Econ exam 3

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a firm in monopolistic competition that introduces a new and differentiated product will temporarily have a

LESS ELASTIC demand for its product and is able to charge A HIGHER PRICE THAN BEFORE

the possible alternatives for an oligopoly range from the monopoly case with

LOW OUTPUT to the perfectly competitive case with HIGH OUTPUT

which of the following is ALWAYS true for a single price monopolist?

P>MR

perfect competition

Price falls, quantity Increases

if firms in oligopolistic industry consistently cut their price to sell more output, what price and output will result?

The competitive price and output

for a business, opputunity cost measures

the cost of all the factors of production the firm employs

a price-discriminating monopoly charges

a different price to different types of buyers for the same product, even though there are no differences in costs

price discrimination occurs when

a firm is able to sell different units of good at different prices

a cartel is

a group of firms acting together (colluding) to limit output, raise price, and increase economic profit

when a city licenses only 3 taxi firms to serve the market, the city has created

a legal oligopoly

If we compare a perfectly competitive market to a single-price monopoly with the same costs, the monopoly sells

a smaller quantity at higher price

decreasing marginal returns occur in the short run as more labor is hired to work in a fixed sized plant because

adding more workers exhausts the possible gains from specilization

in the long run, the firm (can/cannot) change the number of workers it employs and (can/cannot) change the size of its plant

the firm can CHANGE the number of workers it employs and CAN change the size of its plant

which of the following must exit for a firm to engage in price discrimination?

the firm must be able to identify and separate its buyers into different classes, and the low price buyers cannot resell the product to the high price buyers

several firms want to be the only horse carriage service in a small tourist town and must pay the city for a license to operate a monopoly. Competition among the potential firms will result in:

adding up the price of the license so that the winning firm makes $0 economic profit

a cost incurred incurred in the production of a good or service and for which the firm doe snot need to make a direct monetary payment

an IMPLICIT cost

A firm faces a small number of competitors. This firm is competing in

an oligopoly

a firms fundamental goal is:

to maximize profit

the short run is a time period that is

too short to change the size of the firms plant

which of the following describes a barrier to entry?

anything that protects a firm from the arrival of new competitors

one requirement for an industry to be perfectly compettive is that in the industry there

are many firms for whom the effluence scale of production is small.

a monopolist can make an economic profit in the long run because of

barriers to entry

for a natural monopoly, economies of scale

exist along the long-run average cost curve at least until it crosses the market demand curve

When firms in monopolistic competition incur an economic loss, some firms will

exit the industry, and demand will increase for the firms that remain

in an oligopoly, there are

few firms and barriers to entry

competition among rent seekers results in

firms earning normal profits

for a single-price monopoly, price is

greater than marginal revenue

patents:

i. encourage the invention of new products and production methods ii. are exclusive rights granted to the inventor of a product or service

For a perfectly competitive firm, the price of its good is equal to the firm's marginal revenue because

individual perfectly competitive firms cannot influence the market price by changing their output

A firm in monopolistic competition is

insufficient because price exceeds marginal cost

the demand curve for a monopoly

is downward sloping

If a perfectly competitive firms are entering or exiting a market, it must be true that the market

is in the short-run

in a perfectly competitive firm finds that the PRICE EXCEEDS AVERAGE TOTAL COST, then the firm

is making an economic profit

to produce more output in the short run, a firm must employ more of

its variable resources

in the LONG RUN, perfectly competitive firms will exit the market if the price is

less than the average total cost

the marginal revenue curve facing a monopolistically competitive firm

lies below its demand curve.

the long run is a time period that is

long enough to change the size of the firms plant and all other inputs

if a monopoly wants to sell greater quantity of output, it must

lower its price

a firms long-run average cost curve shows the ....... average cost at which it is possile to produce each output when the firm has had ...... time to change both its labor force asnd its plant.

lowest; sufficient

in the long run, a perfectly competitive market will

make zero economic profit

the absence of barriers to entry in monopolistic competition means that in the long run firms

make zero economic profit

long run monopolistic competition, firms

make zero economic profit.

entry and exit continue in monopolistic compeitition until the remaining firms are

making zero economic profit

the characteristics that describe a perfectly competitive industry include

many firms selling an identical product

the characteristics to describe a perfectly competitive industry include

many firms selling an identical product

A Perfectly competitive firm is a price taker because

many other firms produce the same product

an industry with a large number of firms, differentiated products, and free entry and exit is called

monopolistic competition

when firms in an oligopoly successfully collude and do not cheat on a cartel agreement, they can make a long-run economic profit similar to a:

monopoly

for a firm in monopolistic competition, innovation and product development are

necessary in order to have a change of making at least a short-run economic profit

when a firms in a perfectly competitive market are earning an economic profit, in the long run

new firms will enter the market

if a perfectly competitive firm are making an economic profit, then

new firms will enter the market and the equilibrium profit of the firms already in the market decreases

normal profit is an....... cost because ......?

