $1k a month, variable costs of $1k a month and has product sales of $2k a month, what statement is a correct analysis of the situation?
the business is realizing $0 profit and the business is at break even point
In a market where positive economic profits are being made, entry will ________.
shift the marginal cost curve to the right
In the ________, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where ________.
short run; losses are smallest
Which of these choices is an example of a differentiated product produced by a monopolistic competitor?
smart mobile phone
When considering cost and revenue curves for a monopolist, the total cost curve will ________ then ________. The total revenue curve will ________ then ________.
rise, increase rapidly, rise, fall
When comparing the perfect competition model to the real-world markets, what can you surmise that is true?
the perfect competition model in the long is a hypothetical benchmark, while real-world markets firms do not always attain allocative and productive efficiency
What is the reason behind why monopolies are allocatively inefficient?
the price at the profit-maximizing level of output is greater than marginal cost
If you were to compare an ideal market efficiency with an unregulated monopolist. Assuming that firms maximize profits, how will the monopoly price and output policy compare?
the price will be too high and output too small
Profit maximization for the perfectly competitive firm means
the firm should produce where marginal costs= marginal revenue
Allocative efficiency occurs when ________.
there is an optimal distribution of goods and services
If a firm is earning positive economic profits from operations in a particular market, it follows that ________.
there is insufficient information provided to answer clearly
Profits for a monopoly will be highest at the point where
total revenue is most above total cost
Profit is
total revenue minus total cost
Firms should shutdown if they cannot cover their ________ .
variable costs
Which firm is a price taker?
wheat farmer
Monopolistic competition is ________ and a good example would be ________.
when many firms compete with distinctive products; toothpaste
When does allocative efficiency take place?
when the ideal quantities of goods and services are produced
A monopolistically competitive firm and a monopoly both have a ________ demand curve and can therefore charge ________.
downwardly sloping demand curves; a price that is greater than the marginal cost
________ is an example of a natural monopoly with its infrastructure in place it has a relatively low marginal cost.
a sewage company
What can be used to influence and shape consumers' preferences in order to differentiate products within a monopolistically competitive market?
advertising
A perfectly competitive demand curve is considered to be ________ while a monopoly demand curve is considered to be ________.
flat, downward-sloping
Which of the following would represent product differentiation?
A hair product company launches a new organic line of shampoo with new packaging
Which of the following is most accurate regarding monopolistic competition?
Has no perfect substitutes, incur large expenditures on advertising of its product, and relies heavily on product variation to drive sales
Which of the following is true of the monopoly structure?
Monopolies tend to generate high profits, have high barriers to entry, and not have significant competition
Would raising the price of a product create a larger decline in quantity demanded for a monopolistic competitor than it would for a monopoly?
No, a monopolistic competitor perceives demand as a price maker (incorrect)
Which of the following is not a natural monopoly due to economies of scale and the control of natural resources?
Pharmaceutical company
What is used to calculate the total revenue of a perfectly competitive firm?
The market price time the quantity of goods sold
Which of the following statements is consistent with perfect competition?
a market offering identical goods where information is shared equally among consumers and firms
Which of the following are barriers to entry that are directly enforced by government?
a permit required to conduct business operations
If a firm in perfect competition raises its price, profits will ________.
be driven down to below zero
If the marginal revenue is higher than marginal cost, then a monopoly can increase profit
by producing one more unit of output
Because the monopolist is the only firm in the market, its demand curve
downward-sloping
Prices in an unregulated market economy that has achieved productive efficiency are likely to be ________.
equal to minimum average cost
Allocative efficiency, the optimal quantity of some output, is benefited by price discrimination for a monopolist by ________.
greater profits
A perfectly competitive firm has a perfectly elastic demand curve while a monopolistically competitive firm has a downward sloping demand curve because ________.
it can sell any quantity it wishes at a prevailing market price
Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's variable costs (e.g., servers, cooks, electricity, food, etc.) per meal average $3.95. Her fixed costs (e.g., rent, insurance, cleaning supplies and business license) per meal average $1.25. Since the market is perfectly competitive, Kate should
keep the business open in the short-run, but plan to go out of business in the long-run
When ________, a competitive firm will produce and earn economic profits.
marginal revenue is above average costs
If a monopolist increases quantity sold by one unit, by now selling total output at a slightly lower price,
marginal revenue is lower than the new price for that extra unit sold
In the short run, monopolistically competitive industries ________, while in the long run they ________.
may lose economic profit due to new entry; will earn economic profit (incorrect)
A clothing store has a wide selection of clothing for women. Within the clothing racks are shirts, pants, dresses, skirts, blouses, etc. Clothing manufacturers such as Guess, Donna Karan, Levi, Calvin Klein, etc. have build up their brand names through marketing and advertising to differentiate their clothes in the mind of the consumer. This group of clothing manufacturers competes to sell similar but not identical products, they are engaging in ________.
monopolist competition
A/an ________ monopoly occurs when the scale economies in production or control of natural resources are so large or strong that only one firm can make a profit in that industry.
natural
In long-run equilibrium, firms
neither enter nor exit the industry
Who can influence the market price in perfect competition?
no individual buyer or seller
Monopolies are inefficient when it comes to allocative efficiency because ________.
price is always less than marginal costs
A firm has a positive profit margin if
price is greater than average cost
When firms exit a perfectly competitive market, what is the impact on prices?
prices go up
If a perfectly competitive firm is producing output at a point where marginal revenue is equal to marginal cost, then it should
stick with that level of production in order to maximize profits
Which of the following is a true statement about what perfect competition guarantees?
the marginal cost of producing goods is exactly reflected in the prices charged for goods
Which two lines intersect at level of output the firm is supplying if that business is earning zero economic profits?
the marginal revenue curve and the average cost curve
What is the effect of advertising when it comes to a business's product?
the product is more clearly differentiated
