final exam
Suppose that a perfectly competitive firm's marginal revenue equals $12 when it sells 10 units of output. If the marginal cost of producing the 10th unit is $14, to maximize its profit the firm should
decrease its production.
Firms exit a competitive market when they incur an economic loss. In the long run, this exit means that the economic losses of the surviving firms
decrease until they equal zero.
When firms in a perfectly competitive market incur economic losses, exit by some firms means the market supply will
decrease.
Assume someone organizes all farms in the nation into a single-price monopoly. As a result, the amount of food produced
decreases
Compared to a single-price monopoly, when a monopoly can perfectly price discriminate, the deadweight loss
decreases
A permanent decrease in demand definitely
decreases the number of firms in the industry.
Which of the following goods is the best example of a natural monopoly?
distribution of electricity
The demand curve for a monopoly is
downward sloping.
When a perfectly competitive industry is taken over by a monopoly, some consumer surplus is transferred to the monopolist in the form of
economic profit
In the long run, new firms enter a perfectly competitive market when
economic profit is greater than zero.
In a perfectly competitive market, a(n) ________ occurs because ________.
efficient outcome; total surplus is maximized
A perfectly competitive firm definitely makes an economic profit in the short run if price is
greater than average total cost.
For a single-price monopoly, price is
greater than marginal revenue.
The good produced by a monopoly
has no close substitutes.
The marginal revenue curve for a perfectly competitive firm is
horizontal.
Consider a perfectly competitive market that was in a long-run equilibrium when a permanent increase in demand occurs. Which of the following will occur as a result? i.The existing firms will start to earn an economic profit. ii.New firms will be motivated to enter the market. iii.Some firms that cannot meet the new demand will exit the market.
i and ii only
If concerns about mad-cow disease impose economic losses on the perfectly competitive cattle ranchers, exit by the ranchers combined with no further changes in the demand for beef will force the price of beef to
increase.
If new firms enter a perfectly competitive industry, the market supply
increases.
Under a marginal cost pricing rule, a natural monopoly
incurs an economic loss
If a firm shuts down, it
incurs an economic loss equal to its total fixed cost.
If the market price is $50 per unit for a good produced in a perfectly competitive market and the firm's average total cost is $52, then the firm
incurs an economic loss of $2 per unit.
If a perfectly competitive firm finds that the price exceeds its ATC, then the firm
is making an economic profit.
The above figure shows a perfectly competitive firm. If the market price is $15, the firm
is making an economic profit.
The above figure shows a perfectly competitive firm. If the market price is $10, the firm
is making zero economic profit.
Peter's Pencils is a perfectly competitive company producing pencils. Suppose Peter is producing 1,000 pencils an hour. If the total cost of 1,000 pencils is $500, the market price per pencil is $2, and the marginal cost is $2, then Peter
is maximizing his profit and is making an economic profit.
When a firm is able to engage in perfect price discrimination, its marginal revenue curve
is the same as its demand curve
With perfect price discrimination, the level of output
is the same as the amount produced in a perfectly competitive market
We know that a perfectly competitive firm is a price taker because
its demand curve is horizontal.
Compared to a perfectly competitive industry, a single-price monopoly produces
less output
Which of the following firms is most likely to be a monopoly?
local distributor of natural gas
Compared to setting a single price, if a firm can price discriminate it
makes a larger economic profit
If a perfectly competitive firm's average total cost is less than the price, then the firm
makes an economic profit.
For a perfectly competitive firm, profit maximization occurs when output is such that
marginal revenue (MR) = marginal cost (MC).
A firm maximizes its profit by producing the amount of output such that
marginal revenue equals marginal cost.
The maximum profit for a single-price monopoly is found when the firm produces the level of output so that
marginal revenue equals marginal cost.
The above figure shows a perfectly competitive firm. If the market price is $5, the firm
might shut down but more information is needed about the AVC.
Suppose a perfectly competitive market is in long-run equilibrium and then there is a permanent increase in the demand for that product. The new long-run equilibrium will have
more firms in the market.
The makers of the movie Titanic have some monopoly power over this film because the
movie is protected by copyright law.
A monopoly
must determine the price it will charge.
A single-price monopoly
must lower the price for all customers if it wants to increase its sales.
Today, you might be buying from a regulated natural monopoly when you purchase
natural gas or electricity
If total revenue falls when output increases, marginal revenue is
negative.
When firms in a perfectly competitive market are earning an economic profit, in the long run
new firms will enter the market.
A natural monopoly exists when
one firm can supply an entire market at a lower average total cost than can two or more firms.
We define a monopoly as a market with
one supplier with barriers to entry.
Alice, Bud, and Celia can produce rubber bands in a perfectly competitive market. If they enter the market, the minimum average total cost for a bundle of rubber bands, for the three of them is $2, $3, and $4, respectively. If the market price is $2.10 per bundle, then
only Alice will enter the market.
In which market structure do firms exist in very large numbers, each firm produces an identical product, and there is freedom of entry and exit?
only perfect competition
To encourage invention and innovation, the government provides
patents.
In order for a hotel to successfully price discriminate so that senior citizens are given a discount, the hotel must be able to
prevent senior citizens from reselling their rooms to younger customers.
A marginal cost pricing rule sets marginal cost equal to
price
One way a monopoly can convert additional consumer surplus into economic profit is to
price discriminate
An airline company
price discriminates by charging higher prices to business travelers
The above figure illustrates a perfectly competitive firm. If the market price is $40 a unit, to maximize its profit (or minimize its loss) the firm should
produce 40 units.