normal profit is an IMPLICIT cost, because it represents the cost of not running another firm

which of the following is only found in an Oligopoly?

one firms actions affect another firms profit

a monopoly is a market with

one supplier

we define a monopoly as a market with

one supplier with barriers to entry

we define monopoly as a market with

one supplier with barriers to entry

when an economist uses the term "cost" referring to a firm, the economist refers to the

opportunity cost of producing a good or service, which includes both implicit and explicit cost

to encourage invention and innovation, the government provides

patents

in which of the following market types do all firms sell products so identical that buyers do not care from which firm they buy?

perfect competition

to increase its profit, a perfectly competitive firm will produce more output when

price is greater than marginal cost

monopoly

price rises, quantity decreases

a monopoly creates a deadweight loss because it

produces less than the effiecient quantity

to maintain their economic profits, firms in monopolistic compeition must continually engage in

product development and marketing

One of the major benefits to society of monopolistic competition is

product differentiation

Suppose the monopoly is currently producing the quanityt at which marginal revenue is less than marginal cost (MR<MC), the monopoly can increase its profits by

raising its price and decreasing its output

If a business owner decided to expand her business but rather than borrowing money from a bank used her own funds, then

she would forego the oppurnuity to earn interest on the money

the long-run average cost curve

shows the lowest average cost facing a firm as it increases output changing both its plant and labor force

product differentiation involves making a product that is

slight different from the products of competing firms

the main sources of economies of scale are

specialization of resources such as labor and capital

a natural barrier to entry is defined as a barrier that arises because of

technology that allows one firm to meet the entire market demand at lower average total cost than could two or more firms.

rent seeking is

the act of obtaining special treatment by the government to create economic profit

marginal cost equals

the change in TOTAL cost that results from a one-unit increase in output

for a monopoly, marginal revenue is equal to

the change in total revenue brought about by a one-unit increase in quanity sold

the marginal product of labor is the change in

total output from employing one more worker

When marginal revenue is positive,

total revenue INCREASES when output increases and demand is ELASTIC

in a perfectly competitive market wheat farmer is maximizing its profit and then increases its output, the farmer's

total revenue increases, but Total cost RISES by more so that the farmer's total profit DECREASES

Economic profit equals:

total revenue minus total opportunity costs

to maximize profit, in the short run a perfectly compettive firm decides

what quantity of output to produce

under which of the following conditions will a profit-maximizing perfectly competive firm shut down in the short run?

when the price is less than its minimum AVERAGE VARIABLE COST

when a firms long-run average cost FALLS as its output INCREASES, the firm is experencing

economies of scale

patents

-increase the incentive to innovate -are a legal barrier to entry

the U-shape of the average variable, average total, and marginal cost curve reflects

both increasing and decreasing marginal returns

A perfectly competitive firm is earning an economic profit when total fixed cost increase. Assuming the firm does not shut down, in the short run the firm will

continue producing the same quantity as before but will make less economic profit

compared to a sing-price monopoly, when a monopoly can perfectly price discriminate, the deadweight loss:

decreases

compared to a single price monopoly, when a firm price discriminated, the deadweight loss

decreases

when a firm becomes so large it is difficult to coordinate and control, it is most likeley that

diseconomies of scale have begun

in monopolistic competition in the long run, firms

earn zero economic profit and have excess capacity

if firms in an oligopolistic industry successfully collude and form a cartel, what price and output will result?

the monopoly price and output

The long run is defined as

the period of time when ALL resources are VARIABLE

if a perfectly competitive industry is taken over by a single firm that operates as a single-price monopoly,

the price will RISE and the quantity will DECREASE

the market supply in the short run for perfectly competitve industry is

the sum of the supply schedules of all firms

the short run is

the time Fram in which SOME resources are FIXED

price discrimination is possible in part, because

the willingness to pay can vary among groups of buyers

when a market has barriers to entry,

then in the long run it might be possible for the firms to make a positive economic profit

One requirement for an industry to be perfectly competetive is that

there are no restrictions on entry into or exit from the market

it would be impossible for members of the fast-food industry to collude to fix prices because

there are too many fast-food firms in the market

If a few oil-producing countries in the Middle East decide to jointly limit the production of oil,

they are forming a cartel


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