Micro Chapters 11, 12, 13

C) still faces a downward-slopping demanding curve

A firm with no competitors: A) faces a perfectly inelastic demand curve. B) faces a perfectly elastic demand curve. C) still faces a downward-sloping demand curve. D) has a perfectly elastic supply curve.

D) MR cannot be calculated with the information given.

A monopolist increased output by 100 units but cut prices by $20 to sell this additional output at $1,000 per unit. What is TRUE about marginal revenue? A) MR totals $2,000 B) MR totals $100,000 C) MR totals - $2,000 D) MR cannot be calculated with the information given.

B) there are economies of scale over the relevant range of output.

A natural monopoly occurs when: A) the product is sold in its natural state (such as water or diamonds.) B) there are economies of scale over the relevant range of output. C) the firm is characterized by a rising marginal cost curve. D) production requires the use of free natural resources, such as water or air.

B) there would be less incentive to invest in creating the next improved AIDS drug

If the price of AIDS drug Combivir was driven down to marginal cost by competition: A) fewer people would use Combivir B) there would be less incentive to invest in creating the next improved AIDS drug C) deadweight loss would increase D) GlaxoSmithKline's profits would increase

an oil pump

In Texas, what does the term "nodding donkey" mean?

a)P>AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short run supply curve shifts right, price falls until profits return to $0

In a constant cost industry, P=AC=$20. Which sequence of events follows an increase in demand? a)P>AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short run supply curve shifts right, price falls until profits return to $0 b)P>AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short run supply curve shifts left, price falls until profits return to $0 c)P<AC, firms suffer an economic loss, existing firms reduce output, new firms enter the industry, the short run supply curve shifts right, price falls until profits exceed $0 d)P=AC, firms make no economic profit, existing firms leave output unchanged, new firms enter the industry, profits remain normal, P=AC=$20

B) one with few substitutes

In which of the following product markets should we see a higher price markup? A) one with lots of substitutes B) one with few substitutes C) one with a very elastic demand D) one for a commodity good

B) a single firm that can supply the market at a lower cost than two or more firms

Which of the following correctly defines a monopoly that arises from economies of scale? A) a single firm operating in a market B) a single firm that can supply the market at a lower cost than two or more firms C) a single firm that controls the production of a natural resource D) a single firm that produces the efficient and socially optimal quantity in a market

the same price

in a perfectly competitive market, each firm sells at:

total revenue

price times quantity sold: TR= P x Q

II and III

If the government sets the price of all pharmaceutical drugs equal to marginal cost, which of the following statements is TRUE? I. Drug company profits will increase. II. Consumers will pay lower prices for drugs today. III. in the future, there will be fewer new drugs.

C)MR2

(Refer to figure - Monopolist 2) In this figure, the monopolist's marginal revenue curve is : A) also the demand curve B) MR1 C) MR2 D)MR3

b - d

(Refer to figure) The monopolist's price markup is:

def

(Refer to figure-Deadweight Loss) Deadweight loss caused by monopoly pricing is represented by the area:

C) D - - B

(Refer to figure: Demand Curve) In this figure, the marginal revenue of the third unit is given by area:

A) 9 units of output

(Refer to figure: Monopoly 8) The natural monopolist in this figure would produce: A) 9 units of output B) 10 units of output C) 14 units of output D) 17.5 units of output

$420

(Refer to figure: Monopoly Profits) The monopolist earns a profit of:

B) $2,800

(Refer to figure: Regulated versus Unregulated Monopolist) Calculate the change in consumer surplus form an unregulated monopoly to a regulated monopoly. A) $6,400 B) $2,800 C) $400 D) $3,600

D) $400

(Refer to figure: Regulated versus Unregulated Monopolist) Calculate the deadweight loss when this monopoly is unregulated. A) $6,400 B) $2,800 C) $850 D) $400

triangle abc

(Refer to figure; Monopoly Markup) Consumer surplus under monopoly is represented by:

B) $2.83 and $11, respectively.

