Basic ECON Chap 9-11

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Frances sells pencils in the perfectly competitive pencil market. Her output per day and costs are seen in the table to the right. a. If the current equilibrium price in the pencil market is ​$1.60​, what price will Frances​ charge?

$1.60

Which of the following statements is true when the difference between TR and TC is at its maximum positive​ value?

Both A and B are true.

A monopolist is a price maker because

when a monpolist raises its​ prices, it loses some but not all customers.

At that level of​ output, the cable company will earn economic profits of ​$ ​(thousand per​ month) .

52

What quantity of pencils will maximize​ Frances' profit? ___ pencils.

6

Why do single firms in perfectly competitive markets face horizontal demand​ curves?

With many firms selling an identical​ product, single firms have no effect on market price.

The orange farmer will make a profit if the price of oranges is above ​$ per crate.

20.00

Specifically, marginal revenue for the first painting is ​$ 200​, marginal revenue for the second painting is ​$ 100​, marginal revenue for the third painting is ​$ 0​, marginal revenue for the fourth painting is ​$ negative 100​, and marginal revenue for the fifth painting is ​$ negative 200.

200, 100, 0, (-) 100, (-)200.

Suppose a cable company provides cable service to a small town. The total​ revenue, marginal​ revenue, total​ cost, and marginal cost of providing various quantities of cable subscriptions​ (units in thousands per​ month) are presented in the table below. Assume the local cable company is a monopoly. To maximize​ profits, the monopoly should produce ​(thousand) units

4

Name one barrier to entry a new firm would face in competing​ with: i. Google in online advertising ii. Apple in smartphones iii. Facebook in social media apps iv. Amazon in online retailing

All of the above.

A column on forbes.com discusses​ Google, Apple,​ Facebook, and​ Amazon, all of which operate in oligopolistic markets. The column argues that the concerns of some policymakers and economists about the market power of these firms may be overstated​ because: "History teaches us that in a​ fast-moving industry, driven by​ fast-changing technologies, barriers to entry may be far less significant than one might​ believe." ​Source: Jeremy​ Ghez, "Why U.S. Tech Giants Might Not Dominate The World After​ All," forbes.com, November​ 16, 2016. What does the columnist mean by​ "barriers to​ entry"?

Anything that keeps new firms from entering an industry in which firms are earning economic profits.

The figure illustrates the average total cost​ (ATC) and marginal cost​ (MC) curves for an orange farmer in California. Assume the market for oranges is perfectly competitive. Suppose the market price of oranges is ​$26.00 per crate. Characterize the​ farmer's profit.

At a ​$26.00 ​price, the farmer will make a profit

Erin Reinhardt and her friend Carol Newman have just arrived in the country Boloni for a summer holiday. While renting a car on their first day in Boloni they notice that the car rental rates are so much higher than rates back home. Carol says that in a matter of​ time, competition should drive prices down. Erin feels that the market for car rentals is probably competitive​ enough; it could just be high cost of operations in Boloni that are responsible for the high prices. Which of the following conclusions is most strongly supported by the given​ information?

Both Carol and Erin think that the car rental industry in Boloni does not have significant barriers to entry.

What characterizes perfectly competitive​ markets? Perfectly competitive markets have

Identical products sold by all firms

How might​ "fast-changing technology" reduce the importance of the barriers to entry you identified​ above?

It may create opportunities for new firms to offer goods and services that better serve their​ customers' wants.

Suppose that a perfectly competitive industry becomes a monopoly.

Suppose that a perfectly competitive industry becomes a monopoly. As a​ result, consumer surplus will decrease ​, producer surplus will increase ​, and deadweight loss will increase .

Suppose a small town has only one artist who sells​ paintings, making that artist a monopoly. One of the​ artist's paintings is demanded at a price of ​$200​, two paintings are demanded at a price of ​$150​, three at ​$100​, four at ​$50​, and five if the paintings are given away​ (with a price of​ zero).

The demand curve is downward sloping .

A firm producing good Y recently increased monthly production from​ 1,500 units to​ 2,000 units. This had no impact on the market price of good Y. At the new production level of​ 2,000 units, the​ firm's average cost is​ $3.5 while its marginal cost of production is​ $4. The marginal revenue however is fixed at​ $5 for all levels of output. Jake Williamson is the operations head of the firm. Jake feels​ that, since the firm has the​ capacity, it should have increased production further to​ 2,500 units which would have maximized profits. On the other​ hand, Mathew Hayden of the market research team anticipates an increase in price to​ $5.5 in the near future. He therefore claims that the firm may not be maximizing economic profit in the short run even at​ 2,500 units. Jake and Mathew will most likely agree on which of the​ following?

The firm should increase production from the current level.

The government of a small​ country, Ecotopia, is investigating whether a leading telephone​ company, Ringabell​ Telco, has violated antitrust laws. Recent media reports claim that Ringabell keeps its rates too low in order to attract customers away from the competition.​ This, the media​ claims, is the reason for​ Ringabell's large market share.​ However, a spokesperson for Ringabell defends the company by stating that its dominant market share speaks for the quality of its services and strong customer loyalty. Which of the​ following, if​ true, would weaken Ringabell​ Telco's argument?

The majority of​ Ringabell's customers are in​ long-term contracts with high switching penalties.

UPS and FedEx both struggle to deliver the surge of packages they receive during the December holiday season. According to an article in the Wall Street Journal​, in​ 2014, both firms considered charging firms such as Amazon rates that would be 10 percent higher for packages delivered during the week before Christmas. Such higher rates would likely have increased the profits of both firms. Neither UPS nor FedEx raised rates during the holiday season of​ 2014, but both firms did raise them during the 2016 holiday season. Use game theory to explain why in 2014 neither firm raised rates during the holiday​ season, but two years later both firms did. In 2014 neither firm raised rates during the holiday season because they were

competing in a​ prisoner's dilemma.

Both firms raised rates two years later because they were

cooperating as in a repeated game.

The marginal revenue curve is

downward sloping with twice the slope of the demand curve.

What are the three conditions for a market to be perfectly​ competitive? For a market to be perfectly​ competitive, there must be

many buyers and​ sellers, with all firms selling identical​ products, and no barriers to new firms entering the market.

A monopolistically competitive firm produces where​ _________, while a perfectly competitive firm produces where​ _________.

price is greater than marginal​ cost; price is equal to marginal cost

Is the loss in efficiency due to market power large or​ small? Explain. The loss in efficiency due to market power is

small because competition limits market power comma even when the market is not perfectly competitive.

Do consumers benefit in any way from monopolistic competition relative to perfect​ competition? Compared to perfect​ competition, when a consumer purchases a product from a monopolistically competitive​ firm, the consumer benefits from purchasing a product

that is appealing because it is differentiated.

Find the correct quantities for the missing values in the​ table, as represented by ​(i​, ii​, iii​, and ​iv; enter all values as dollars and cents​).

​(i​) Marginal revenue is ​$ 1.60. ​(ii​) Total revenue is ​$ 6.40. ​(iii​) Marginal revenue is ​$ 1.60. ​(iv​) Total revenue is ​$ 11.20.


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