In a perfectly competitive market, the market price is $23. At the current level of output, a firm has a marginal cost of $28. What should the firm do?
produce less output to make more profit
A monopoly creates a deadweight loss because the monopoly
produces less than the efficient quantity
When new firms enter a perfectly competitive market, the market supply curve shifts ________ and the price ________.
rightward; falls
A perfectly competitive firm can
sell all of its output at the prevailing market price.
A price-discriminating monopoly
sells a larger quantity than it would if it were a single-price monopoly
A price-discriminating monopoly is a monopoly that
sells different units of a good or service at different prices.
A single-price monopoly
sets a single price for all consumers.
Suppose that marginal revenue for a perfectly competitive firm is $20 . When the firm produces 10 units, its marginal cost is $20, its average total cost is $22, and its average variable cost is $17. Then to maximize its profit in the short run, the firm
should stay open and incur an economic loss of $20.
The above figure illustrates a perfectly competitive firm. If the market price is $10 a unit, to maximize its profit (or minimize its loss) the firm should
shut down.
For a monopoly, marginal revenue is equal to
the change in total revenue brought about by a one-unit increase in quantity sold.
Marginal revenue is
the change in total revenue from a one-unit increase in the quantity sold.
A large number of sellers all selling an identical product implies which of the following?
the inability of any seller to change the price of the product
A perfectly competitive market arises when
there are many buyers and sellers.
A single-price monopoly faces a linear demand curve. If the marginal revenue for the second unit is $20, then the marginal revenue for the
third unit is less than $20.
To maximize its profit, in the short run a perfectly competitive firm decides
what quantity of output to produce.
If a firm in a perfectly competitive market faces an equilibrium price of $5, its marginal revenue
will also be $5.
The above figure shows a perfectly competitive firm. If the market price is $5 per unit, the firm
will definitely shut down to minimize its losses.
The above figure shows a perfectly competitive firm. If the market price is $15 per unit, the firm
will stay open to produce and will incur an economic loss.
The above figure shows a perfectly competitive firm. If the market price is more than $20 per unit, the firm
will stay open to produce and will make an economic profit.
The above figure shows a perfectly competitive firm. If the market price is $20 per unit, the firm
will stay open to produce and will make zero economic profit.
When used with a natural monopoly, an average cost pricing rule results in
zero economic profit for the firm
In the long run, a perfectly competitive firm makes
zero economic profit.
The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. If TWC is left unregulated, what is the price of cable television in Oakland?
$20
Suppose the Busy Bee Cafe is the monopoly producer of hamburgers in Hugo, Oklahoma. The above figure represents the demand, marginal revenue, and marginal cost curves for this establishment. What price will the Busy Bee charge to maximize its profit?
$3.00 for a hamburger
A single-price monopoly can sell 2 units for $8.50 per unit. In order to sell 3 units, the price must be $8.00 per unit. The marginal revenue from selling the third unit is
$7.00.
The table above gives the demand for a monopolist's output. What is the marginal revenue when output is increased from 5 to 6 units?
-$2
The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. If TWC operated under an average cost pricing rule, how many households in Oakland are served?
10,000
Suppose the Busy Bee Cafe is the monopoly producer of hamburgers in Hugo, Oklahoma. The above figure represents the demand, marginal revenue, and marginal cost curves for this establishment. What quantity will the Busy Bee produce to maximize its profit?
20 hamburgers per hour
The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. If TWC is left unregulated, how many households in Oakland are served?
20,000
The table above gives the demand for a monopolist's output. Between which two quantities is marginal revenue equal to 0?
4 and 5
The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. If TWC operated under a marginal cost pricing rule, how many households in Oakland are served?
40,000
Use the figure above to answer this question. If a monopoly maximized profit,
800 units will be produced and a deadweight loss equal to area ABC will occur
Assume someone organizes all farms in the nation into a monopoly. Which of the following occurs?
Consumer surplus decreases, economic profit decreases, and a deadweight loss is created
If the market price of a product is $14 and all sellers are price takers, then which of the following is correct?
Each seller's total revenue line is graphed as an upward-sloping straight line.
In the above figure, a perfectly competitive market will have a price of ________, and a single-price monopoly will have a price of ________.
P2 and quantity of Q2; P1 and quantity of Q1
For a single-price monopolist, why is marginal revenue less than price?
To sell another unit, the price must be lowered.
Your local water company is a considered
a natural monopoly and will be regulated.
A monopoly market has
a single firm.
A major characteristic of monopoly is
a single seller of a product.
A monopoly is
able to set the price for its product.
Which of the following describes a barrier to entry?
anything that protects a firm from the arrival of new competitors
A market is initially in a long-run equilibrium and there is a permanent increase in demand. After the new long-run equilibrium is reached, there
are more firms in the market.
A perfectly competitive firm will shut down when the price is just below the minimum point on the
average variable cost curve.
A perfectly competitive firm should shut down in the short-run if price falls below the minimum of
average variable costs.
In contrast to competitive firms, single-price monopolies
can make an economic profit indefinitely.
In the short run, a perfectly competitive firm
can possibly make an economic profit or possibly incur an economic loss.
A firm that is a natural monopoly
can supply the entire market at a lower average total cost than two or more firms
Arnie's Airlines is a monopoly airline that is able to price discriminate. If Arnie's decides to price discriminate, then
consumer surplus decreases
A single-price monopoly transfers
consumer surplus to producers
When a firm adopts new technology, generally its
cost curves shift downward.