Econ 4

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Marginal revenue for a monopolist is computed as average revenue divided by quantity sold.

False

Natural monopolies differ from other forms of monopoly because they are not subject to barriers to entry.

False

Patent and copyright laws are major sources of natural monopolies.

False

Pertect!y In competitivề markets, firms that raise their prices are typically rewarded with larger profits:

False

Profit on a typical unit sold for a profit-maximizing monopoly would equal P2 - P1.

False

Profit will be maximized by charging a price equal to Po.

False

Profit-maximizing firms enter a competitive market when, for existing firms in that market, total revenue exceeds fixed costs.

False

The average total cost curve for a monopoly firm is depicted by curve A.

False

A firm will exit a market if, for all positive levels of output, its total revenue is less than its total cost.

True

A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin

True

A long-run supply curve that is flatter than a short-run supply curve results from the fact that firms can enter and exit a market more easily in the long run than in the short run.

True

A market is competitive if each buyer is small compared to the market and each seller is small compared to the market

True

A profit maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost .

True

Allowing an inventor to have the exclusive rights to market her new invention will lead to (i) (ii) and (iii). (i) a product that is priced higher than it would be without the exclusive rights. (ii) desirable behavior in the sense that inventors are encouraged to invent. (iii) higher profits for the inventor.

True

At the end of the process of entry and exit, it is possible that some firms in a competitive market are making a positive economic profit.

True

Bill owns the only gropery store in a small community that lies 200 miles from the nearest city, this represents a monopoly situation.

True

By comparing the marginal revenue and marginal cost from each unit produced , a firm in a competitive market can determine the profit maximizing level of production

True

Declining average total cost with increased production is one of the defining characteristics of a natural monopoly.

True

Examples of barriers to entry include (i) A key resource is owned by a single firm, (ii) The costs of production make a single producer more efficient than large number of producers, or (iii) The government has given the existing monopoly the exclusive right to produce the good.

True

Firms have difficulty entering the market, this is NOT a characteristic of a perfectly competitive market.

True

Firms in competitive markets are said to be price takers.

True

For a competitive firm, Profit= Total Revenue- Total cost

True

For a firm in a competitive market, marginal revenue is always equal to average revenue.

True

For a firm in a perfectly competitive market, the price of the good is always equal to marginal revenue.

True

For a monopolist, profit is determined by Profit = Total Revenue - Total Cost

True

For a profit-maximizing monopolist, P> MR - MC.

True

A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

Trve

If a firm in a perfectly competitive market triples the number of units of output sold, then total revenue will more than triple.

. False

In a market that allows free entry and exit, the process of entry and exit ends when, for the typical firm in the market, profit is zero.

. True

A competitive firm is a price maker and a monopoly is a price taker.

False

A competitive market will typically experience entry and exit until allaccounting profits are zero.

False

A firm will shut down in the short run if revenue is not sufficient to cover all of its fixed costs of production.

False

A government-created monopoly arises when government spending in a certain industry gives rise to monopoly power.

False

A monopolist's average revenue is always equal to marginal revenue.

False

A monopoly's marginal cost will be less than its average fixed cost.

False

A natural monopoly occurs when the product is sold in its natural state (such as water or diamonds).

False

A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run.

False

A profit-maximizing monopolist will produce the level of output at which average revenue is equal to average total cost.

False

At the profit-maximizing level of output, marginal revenue is equal to P3.

False

Controlling the price of its goods is an impossible feat for a monopolist to accomplish.

False

Economists assume that monopolists behave as cost minimizers.

False

Firms that shut down in the short run still have to pay their variable costs.

False

For a competitive firm, average revenue equals the price of the good, but marginal revenue is different.

False

If a profit-maximizing monopolist faces a downward-sloping market demand curve, its average revenue is less than the price of the product.

False

If marginal cost exceeds marginal revenue, the firm is most likely to be at a profit-maximizing level of output.

False

If the firm is in a short-run position where P< AVC, it is most likely to be on the BC segment of its supply curve.

