micro test 3

which of these is a variable cost for owning a bar?

labor

which of the following is not a demand-side strategy to prevent competitors from entering a market?

mass production

_____ have the most market power, because _____

monopolists; there is only one seller of a unique product

companies with market power can control the price and quantity they want to produce. this lease to market failure because market power leads to ____ and ____ prices

underproduction; higher

patents and copyrights are examples of _____ barriers to entry.

regulatory

product differentiation means that a business tries to make their product unique in order to

set it apart from their rivals products and create more market power

under perfect competition, what will happen to your firm if your competitors lower their price by 1%?

you will lose all your customers to your competitors

economic profits encourage firms to _____ the industry, and losses encourage firms to _____ the industry.

enter; exit

if there is free exit from and entry into an industry, long-run economic profits will be _____ for firms in that industry.

equal to zero

although a single company dominates the zipper market, its customers could always use button flies for their clothes. this means that the company:

has competitors in the broader market for fasteners

to create barriers to free entry in a market, existing companies can employ any of these strategies EXCEPT:

respond passively to new entrants in the market (deterrence strategies)

if you do not have much market power, then raising your price will _____ reduce the quantity you sell and your firm's demand curve is highly _____

sharply; elastic

Mr. Parker sells 10 bottles of wine per week at $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity effect of the sale of an additional bottle would be _____, whereas the price effect of the sale of an additional bottle would be _____.

$45; -$50

davids financial planner tells him that he made a profit of $31,300 running a ballroom dance studio in Sacramento. David's wife, an actuary, claims that david lost $31,300 running his ballroom dance studio. this means his wife is claiming that he incurred _____ in _____ costs.

$62,600; implicit opportunity

a firm in an oligopoly knows that its _____ affect its _____ and that the reactions of its rivals will affect it

actions; rivals

if a monopolist produces a quantity that generates MC < MR, then profit:

can be increased by increasing output

the entry of a new rival _____ the demand for products from existing businesses, which _____ their economic profits.

decreases; lowers

the output in a market with market power is:

inefficient, since the marginal benefit to society of extra output exceeds the marginal cost.

the larger the quantity you sell, the _____ the discount effect. therefore, the marginal revenue curve declines _____ sharply than the firm's demand curve

larger; more

In a particular suburban area, suppose customers have a lot of choices in internet providers. they can choose a variety of products from small local providers, regional providers, or national providers. what is the market structure for the internet services in this suburban area?

monopolistic competition

the market for orthodontic services in most communities is _____ because it offers a large number of smaller but not identical options

monopolistically competitive

which market type has the largest number of firms?

perfect competition

barrier to entry:

prevent the entry of new firms into the market

policies that are _____ will help existing businesses survive. policies that are _____ will bolster competition and make markets more competitive. economists will prefer policies that are _____ because they will lead to the best outcomes for society

pro-business; pro-market; pro-market

if american airlines purchased all of its competitors to become a monopoly, all else equal, price will _____, and output will _____

rise; fall

the mile end deli serves traditional delicatessen food in brooklyn. which cost is MOST likely fixed at the deli?

the chairs customers sit on

which scenario BEST illustrates an oligopolistic industry?

the coca-cola company and pepsi sell most of the soft drinks consumed around the world

which statement is NOT true about a monopoly

the monopolist is a price-taker

pharmaceutical companies can charge high prices for a life-saving drug, or raise the price of the drug without losing a lot of customers because

they have a lot of market power

the demand curve for a monopoly is

above the marginal revenue curve

a situation in which a business would lose all of its customers if it raised prices is called

perfect competition

if a market is trading at prices below the average cost, it is likely that _____.

sellers will leave the market

market power is

the extent to which a firm can charge a higher price without losing many customers

the opportunity costs of a business include forgone _____.

wages and interest

an oligopoly is a market that has

a small number of large sellers

accounting profit is different than economic profit because

accounting profit ignores the opportunity cost of launching a new business

the decision to start a business and the decision to attend college

are similar in that in both cases, you will want to consider the cost-benefit principle and the opportunity cost principle

when it is difficult for a new business to compete away economic profits from an economically profitable market, there must be:

barriers to free entry

when you have market power, raising your price will _____ the profit margin on each item you sell, _____ reducing the number of items you sell

boost; while

many managers use the marginal principle in operating their business because the marginal principle helps them

break big decisions into smaller marginal decisions

companies may signal to potential entrants that they are willing to "crush" their competition by making credible threats. which of the following would be considered a credible threat?

building excess capacity so that the firm could flood the market with product

marginal revenue is calculated

by finding the additional revenue earned from selling an extra unit of the item

which of the following is not a supply-side strategy for preventing entry?

credible threats

the initial AIDS durg market is a real example of how businesses with _____ market power can _____ market forces

large; distort

if you run a coffee shop and a new starbucks opens down the street, you would have _____ market power

less

when new firms enter a market, existing firms will see _____ than before, and their market power will _____.

