Chapter 14+15 Quiz
Refer to Figure 15-9. To maximize total surplus, a benevolent social planner would choose which of the following outcomes?
150 units of output and a price of $30 per unit
Refer to Figure 14-8. Which segment of the supply curve represents the firm shutting down?
AB
Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct?
Marginal revenue equals $3, average revenue equals $3, and total revenue equals $900.
The marginal revenue curve for a monopoly firm starts at the same point on the vertical axis as the
average revenue curve and demand curve
Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners?
continue to operate at 14 units
Monopolies are socially inefficient because they
change a price above marginal cost and produce too little output.
In the long run,
competitive firms' profits are zero.
Refer to Table 14-9. If the firm's marginal cost is $11, it should
reduce production to increase profit.
When a monopolist increases the number of units it sells, there are two effects on revenue. They are the
output effect and the price effect.
Because many good substitutes exist for a competitive firm's product, the demand curve that it faces is
perfectly elastic
Which of the following industries is most likely to exhibit the characteristic of free entry?
tennis shoe
When economists refer to a production cost that has already been committed and cannot be recovered, they use the term
sunk cost.
When new firms enter a perfectly competitive market,
the short-run market supply curve shifts right.
Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's
total revenue
In the long run, each firm in a competitive industry earns
zero economic profits.
A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if
it has some degree of monopoly-pricing power.
When a single firm can supply a product to an entire market at a lower cost than could two or more firms, the industry is called a
natural monopoly
Price discrimination requires the firm to
separate customers according to their willingness to pay
If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives the firm
sole ownership of the right to sell the drag for a limited number of years.
For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the
firm's profit-maximizing level of output is less than 100 units.
Competitive markets are characterized by
free entry and exit by firms
In a competitive market with identical firms,
free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.
In the long run the market supply
could be upward sloping if the cost of production rises as new firms enter the market
A corporation has been steadily losing money on one of its product lines, plastic flamingo lawn ornaments. The firm produces plastic flamingos in a factory that cost $20 million to build 10 years ago. The firm is now considering an offer to buy that factory for $15 million. Which of the following statements about the decision to sell or not to sell is correct?
The $20 million spent on the factory is a sunk cost; that cost should not affect the decision.
A firm that is a natural monopoly
is not likely to be concerned about new entrants eroding its monopoly power
When a profit-maximizing competitive firm finds itself minimizing losses because it is unable to earn a positive profit, this task is accomplished by producing the quantity at which price is equal to
marginal cost
The defining characteristic of a natural monopoly is
economies of scale over the relevant range of output.
Refer to Figure 15-19. If the monopoly firm is not allowed to price discriminate, then consumer surplus amounts to
$1,562.50
Refer to Table 14-13. What is the marginal cost of the 8th unit?
$120
Refer to Table 14-17. Based upon this information, if the firm is producing the profit maximizing output, how much profit does the firm make?
$4
Refer to Figure 15-18. If there are no fixed costs of production, monopoly profit with perfect price discrimination equals
$4,000
Refer to Table 14-4. For this firm, the price is
$5.
Refer to Figure 14-3. If the market price is $10, what is the firm's total revenue?
$50
Refer to Table 14-17. Using this information, determine the average variable cost when Q=5.
$6
Refer to Figure 14-7. In the long run, the firm will exit the market if the price of the good is
$75, $85, and $95.
When a profit-maximizing firm is earning profits, those profits can be identified by
(P-ATC)*Q
Refer to Table 15-1. If the monopolist wants to maximize its revenue, how many units of its product should it sell?
6
Which of the following statement is (are) true of a monopoly?
A monopoly has the ability to set the price of its product at whatever level it desires.
Which of the following statements is not correct?
Antitrust laws automatically prevent mergers between companies that produce similar products.
Which of the following is a characteristic of a natural monopoly?
Average cost exceeds marginal cost over large regions of output, increasing the number of firms increases each firm's average total cost, and one firm can supply output at a lower cost than two firms.
Refer to Figure 14-13. If the price is $2 in the short run, what will happen in the long run?
Because the price is below the firm's average variable costs, the firms will shut down.
Which of the following statements best expresses a firm's profit-maximizing decision rule?
If marginal revenue is greater than marginal cost, the firm should increase its output, if marginal revenue is less than marginal cost, the firm should decrease its output, and if marginal revenue equals marginal cost, the firm should continue producing its current level of output.
Which of the following statements best expresses a firm's profit-maximizing decision rule?
If marginal revenue is greater than marginal cost, the firm should increase its output.
Refer to Figure 14-13. If the price is $3.50 in the short run, what will happen in the long run?
Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry.
Refer to Figure 15-5. Profit on a typical unit sold for a profit-maximizing monopoly would equal
P2-P5
Financial aid to college students, quantity discounts, and senior citizen discounts are all examples of
Price discrimination
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
a one-unit increase in output will increase the firm's profit.
The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will
cause the market supply to decline and the price of textiles to rise.
In a competitive market, a firm's supply curve dictates the amount it will supply. In a monopoly market the
decision about how much to supply is impossible to separate from the demand curve it faces.
Refer to Figure 15-4. If the monopoly firm is currently producing Q3 units of output, then a decrease in output will necessarily cause profit to
decrease.
A monopolist faces a
downward sloping demand curve
For a typical natural monopoly, average total cost is
falling, and marginal cost is below average total cost.
In a natural monopoly,
if the government requires marginal cost pricing, it will likely have to subsidize the firm.
When there are economies of scale over the relevant range of output for a monopoly, the monopoly
is a natural monopoly
Price discrimination
is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices.
Refer to Figure 14-6. Firms will be earn losses in the short run but will remain in business if the market price
is greater than P1 but less than P3.
In a perfectly competitive market, the process of entry and exit will end when firms face
marginal revenue equal to long-run average total cost.
Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect
new firms to enter the market
The practice of selling the same goods to different customers at different prices, but with the same marginal cost, is known as
price discrimination
Firms operating in competitive markets produce output levels where marginal revenue equals
price, average revenue, and total revenue divided by output.
Refer to Table 15-4. In order to maximize profits, the monopolist should produce
where marginal revenue equals marginal cost.
Refer to Figure 15-18. If the monopoly firm perfectly price discriminates, then the deadweight loss amounts to
$0
Refer to Figure 15-18. If the monopoly firm is not allowed to price discriminate, then the deadweight loss amounts to
$1,000
Refer to Figure 15-22. Based upon the information shown, how many units will Bearclaws produce to maximize profits?
70
Refer to Figure 15-4. The marginal revenue curve for a monopoly firm is depicted by curve
A
Monopolies use their market power to
charge a price that is higher than marginal cost
When a firm has a natural monopoly, the firm's
average total cost curve is downward sloping
A monopolist produces
less than the socially efficient quantity of output but at a higher price than in a competitive market
Refer to Figure 14-1. If the market price is $5.00, the firm will earn
negative economic profits in the short run but remain in business.
For a long while, electricity producers were thought to be a classic example of a natural monopoly. People held this view because
the average cost if producing units of electricity by one producer in a specific region was lower than if the same quantity were produced by two or more producers in the same region.
When entry and exit behavior of firms in an industry does not affect a firm's cost structure,
the long-run market supply curve must be horizontal.