Wk 4 - Practice: The Microeconomics of Product Markets [due Day 5]

Monopolistic competition is characterized by excess capacity because

firms produce at an output level less than the least-cost output.

Use the following graph showing cost curves for a perfectly competitive firm to answer the next question. If the market price decreases to $0.55, the profit-maximizing quantity of output is a) 0 b) 15 c) 20 d) more than 20, but less than 35.

0

Which of the following is true under conditions of perfect competition?

No single firm can influence the market price.

The characteristic most closely associated with oligopoly is

a few large producers.

When compared with a perfectly competitive market with identical costs of production, a pure monopoly will produce

less output and charge a higher price.

A pure monopoly will generate an economic profit whenever

total revenue is greater than total cost.

Use the following graph for a perfectly competitive firm to answer the next question. $ MC ATC AVC P------------------------------------------ | D = MR | | 0 Q Q The firm is

earning a normal profit

Use the following cost table to answer the next question. Output Average Variable Average Total Marginal Cost Cost Cost 0 2 $2.50 $27.50 $2.5 4 2.00 14.50 1.5 6 2.00 10.33 2.0 8 2.13 8.38 2.5 10 2.30 7.30 3.0 12 2.50 6.67 3.5 14 3.00 6.57 6.0 16 4.00 7.13 11.0 The table shows cost data for a perfectly competitive firm. If the market price for the firm's product is $6, what output level will the firm produce to maximize profits? 0 12 14 16

14

Use the following graphs to answer the next question. In graph 1, a decreasing line labeled MR intersects an increasing line from origin labeled D. In graph 2, two decreasing lines, MR and D begin from the same point at the vertical axis and MR has a greater slope than D. MR lies near the origin. In graph 3, two decreasing parallel lines, MR and D are drawn. MR lies near the origin. In graph 4, two decreasing lines, MR and D begin from the same point at the vertical axis. D has a greater slope than MR, lies near the origin, and meets the horizontal axis. Which of the above shows the correct relationship between demand and marginal revenue for a pure monopoly?

Graph 2

Monopolistic competition is characterized by firms

Producing differentiated products

One feature of pure monopoly is that the firm is:

a price maker

The table below shows Ali's monthly costs of producing wheat. Suppose the current market price of wheat is $56.00 per bushel. Ali's Wheat Production Costs Quantity (bushels) AVC (dollars) ATC (dollars) MC (dollars) 500 $40.00 $240.00 $40.00 1,000 35.00 85.00 30.00 1,500 30.00 63.33 20.00 2,000 2,500 3,000 3,500 4,000 4,500 40.57 51.67 65.00 5,000 44.00 54.00 75.00 Instructions: Enter your answers as a whole number. If you are entering a negative number include a minus sign. a. If the market price is $56.00 per bushel of wheat, and Ali chooses to produce wheat, how much will he produce per month to maximize his profits in the short run? __________bushels per month b. Calculate Ali's monthly profits (express a loss as a negative number) if he chooses to produce the profit-maximizing quantity of wheat at a price of $56.00. $ _________ c. Assume that the market price of wheat falls to $35.00 per bushel. How much wheat will Ali choose to produce per month in order to maximize his profits in the short run? ___________bushels per month d. Calculate Ali's monthly profits (express a loss as a negative number) if he chooses to produce the profit-maximizing quantity of wheat at a price of $35.00. $__________ e. If the market price of wheat instead falls to $20.00 per bushel, how much wheat will Ali choose to produce per month in order to maximize his profits in the short run? _____________bushels per month

a) 4,000 bushels per month b) $24,000 c) 2500 bushels per month d) $ -40,000 e) 0 bushels per month

The graph below depicts the revenue and cost curves for a firm operating in the athletic apparel market. Instructions: Enter your answer as a whole number. If you are entering a negative number include a minus sign. a. To maximize its profits, the firm should produce units and charge a price of $ . b. At the profit-maximizing level of output, average total cost per unit is $ . c. At its profit-maximizing level, profits are $ .

a) 80 units , $ 14 b) $16 c) $-160

Use the following graph for a profit-maximizing pure monopoly to answer the next question. $ K MC J ATC H G MR D ------------------------------------------------------- 0 T V X Y QUANTITY At equilibrium, the firm will be generating Multiple Choice a) an economic profit. b) a normal profit. c) a loss. d) a profit that cannot be determined from the given graph.

an economic profit

Clara produces and sells tomatoes in a perfectly competitive market. This implies that Clara's marginal revenue generated from selling an additional unit of tomatoes is always equal to

price