Micro Test 3: Module 10

what are some characteristics of monopolies?

-a good or service for which there are no close substitutes -the firm's having significant price control -a single seller -a market with barriers to entry

To calculate the profit, which three pieces of information need to be identified ?

-quantity of output -price -average total cost

Companies produce at a loss if:

Average Variable Cost (AVC) < Price < ATC

The profit maximizing output level occurs where:

MR = MC

Companies shut down if:

Price < AVC

Companies produce at a profit if:

Price > Average Total Cost (ATC)

Suppose Carl's Candies sells 100 boxes of candy for $4 each. The total fixed cost of the 100 boxes is $100, and the average variable cost of the boxes is $1.50 per box. Carl's makes a total profit of:

Profit = (Price - ATC) x Q ATC = AFC + AVC (1+1.50= 2.50) AFC = TFC/Q ($100/100=1) profit = ($4-$2.50) x 100 $1.50 x 100 = $150

A monopoly is not really a monopoly when there are no _________ to entry.

barriers

For a monopoly, the marginal revenues per unit fall _______ the price per unit, because when the price _________ , the monopoly gives up some revenue on units it could have sold at higher prices.

below ; decreases

Because monopolies have market power and can influence the price of the goods they sell, they tend to produce lower output and charge a higher price than would prevail in a ___________ equilibrium

competitive

A monopoly will charge consumers the price that they are willing and able to pay for the amount of output available, which is shown along the _____ curve.

demand

A pure monopoly has the overall market ______ to itself, because it is the only seller in a market.

demand

The ______ curve faced by a perfectly competitive firm is perfectly elastic.

demand

The ________ curve faced by a pure monopoly is downward sloping.

demand

Profit maximization implies that monopoly firms should expand production up to the point where the marginal revenue _________ the marginal cost

equals

As the market price decreases, all else held constant, a profit-maximizing firm will _____ its production.

lower

If a monopoly wants to sell more units, it must ____ the price for every unit it sells.

lower

Monopolies maximize profits by choosing levels of output ______ than those found in purely competitive markets.

lower

A pure monopoly is a price ______ engaging in non-price competition.

maker

The extra or additional revenue associated with the production of an additional unit of output is the ________ revenue

marginal

Profit __________ implies that monopoly firms should expand production up to the point where the marginal revenue equals the marginal cost.

maximization

Due to the market inefficiencies created by _______ , one of the roles of government is to limit their market power or even to eliminate them entirely.

monopolies

Due to the market inefficiencies created by ________ , one of the roles of government is to limit their market power or even to eliminate them entirely.

monopolies

__________ reduce the availability of goods and services and consumers' ability to buy those goods

monopolies

A profit-maximizing ______ will always operate on the elastic portion of a linear demand curve.

monopoly

A pure ________ is the only seller in a marker

monopoly

A pure _________ will charge consumers the price that they are willing and able to pay for the amount of output available.

monopoly

For the profit-maximizing level of output, the price charged by a _______ is not just different but greater than marginal revenue.

monopoly

If a _________ want to sell more units, it must lower the price for every unit it sells.

monopoly

To affect the quantity demanded by consumers, as the only supplier in the market, a ________ must change the ________ of its products, which also affects total revenue and marginal revenue.

monopoly ; price

A _________ profit simply indicates that the firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or to compete in a different industry.

normal

The level of profit that occurs when total revenue is equal to total cost is known as ______ profit.

normal

Monopoly power is the ability of a monopoly to influence ________ by controlling the _________ that it produces in the market.

prices ; output

Allocative efficiency is:

producing the goods and services so that their marginal benefit equals their marginal cost

For the profit-maximizing level of output, the price charged by a monopoly is not just different but greater than marginal _______

revenue

Total _______ equals price times quantity

revenue

Profit equal the total __________ minus the total _______

revenue ; cost

As the market price ______ , all else held constant, a profit-maximizing firm can afford to expand its production.

increases

The level of profit that occurs when the total revenue is less than the total cost is called an economic _______

loss

A company can break even and meet operating costs without a loss when it earns _____ economic profit

zero

normal profit is also known as _______ economic profit

zero