(Refer to table: Profit-Maximizing Monopolist) For the quantity of 6 units, this monopolist's average cost and average revenue levels are: A) $2.71 and $10, respectively. B) $2.83 and $11, respectively. C) $2.71 and $2, respectively. D) $2.83 and $2, respectively.

produce 1 less unit in factory 2 and produce 1 more unit in factory 1

(Table:Two Factories) IF this firm is producing 1 unit from Fact 1 and 5 units from Fact 2, it should:

marginal cost, MC

(change TC)/(change Q) the change in total cost from producing an additional unit

marginal revenue, MR

(change TR)/(change Q) the change in total revenue from selling an additional unit

monopoly

a firm with market power

C) $60

(Refer to Figure Monopolist) If this figure represents the demand and cost curves for a firm with market power, what price should the firm charge to maximize profits? A) $40 B) $50 C) $60 D) $65

A) $100

(Refer to Figure: Maximum Willingness to Pay) What is the maximum price that the consumer is willing to pay for 100 units? A) $100 B) $80 C) $75 D) $ 90

B) P2

(Refer to figure - Maximize Monopoly Profits) The monopolist will maximize its profit by charging a price equal to: A)P1 B)P2 C)P3 D)P4

d)I II IV

A perfectly competitive industry exists under which of the following conditions? I. the product sold is similar across firms II there are many sellers, each with total assets less than $2 million III. There are many sellers, each with total assets less than $2 million IV. The threat of competition exists from potential sellers that have not yet entered the market a)I II b)I II III c)I III IV d)I II IV

B) more; lower

Assuming the cost structure, a competitive market produces _______ output at ______ prices than a monopoly market. A) less; lower B) more; lower C) less; higher D) more; higher

to establish market power

Because Colgate owns patent number 5,547,091, only Colgate sells toothpaste with a flip-top cap, while others use the more traditional screw top. A patent probably wasn't a necessary incentive for Colgate to develop the flip-top cap, so why die patent the cap?

C) the expiration of patent protection on special equipment used to produce hydrogenerated electricity

California's electricity problems were NOT caused by: A) government price floors that made the demand for electricity quite inelastic B) electricity generating companies exercising market power (i.e. restricting output in an effort to raise price and profit) C) the expiration of patent protection on special equipment used to produce hydrogenerated electricity D) All of the answers are correct

A) higher prices, higher quality, and more selection.

Deregulation of cable TV led to: A) higher prices, higher quality, and more selection B) lower prices, higher quality, and more selection C) higher prices, lower quality, and less selection D) lower prices, lower quality, and less selection

higher prices for cable TV

Deregulation of cable TV rates led to:

C) created incentives for power generators to decrease their output.

Deregulation of the energy market in California in 1998: A) went smoothly, leading to low prices and more reliable service. B) created incentives for power generators to increase their output. C) created incentives for power generators to decrease their output. D) made no difference.

regulated to take advantage of economies of scale

Economic theory suggest that a natural monopoly should be:

C) The government should buy out the rights of the patent from the monopoly and destroy the patent.

Economist Michael Kremer offered a unique solution to the problem of deadweight loss created by monopolies that have control of an innovation. What solution did he propose that would leave the drive to innovate uncompromised? A) The government should buy the innovation created by the monopoly. B) The government should sell a patent to the monopoly that creates the innovative technology. C) The government should buy out the rights of the patent from the monopoly and destroy the patent. D) The government should place a price control on the monopoly's product.

A) no longer requires a natural monopoly, but the transmission and distribution of electricity remains a natural monopoly

Generating electricity A) no longer requires a natural monopoly, but the transmission and distribution of electricity remains a natural monopoly B) requires a natural monopoly, along with the transmission and distribution of electricity. C) requires a natural monopoly but not the transmission and distribution of electricity D) and the transmission and distribution of electricity are no longer natural monopolies

B) gains to be less than the lost consumer surplus

High prices charged by monopolists will cause the monopolists': A) gains to exceed the lost consumer surplus. B) gains to be less than the lost consumer surplus C) losses to exceed the consumer gain D) losses to be less than the consumer gain

B) the monopolist will be taking a loss

If economies of scale are high and government regulators set prices equal to a monopolist's marginal cost: A) the monopolist will still earn a profit, just smaller than with no regulation. B) the monopolist will be taking a loss C) there will be more incentive to innovate. D) the market will be more efficient than if the government regulators set prices equal to average cost.

A) Drug companies would have no incentive to create new and better drugs.