less; decrease

if you own the only gas station in your part of town, then you can raise the gas price slightly above the market price because you have _____ market power

limited

Monopolistic competition is BEST described as

many firms with some control over price, and some product differentiation

a book seller should keep selling books until marginal revenue equals marginal cost, which occurs where the _____ and _____ curves intersect

marginal revenue; marginal cost

the ability to charge higher prices without losing a large amount of customers is called

market power

the shape of the demand curve of a firm can be relatively flat or steep, depending on

market power

being open to international trade helps a country foster competition for all the following reasons EXCEPT that there will be:

more bias toward domestic production

in the united states, the top brands of kitchen appliances include samsung and LG, which are south korean companies, and general electric and whirlpool, which are american companies. without international trade, general electric and whirlpool would have _____ market power, and american consumers would face _____ prices

more; higher

when firms exit a market, remaining firms will sell _____ than before, and their market power will _____.

more; increase

total revenue is calculated by

multiplying the price charged by the quantity the firm sells

sellers in a market will become less profitable when:

new sellers enter the market

you and your classmates have cellphone services from a limited number of different providers. what type of market structure is the market for cellphone service?

oligopoly

according to the cost-benefit principle, the time and money associated with opening or expanding a business are a(n) _____ cost.

opportunity

marginal revenue is equal to

output effect minus the discount effect

how does output for a seller who has market power compare to output for a seller who does not have market power, assuming both follow the rational rule for sellers?

output is higher for the seller without market power than the one with market power

it is illegal for a company to use _____ by charging an extremely low price in order to drive its competitors out of business, with the goal of raising the price later

predatory pricing practices

building excess capacity acts as an entry deterrent for all these reasons EXCEPT it:

prevents a new entrant from finding a profitable niche.

_____ signal a potential opportunity for entrepreneurs, so _____ firms will enter a market. this continues until there are _____ economic profits in the long-run.

profits; more; zero

variable costs are _____ multiplied by _____ cost per unit.

quantity; variable

when economic profits are negative, the rational rule for exit says that a firm should _____ or _____.

shut down; shift to other markets

the short-run average variable cost curve:

slopes downward at low rates of output and then slopes upward at higher rates of output.

market power creates a market failure because the quantity produced is _____ the quantity that is in society's best interest

smaller than

exclusivity contracts with suppliers are examples of _____ barriers to entry

supply-side

marginal revenue is defined as

the addition to total revenue you get from selling one more unit

pharmaceutical companies can charge high prices for a life-saving drug, or raise the price of the drug without losing a lot of customers, because

the demand for life-saving drugs is very inelastic

after a formula for HIV medication had been developed, a daily dose for a person cost the manufacturer less than a dollar per day. why was this medication priced at $10,000 per year per person?

the drug company is effectively a monopolist

the marginal revenue curve of a firm with market power will always lie below its demand curve because of

the output effect and the discount effect

Kendrick, a recent high school graduate, is trying to decide between going to college or running his family's food catering business. Which would be an implicit opportunity cost of going to college?

the profit he would earn running the catering business

What would happen to the pharmaceutical industry if any pharmaceutical firm could copy the drugs that their competitors invented?

there would no longer be incentives to make the large investment to invent new drugs

the maximum price you can charge is all about

what your customers are willing to pay

when, if ever, would a monopoly in a particular industry be preferred to competition within that industry?

when it would be less costly for one firm rather than many firms to provide a good, as in a natural monopoly

under perfect competition, what will happen to your competitors if your firm lowers its price by just a penny<

your firm will have a large boost in sales, at the expense of a lower profit margin

which of the following are factors that can create market power for a firm

-being able to differentiate one's product -having fewer competitors in the market

examples of implicit costs

-forgone yearly salary of $40,000 -using office space to run your business that was previously rented out for income

examples of explicit costs

-the expense of buying textbooks -purchases of office supplies

Suppose a local Home Depot has explicit financial costs of $2 million per year and implicit opportunity costs of $44,000 per year. If the store earned an economic profit of $50,000 last year, its accounting profit was:

$94,000

a higher degree a market power can be detrimental for consumers because higher prices

lead to fewer purchases, and less consumer surplus

U.S. patent laws establish property rights for inventors of new products for _____ years

20

if you sell one more unit, your revenue will rise by the price you get for it. this is the

output effect

in contrast to perfect competition, a monopoly:

produces less at a higher price

average cost is

total cost divided by quantity

the simplest way to predict whether new rivals will enter a market is to:

us the rational rule for entry

as a monopolist, its firm demand curve is also the market demand curve. why then can raising the price still lower the quantity demanded?

customers still have the option of not buying the product

Candice's stand-up paddleboard company will earn profits producing and selling at any output level where the company's:

demand curve is above its average cost curve

having extensive financial resources acts as a _____ strategy.

deterrence

marginal revenue is the output effect minus the _____ effect for a given quantity

discount

in the case of the market for a life-saving, patented drug, the:

drug companies supply less than the efficient quantity

in the long run, each firm in an industry will:

earn only enough to cover the opportunity costs of all resources used in production.

which list correctly ranks firms from least market power to most market power?

farmer, computer manufacturer, airplane manufacturer

the more market power you have the

higher the price you can charge without losing a lot of customers

what type of market structure do most businesses operate in

imperfect competition

activist groups launched a successful campaign to end the patent protection for AIDS drugs. as a result, many competitors were able to supply these drugs. this situation affected the market price for AIDS drugs by _____ competition, lowering the drug price to the _____.

increasing; marginal cost

which statement is NOT about demand curves

a firm demand curve describes the price charged by all firms and quantity demanded by all buyers

which of the following are examples of a natural monopoly?

a local utility company

why can a merger of two major companies benefit the firms involved, but not society?

a merger can increase market power, which harms society