False

If the monopoly firm wants to maximize its profit, it should operate at a level of output equal to Q1.

False

In a perfectly competitive market, the process of entry and exit will end when, for firms in the market, price is equal to average variable cost.

False

In order to sell more of its product, a monopolist must sell to the government.

False

The complete description of a competitive firm's supply curve is as follows: The competitive firm's short-run supply curve is that portion of the average variable cost curve that lies above marginal cost.

False

The decision to shut down and the decision to exit are both short-run decisions, this statement is correct regarding a firm's decisionmaking.

False

The defining characteristic of a natural monopoly is constant marginal cost over the relevant range of output.

False

The entry of new firms into a competitive market will increase market supply and increase market prices.

False

The key difference between a competitive firm and a monopoly firm is the ability to select the level of competition in the market.

False

The marginal cost curve for a monopoly firm is depicted by curve A.

False

The marginal revenue curve for a monopoly firm is depicted by curve A.

False

The market demand curve for a monopolist is typically unitary elastic at the point of profit maximization.

False

The monopolist's profit- maximizing quantity of output is determined by the intersection of the marginal cost and demand,

False

The short-run supply curve for a firm in a perfectly competitive market is likely to be horizontal.

False

The supply curve of a firm in a competitive market is the average variable cost curve, above the minimum of marginal cost.

False

When a firm operates under conditions of monopoly, its price is not constrained.

False

When a monopolist increases the amount of output that it produces and sells, its average revenue increases and its marginal revenue increases.

False

When a perfectly competitive firm makes a decision to shut down, it is most likely that marginal cost is above average variable cost.

False

When buyers in a competitive market take the selling price as given, they are said to be market entrants.

False

When individual firms in competitive markets increase their production, it is likely that the market price will fall

False

When marginal revenue equals marginal cost, the firm should increase the level of production to maximize its profit.

False

When new firms have an incentive to enter a competitive market, their entry will increase the price of the product.

False

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is downward sloping.

False

When total revenue is less than variable costs, a firm in a competitive market will continue to operate as long as average revenue exceeds marginal cost.

False

Whenever a perfectly competitive firm chooses to change its level of output, holding the price of the product constant, it's marginal revenue increases if MR<ATC and decreases if MR>ATC

False

When a firm experiences zero-profit equilibrium, the firm's revenue must be sufficient to cover all opportunity costs.

TRue

A firm in a competitive market will maximize profit when the level of production is such that marginal cost equals price .

True

If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then a one-unit increase in output will increase the firm's profit.

True

In a competitive market, firms are unable to differentiate their product from that of other producers.

True

In a competitive market, the actions of any single buyer or seller will have a negligible impact on the market price. True

True

In the long run all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is price < average total cost.

True

In the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

True

In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

True

The De Beers Diamond company advertises heavily to promote the sale of all diamonds, not just its own. This is evidence that they have a monopoly position to some degree.

True

The additional revenue a firm in a competitive market receives if it increases its production by one unit equals its marginal revenue.

True

The amount of power that a monopoly has is a function of whether there are close substitutes for its product.

True

The assumption of a fixed number of firms is appropriate for analysis of the short run, but not the long run.

True

The costs of production make a single firm more efficient than a large number of firms, this is a primary source of barriers to entry.

True

The demand curve for a monopoly firm is depicted by curve A.

True

The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.

True

The marginal firm in a competitive market will earn zero economic profits in the long run.

True

This firm will exit the market for any price on the line segment AB.

True

To define a monopoly, we cite the following characteristics: (i) and (ii). (i) The firm is the sole seller of its product. (ii) The firm's product does not have close substitutes. (iii) The firm generates a large economic profit. (iv) The firm is located in a small geographic market.

True

When a firm has little ability to influence market prices it is said to be in a competitive market

True

When a profit maximizing firm in a competitive market experiences rising prices , it will respond with an increase in production .

True

monopoly has the ability to set the price of its product at whatever level it desires.

True

The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.

false


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