If the Bill and Melinda Gates Foundation were to buy out and destroy the patent of Combivir, which of the following would NOT be one of the effects? A) Drug companies would have no incentive to create new and better drugs. B) The price of Combivir would fall. C) The number of people treated with Combivir would rise D) No one would have a monopoly on Combivir

$35,000;$6680

Marcie quit her job as a preschool teacher, which paid an annual salary of $28.000, and became a street food vendor. She used $8000 out of her savings account that paid a 4% annual interest rate to buy a street cart to sell food. In her first year of opperations, she spent $10,000 on food and supplies (napkins, cups, plates, etc) and earned total revenue of $45,000. Marcie's accounting profit is __ and economic profit is __

C) may sometimes be necessary for innovation and economic growth.

Modern theories of economic growth emphasize that monopolies A) are always detrimental to economic growth due to the deadweight loss they inflict on markets. B) may be beneficial to growth in less-developed countries, but only lead to higher prices in well-developed market economies C) may sometimes be necessary for innovation and economic growth. D) only exist because of corruption and government interference in markets.

B) a large firm can produce at lower cost than other small firms

Monopolies can arise naturally when: A) a monopoly firm requires the use of natural resources to produce its product B) a large firm can produce at lower cost than other small firms C) the monopolist product is sold in its natural state, such as water or crude oil D) the monopolist product is used to produce other goods

C) earn economic profits without causing new firms to enter the market

Monopoly power is best described as the ability to A) charge the profit-maximizing price B) produce the profit-maximizing output level C) earn economic profits without causing new firms to enter the market D) produce where marginal revenue intersects halfway between the origin and the demand curve

increase; short run

More potential sellers __ the elasticity of __ firm-level demand

A) market power

The power to raise price above marginal cost without fear that other firms will enter the market is A) market power B) firm power C) marginal power D) cost power

A) a monopoly

To better feed his army, Napoleon established a technology prize that led to the development of canning in 1809. Napoleon required the inventor -Nicolas Francois Appert- to publish the method. Napoleon's reign as Emperor ended after his defeat at Waterloo, a defeat which might not have been so decisive had canned food not made its way to the enemie's mouths. By demanding Appert publish his method, what did Napoleon force Appert to give up? A) a monopoly B) consumer surplus C) deadweight loss D) economies of scale

C) above production costs.

Typical evidence for the existence of market power would be market prices: A) below production costs. B) equal to production costs C) above production costs D) varying with market supply and demand conditions

A) known as deadweight loss

Under monopoly, the portion of the outgoing consumer surplus that is not transferred to the monopoly firm or still considered consumer surplus is A) known as deadweight loss B) proof that monopolies should not be allowed C) transferred to the government D) available to third parties who benefit from sales of the monopolis's output

the losses to consumers are typically greater than the gains to the monopolist.

When an industry becomes monopolized:

C) will be lower, and monopoly price will be higher, than that of a competitive firm.

When comparing a monopoly with a competitive industry, monopoly quantity: A) and monopoly price will be lower than that of a competitive firm. B) will be higher, and monopoly price will be lower, than that of a competitive firm. C) will be lower, and monopoly price will be higher, than that of a competitive firm. D) and monopoly will be higher than that of a competitive firm.

C) prices rise by more than if the input was competitively priced

When goods produced in monopolistic markets become inputs to produce other goods, A) prices end up being equal to average costs B) prices rise, but by less than if the input was competitively priced C) prices rise by more than if the input was competitively priced D) everyone is worse off

B) II only

Which is the following statements is TRUE? I. The deadweight loss from a monopoly refers to the loss in consumer surplus that is captured by the monopolist as a profit. II. According to theory, if the government sets a natural monopolist's price equal to marginal cost, the socially optimum quantity of output will result. III. Deregulation of cable television caused higher prices and fewer programming choices for customers.

A) cable television providers

Which of the following is the best example of a natural monopoly? A) cable television providers. B) new home builders. C) airline providers D) grocery stores.

B) Monopoly power is the power to raise price above average cost without facing new entry of firms

Which of the following statements about monopoly power is correct? A) Monopoly power is the power attained solely by dual firm monopolists. B) Monopoly power is the power to raise price above average cost without facing new entry of firms C) Monopoly power is only generated by governments D) Firms attaining monopoly power always set the price at the marginal cost

B) II and III only

Which of the following statements are TRUE? I. Monopolists can raise prices as a high as they want and still earn economic profits. II. Even with no competitors, firms face a downward-sloping demand curve. III. Just like competitive firms, monopolists maximize profits where marginal revenue equals marginal cost. A) I and III only B) II and III only C) I and II only D)I, II, and III

B) II III

Which of the following statements are TRUE? I. Monopolists can raise prices as high as they want and still earn economic profits II. Even with no competitiors, firms face a downward-sloping demand curve III. Just like competitive firms, monopolists maximize profits where marginal revenue equals marginal cost a)I III b)II III c)I II d)I II III

B) Market power may result form a government regulations or patent protection.

