econ test 3
A market structure in which there are many firms selling products that are similar but not identical is known as
monopolistic competition
The market for novels is
monopolistically competitive
Marginal revenue can become negative for
monopoly firms but not for competitive firms
Figure 14-10: If there are 700 identical firms in this market, what is the value of Q2
420,000
Figure 15-3: If the monopoly firm is currently producing Q3 units of output, then a decrease in output will necessarily cause profit to
Increase as long as the new level of output is at least Q2
Figure 14-6: Firms will be earn losses in the short run buy will remain in business if the market price
Is greater than P1 but less than P3
Figure 14-6: Firms will shut down in the short run if the market price
Is less than P1
Figure 14-6: When market price is P3, a profit maximizing firm's profit
Is zero
A firm that shuts down temporarily has to pay
Its fixed cost buy not its variable cost
Figure 14-1: The firm should shut down if the market price is
Less than $4.50
Figure 14-1: The firm will earn a negative economic profit but remain in business in the short run if the market price is
Less than $6.30 but more than $4.50
In the short run, a firm operating in a competitive industry will shut down if price is
Less than average variable cost
In a competitive market, no single producer can influence the market price because
Many other sellers are offering a product that is essentially identical
A competitive firm's short run supply curve is part of which of the following curves
Marginal Cost
At the profit maximizing level of output,
Marginal revenue equals marginal cost
The long run supply curve for a competitive industry
May be upward sloping if higher cost firms enter the industry
Figure 15-1: The shape of the ATC curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the figure
Natural monopoly
Figure 14-1: If the market price is $4.00, the firm will earn
Negative economic profits and shut down
Figure 14-1: If the market price falls below $4.50, the firm will earn
Negative economic profits in the short run and shut down
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
When profit maximizing firms in competitive markets are earning profits
New firms will enter the market
Free entry means that
No legal barriers prevent a firm from entering an industy
Figure 14-5: Firms will be encouraged to enter this market for all prices that exceed
None of the above
Which of the following is not a characteristic of a monopoly
One buyer
Figure 15-3: Profit will be maximized by charging a price equal to
P4
Figure 15-3: A profit maximizing monopoly's total revenue is equal to
P4 x Q2
A key characteristic of a competitive market is that
Producers sell nearly identical products
The deadweight loss associated with a monopoly occurs because the monopolist
Produces an output level less than the socially optimal level
Figure 15-3: IF the monopoly firm wants to maximize its profit, it should operate at a level of output equal to
Q2
Suppose a firm in a competitive market reduces its output by 20%. As a result, the price of its output is likely to
Remain unchanged
The long run supply curve for a competitive industry may be upward sloping if
Some resource are available only in limited quantities
When economist refer to a production cost hat has already been committed and cannot be recovered, they use the term
Sunk Cost
When fixed cost are ignored because they are irrelevant to a business's production decision, they are called
Sunk Cost
Entry into a market by new firms will increase the
Supply of the good
Which of the following represents a firm's short run condition for shutting down
TR<VC
Which of these curves is the competitive firm's short run supply curve
The marginal cost curve above average variable cost
Figure 15-7: What area represents the total surplus lost due to monopoly pricing
The triangle 1/2[(f-d)x(b-a)]
Figure 15-7: What is the area of deadweight loss
The triangle 1/2[(f-d)x(b-a)]
When price is greater than marginal cost for a firm in a competitive market,
There are opportunities to increase profit by increasing production
Most markets are not monopolies in the real world because
There are reasonable substitutes for most goods
The competitive firm's long run supply curve is that portion of the marginal cost curve that lies above average
Total Cost
A sunk cost is one that
Was paid in the past and will not change regardless of the present decision.
