Econ exam 5

Which region represents the consumer surplus in the monopoly outcome?

A

Which region or regions represent the producer surplus in the monopoly outcome?

B+C+D

Which of the new stadiums has seen the biggest increase in attendance?

Philadelphia

Which of the following is true regarding monopolies?

They tend to engage in rent seeking.

Suppose there were only one producer of an expensive heart medication. The source of that producer's monopoly would MOST likely come from

a patent to produce the drug

Monopoly power measures the ability to set a good's

price

In order to sell more units, a monopolist must lower its prices. As shown in the table, total revenue will initially __________ and then __________.

increase; decrease

The year is 2278, and the starship Enterprise is running low on dilithium crystals, which are used to control the matter-antimatter reactions to propel the ship across the universe. Without the crystals, space-time travel is not possible. If the crystals are government owned or regulated, and the government wants to create the greatest welfare for society, the government should set the price

using the marginal cost pricing rule.

Using the table below, determine the quantity at which a monopolist will produce.

1

Assume that a monopolist faces the demand schedule given below, and a constant marginal cost of $2 for each unit of output. To maximize profits, this monopolist would produce what number of units of output and charge what price per unit?

2 units; $5

A competitive firm maximizes profit at an output level of 500 units, the market price is $24, and the ATC is $24.50. At what range of AVC values for an output level of 500 would the firm choose NOT to shut down?

AVC < $24

To maximize profits, firms expand output until

MR = MC

Which of the following is true regarding regulating natural monopolies?

Price can be set equal to the average total cost.

Firms producing an identical product in a perfectly competitive market are producing at a quantity that maximizes profit. The current market price is $4.50 per unit, and the firms are producing at a long-run average cost of $3.50 per unit.Firms in this market experience

a profit

Over the long run, a monopolist

can continue to make economic profits if it can maintain a monopoly and keep competitors from entering the market.

Suppose that at the current level of production, the price of a monopolist's product is equal to $15 per unit. Marginal revenue is equal to $10 per unit, and marginal cost is equal to $15 per unit. This monopoly

can increase its profit by producing and selling fewer units of its product.

For a perfectly competitive firm, marginal revenue is

equal to price

Compared to perfect competition, monopoly results in

fewer units produced and sold.

The price of a competitive firm's product is $50 per unit. The firm currently has marginal cost equal to $40. To maximize profits, what should this firm do?

increase its output

Which of the following is considered a government-created barrier?

licensing

A natural monopoly exists when a single seller experiences __________ average total costs compared with any potential competitor.

lower

Monopolies choose their profit maximizing

output level and price.

In the graph below, what price will a monopolist charge?

p2

In 1911, the U.S. government sued Standard Oil, a U.S. company, for violation of antitrust laws. The company broke up into 34 smaller companies. This is an example of

promoting competition

In the graph below, what quantity will a monopolist produce?CP_fig_10Q

q2

The Water and Electric Board in Eugene, Oregon, is a monopolist in the supply of electricity. The city government must approve the rates the company charges for its electricity. This is an example of

regulating markets

In a perfectly competitive market, the price of the product is

set by market supply and demand.

A firm that makes high-tech athletic shoes is looking to enter the shoe market in a developing nation where the economy has been growing rapidly. Which factor would MOST naturally be considered a signal in this context?

the profitability of firms already operating in the market in question

In the figure, where does a monopoly operate to maximize profits?

where MR = MC

Assume that a monopolist faces the demand schedule given in columns (1) and (2) of the table, and a constant marginal cost of $50 for each additional customer. To maximize profits, the monopolist would serve __________ customers at a price of __________ per head.

3,000; $70

Which of the following is true in regard to monopoly?

A monopolist charges a price where marginal cost is equal to marginal revenue.

Which region or regions represent the total surplus in the monopoly outcome?

A+B+C+D

What region or regions of the graph represent deadweight loss in the monopoly outcome?

E+F

A city spent $2 million to build a pedestrian bridge that has proved unsafe. The city can repair this bridge or demolish it and build a new one. If the resulting bridge would be equally attractive and useful either way, how should the $2 million already spent factor into the city's decision?

The city should ignore the $2 million, since either way it has already been spent.

Based on the graph below, how does the monopolist's profit-maximizing price and output compare to the efficient price and output?

The monopolist charges more and produces less.

If competitive firms experience a loss, over the long run there will be

a decrease in market supply to increase the market price.

Compared to perfect competition, monopolies charge

a higher price

Suppose an unregulated natural monopoly becomes regulated using marginal cost pricing. As a result, the firm's profits would

become negative

Profits when a competitive firm shuts down are -$7,250, and profits are -$250 when the firm continues to produce. This firm will minimize losses by

continuing to produce

Which of the following types of firm MOST closely fits the description of a competitive firm?

corn farmers

Microsoft likely has to spend billions of dollars building and developing an operating system, but once it is produced, the cost to get the software to each customer is almost zero. Therefore, when Microsoft sells more units, their average total costs steadily decrease. This means Microsoft is said to have __________.

economies of scale

Firms producing an identical product in a competitive market are producing at a level of output that maximizes profit. The current market price is $4.50 per unit, and the firms are producing at a long-run average cost of $3.50 per unit. Over the long run one should expect

entry of new firms into this market.

In a perfectly competitive market, the long-run market supply curve is

horizontal at the market price.

Converse, an apparel company, has been fairly successful selling denim-colored college sportswear. Lydia sees an opportunity for profit and enters the market. After producing her profit maximizing level of output, she finds that her average total cost per unit is $40, her average variable cost per unit is $30, and the market price is $35. In the short run, Lydia should

stay in business even though she is suffering a loss.