Which of the following statements is TRUE? A) Market power is the ability to raise price and sell more units of a good. B) Market power may result form a government regulations or patent protection. C) A monopoly is a firm without market power. D) All of the answers are correct.

II only

Which of the following statements is TRUE? I. To maximize profit, monopolist produces where P = MC. II. Economies of scale are likely important for subways and cable TV. III. Since producer surplus includes large monopoly profits, total surplus is higher in monopoly markets.

A) Monopolized economies tend to have move poverty and less economic growth

Which of the following statements is True? A) Monopolized economies tend to have move poverty and less economic growth B) Competitive market economies lead to higher prices for everyone C) Social prosperity is typically the result of government - created monopolies D) Business leaders in the United States are more self-interested than business leaders in lesser-developed nations.

A) If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.

Which statement is TRUE? A) If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit. B)If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling fewer units at a higher price per unit. C) When a monopolist produces where MR<MC it always earns a positive economic profit. D) A monopolist is guaranteed monopoly profits by the government.

equals the price

a competitive firm maximizes profit when marginal cost:

implicit cost

a cost that does not require an outlay of money opportunity to earn

explicit cost

a cost that requires a money outlay ex rent and electricity

-$27

a monopolist sells in two different markets and charges the same price of $10 in both markets. In Mar A, the demand curve is described by Qd=50-2P. In Mar B, the demand cuve is described by Qd=60-P. If the monopolist lowers prices by $1 in the market with the more elastic demand and raises prices by $1 in the market with the more inelastic demand curve, by how much does its total revenue change?

natural monopoly

a situation when a single firm can supply the entire market at a lower cost than two or more firms

constant cost industry

an industry in which costs of production do not change with greater industry output; shown with a flat supply curve

decreasing cost industry

an industry in which the costs of production decrease with an increase in industry output; shown with a downward sloping supply curve

increasing cost industry

an industry in which the costs of production increase with greater output; shown with an upward-sloped supply curve

fixed costs

costs that do not vary with output

variable costs

costs that vary with output

barriers to entry

factors that increase the cost to new firms of entering an infustry

zero long

normal profits in a perfectly competitive industry refer to __ run profits

economies of scale

the advantages of large scale production that reduce average cost as quantity increases

zero (normal) profits

the condition when P=AC; at this price the firm is covering all of its costs including enough to pay labor and capital their ordinary opportunity costs

total cost

the cost of producing a given quantity of output include opportunity costs and money costs

average cost

the cost per unit; the total cost of producing a given quantity divided by that quantity, AC=TC/Q

above-normal profits will be eliminated by the entry of new firms into the industry

the elimination principle illustrates the idea that:

vertical axis as the demand curve but with twice the slope

the marginal revenue curve is a straight line beginning at the same point on the

short run

the period before entry occurs

market power

the power to raise prices above marginal cost without fear that other firms will enter the market

elimination principle

the principle that in a competitive market, above normal profits are eliminated by entry and below normal profits are eliminated by exit

long run

the time it takes for substantial new investment and entry to occur.

entrepreneurs are always on the lookout to move resources into higher-value uses, in an effort to create more profit for themselves

the value of output is maximized in a competitive market because

accounting profit

total revenue minus explicit costs

economic profit

total revenue minus total costs including implicit costs

B)II

which of the following statements is TRUE? I. Prices in a competitive market will always be lower than prices charged by a natural monopolist II. A natural monopolist arises because of its ability to reduce average costs with large scale production methods III. A natural monopoly is a firm that can demand more inputs without increasing its costs of production a)I II b)II c)III d)I II III

b)the more inelastic the demand curve is, the greater is the monopolist's price markup

which of the following statements is correct? a)a monopolist's marginal cost is greater than its price b)the more inelastic the demand curve is, the greater is the monopolist's price markup c)the monopolist's profit is equal to P(Q-MR) d)the position of the marginal revenue curve on the y axis reflects consumer demand elasticity