In the long run, each firm in a competitive industry earns
Zero economic profits
The market demand curve for a monopolist is typically
downward sloping
Perfect price discrimination
eliminates deadweight loss
A profit maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market
faces a downward sloping demand curve for its product
Price discrimination explains why ivy league universities often base tuition cost on students
financial resources
Which of the following is a characteristic of a monopolistic competition
free entry
Figure 15-3: Profit can always be increased by increasing the level of output by one unit if the monopolist is currently operating at
i or ii (Q0 or Q1)
Patents, and copyrights laws encourage
creative activity, research and development
Monopolies are inefficient because they
iii- restrict output below the socially efficient level of production
Which of the following pairs illustrates the two extreme examples of market structures
competition and monopoly
The socially efficient level of production occurs where the marginal cost curve intersects
demand
A monopolist can sell 200 units of output for $36 per unit. Alternatively, it can sell 201 units for $35.80 per unit. The marginal revenue of the 201st unit of output is
$-4.20
Figure 14-1: The firm's short run supply curve is its marginal cost curve above
$4.50
Figure 14-10: If there are 500 identical firms in this market, what is the value of Q1
150,000
Figure 15-3: The demand curve for a monopoly firm is depicted by curve
A
A firm that is the sole seller of a product without close substitutes is
A monopolist
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
A one unit decrease in output will increase the firm's profit
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
Figure 14-1: The firm will earn a positive economic profit in the short run if the market price is
Above $6.30
Which of the following statements best expresses a firm's profit maximizing decision rule
All of the above
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
All of the above are correct
Patents, copyrights, and trademarks
All of the above are correct
Round trip airline tickets are usually cheaper if you stay over a Saturday night before you fly back. What is the reason for this price discrepancy
All of the above are correct
Which of the following is a characteristic of a natural monopoly
All of the above are correct
Figure 14-5: When market price is P2, a profit maximizing firm's losses can be represented by the area
At a market price of P2, the firm has losses, but the reference points in the figure don't identify the losses
Which of the following is a characteristic of a natural monopoly
Average total cost declines over large regions of output
Figure 15-3: The marginal revenue curve for a monopoly firm is depicted by curve
B
Which of the following is a characteristic of a competitive market?
Buyers and sellers are price takers
Figure 14-6: When market price is P3, a profit maximizing firm's total costs
Can be represented by the area P3 x Q2
Figure 15-3: The marginal cost curve for a monopoly is depicted by curve
C
Figure 15-3: The average total cost curve for a monopoly firm is depicted by curve
D
Figure 15-1: The shape of the average total cost curve in the figure suggests an opportunity for a profit maximizing monopolist to take advantage of
Economies of scale
IF a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will
Exactly triple
Figure 14-6: Firms will earn positive profits in the short run if the market price
Exceeds P3
Which of the following represents the firm's long run condition for exiting a market
Exit if P<ATC
Which of the following is not a characteristic of a perfectly competitive marker
Firms have difficulty entering the market.
A monopolistically competitive firm's choice of output level is virtually identical to the choice made by
a monopolist
Monopolies are socially inefficient because the price they charge is
above marginal cost
To maximize its profit, a monopolistically competitive firm
chooses its quantity and price, just as a monopoly does
In a monopolistically competitive industry, a firm's demand curve also represents its
average revenue
For a monopolistically competitive firm
average revenue and prices are the same
For a monopoly, the socially efficient level of output occurs where
average revenue equals marginal cost
For a monopoly,
average revenue exceeds marginal revenue
A fundamental source of monopoly market power arises from
barriers to entry
A monopoly market is characterized by
barriers to entry
Antitrust laws allow the government to
break up companies or all of the above
The social cost of a monopoly is equal to its
dead weight loss
In order to sell more of its product, a monopolist must
lower its price
A monopoly firm is a price
maker and has no supply curve
A monopolistically competitive industry is characterized by
many firms selling products that are similar but not identical
Which of the following is not a reason for the existence of a monopoly
of scale
Figure 15-7: What is the monopoly price and quantity
price = F; quantity = A
Figure 15-7: What is the socially efficient price and quantity
price = G; quantity = B
For a monopoly firm, which of the following equalities is always true
price = average revenue
Financial aid to college students, quantity discounts, and senior citizen discounts are all examples of
price discrimination
The practice of selling the same goods to different customers at different prices, but with the same marginal cost, is known as
price discrimmination
When a monopolist is able to sell its product at different prices, it is engaging in
price discrimmination
For a monopolistically competitive firm, at the profit maximizing quantity of output,
price exceeds marginal cost
