ECN 201 Final Exam

Suppose that Joe sells pork in a purely competitive market. The market price of pork is $3 per pound. Joe's marginal revenue from selling the twelfth pound would be:

$3

A monopoly results in productive inefficiency because at the profit-maximizing output level:

ATC is not at its minimum level

Allocative inefficiency happens in a monopoly because at the profit-maximizing output level:

P>MC

A natural monopoly is characterized by:

a decreasing average-cost curve extending beyond the market's size

If the long-run average total cost curve for a firm is horizontal in the relevant range of production, then it indicates that there:

are constant returns to scale

A profit-maximizing firm in the short run will expand output:

as long as marginal revenue is greater than marginal cost

In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if:

average cost is greater than average revenue

Monopolistic competitive firms are productively inefficient because production occurs where:

average total cost is not at its lowest

Mutual Interdependence means that each firm in an oligopoly:

considers the reactions of its rivals when it determines its pricing policy

A firm sells a product in a purely competitive marker. The marginal cost of the product at the current output of 500 units is $1.50. The minimum possible average variable cost is $1.00. The market price of the product is $1.25. To maximize profits or minimize losses, the firm should:

continue production, but produce less than 500 units

Productive efficiency refers to:

cost minimization, where P = minimum ATC

If a firm increases its output quantity when marginal revenue is less than marginal cost then its profits will:

decrease

In the long run, the representative firm in monopolistic competition tends to have:

excess capacity

Natural monopolies result from:

extensive economies of scale in production

"Price maker" means that a monopoly can decide whatever price it wants to, in order to sell a specific given quantity of its product

false

In an oligopolistic market there are:

few sellers

Which of the following statements about a competitive firm is correct?

in the long-run equilibrium a competitive firm will produce at the point of minimum average costs

Compared to the purely competitive industry, a pure monopoly:

is able to use barriers to entry and maintain positive economic profits in the long run

The demand curve faced by a purely competitive firm:

is the same as its marginal revenue curve

Pure competition produces a socially optimal allocation of resources in the long run because:

marginal cost equals price

In the short run equilibrium, a monopolist's profits:

may be positive, negative, or zero

In which two market models would advertising be used most often?

monopolistic competition and oligopoly

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

no single firm can influence the market price by changing its output

Diseconomies of scale occur mainly because:

of the inherent difficulties involved in managing and coordinating a large business enterprise

In which market model is thee mutual interdependence?

oligopoly

The soft-drink and automobile industries would be examples of which market model?

oligopoly

In which set of market models are there the most significant barriers to entry?

oligopoly and pure monopoly

If a firm is a price taker, then the demand curve for the firm's product is:

perfectly elastic

Which characteristic would best be associated with pure competition?

price takers

In which market model are the conditions of entry into the market easiest?

pure competition

The market for agricultural products such as wheat or corn would be best described by which market model?

pure competition

Which market model assumes the least number of firms in an industry?

pure monopoly

T-Shirt Enterprises is selling in a purely competitive market. It is producing 3000 units, selling them for $2.00 each. At this level of output, the average total cost is $2.50 and the average variable cost is $2.20. Bases on these data, the firm should:

shut down in the short run

In the standard model of pure competition, a profit-maximizing firm will produce the output quantity in the short run where the gap between:

total revenue and total cost is the largest, with revenue higher than cost

A firm sells 99 units of output when price equals $10, and 100 units of output when price equals $9. Its marginal revenue for the 100th unit of output is negative

true

As a monopolist lowers the price of its product from a high level, it finds that its total revenue may at first increase and then, below a certain price, its total revenue begins to decrease

true

As long as an additional unit of output yields a marginal revenue larger than its marginal cost it will be adding to total profits of the firm

true

Monopolistically competitive firms have some control over price of their products

true

Xavier produces and sells tomatoes in a purely competitive market. This implies that Xavier's marginal revenue from an extra unit of tomatoes is always equal to the:

unit price

The representative firm in a purely competitive industry:

will earn zero economic profit in the long run