EC 110 Exam 3
The table represents a demand curve faced by a firm in a competitive market. Quantity Demanded (Units) - Total Revenue (Dollars) 12 132 15 165 18 198 21 231 24 264 For this firm, the marginal revenue of the 15th unit is
$11
Which of the following is true about a monopolistically competitive firm?
It can earn an economic profit in the short run, but not the long run.
Two CEOs from different firms in the same market collude to fix the price in the market. This action violates the
Sherman Antitrust Act of 1890.
monopoly characteristics
Sole producer Barriers to enter Pull market power Firm demand curve is the same as the market demand curve
Which of the following is a necessary characteristic of a monopoly?
The firm is the sole seller of its product.
When an oligopoly market reaches a Nash equilibrium,
a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.
prisoner's dilemma
a game where the cooperative nash equilibrium always pays more than the non-cooperative nash equilibrium
When an industry is a natural monopoly,
a larger number of firms will lead to a higher average total cost.
if gnomes-r-us (a perfectly competitive industry) produces at its optimal output level where marginal cost intersects the average total cost curve at its minimum point, the firm will earn:
a normal profit
Granting a pharmaceutical company a patent for a new medicine will lead to
a product that is priced higher than it would be without the exclusive rights.
dominant strategy
a strategy that works always no matter what the other player responds
2nd degree price discrimination
acknowledge that people don't want to pay your high price so make a deal with the consumer. Buy one get one half off or buy one get one free
cartel
an agreement between firms (or countries) to formally collude on price and output and then agree on the distribution of output
nash equilibirum
an equilibrium outcome of the game where none of the players are willing to deviate from their choice unless another player deviates
price discrimination
charging consumers different prices for the same product
When a monopolist increases the amount of output that it produces and sells, average revenue
decreases, and marginal revenue decreases.
Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue
does not change
Assume that this Friday you would like to go to the club. You ask your friends to go with you, but they all want to go to the movies. Despite your friends not wanting to go with you, you decide to go to the club anyway because you really want to go dancing. This type of thinking BEST resembles a:
dominant strategy.
One of the differences between perfect competition and monopoly is that the monopolistic firm's demand curve is
downward slope
In the prisoners' dilemma game, self-interest leads
each prisoner to confess.
______ is when firms leave the market for good. its a _____-run decisions
exiting; long
which of the following is likely to be a perfectly competitive industry?
farm commodities
Robin owns a horse stable and riding academy and gives riding lessons for children at "pony camp." His business operates in a competitive industry. Robin gives riding lessons to 20 children per month. His monthly total revenue is $4,000. The marginal cost of pony camp is $250 per child. In order to maximize profits, Robin should
give riding lessons to fewer than 20 children per month
An oligopolist will increase production if the output effect is
greater than the price effect.
In both perfect competition and monopolistic competition, each firm
has many competitors
The equilibrium quantity in markets characterized by oligopoly is
higher than in monopoly markets and lower than in perfectly competitive markets.
The kinked demand curve model assumes that if a firm raises its price, then its rivals will _____ the price increase, but if a firm lowers its price, its rivals will _____ the price decrease.
ignore; match
contestable market
industries in which the threat of competition keeps prices low
HHi > 2500
industry is highly concentrated
1500 < HHI < 2500
industry is moderately concentrated
HH! < 1500
industry is not concentrated
When profit-maximizing firms in competitive markets are earning profits,
new firms will enter the market.
A market structure with only a few sellers, each offering similar or identical products, is known as
oligopoly
Which of the following conditions is characteristic of a monopolistically competitive firm in both the short run and the long run?
p > mc
A firm in a competitive market has the following cost structure: Quantity (Units) - Total Cost (Dollars) 0 5 1 10 2 12 3 15 4 24 5 40 If the market price is $16, this firm will
produce 5 units of output in the short run and face competition from new market entrants in the long run
The deadweight loss associated with a monopoly occurs because the monopolist
produces an output level less than the socially optimal level.
which of the following is not a major barrier to entry for a monopolist?
product standardization
Economic ______ attracts entry Economic ______ leads to exit
profit; loss
3rd degree price discrimination
selling based on some individual characteristics (age, students)
The accountants hired by Forever Fitness have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, Forever Fitness should
shut down because staying open would be more expensive.
_____ _____ is when firms stop operating temporarily, just like some restaurants on the Strip during break. its a ______-run decision
shutting down; short
game theory
the study of how individuals and firms make strategic decisions to achieve goals when other players or factors can influence that outcome
1st degree price discrimination
when you charge everyone their willingness to pay; almost impossible to do
should a perfectly competitive firm keep producing even if it faces short-run losses?
yes, as long as it is covering its variable costs
Cartels are difficult to maintain because
each firm has an incentive to deviate from its agreed output level.
The following table provides information on the price, quantity, and average total cost for a monopoly. Price (Dollars per unit) - Quantity (Units) - Average Total Cost (Dollars per unit) 24 0 -- 18 5 14.00 12 10 11.00 6 15 10.67 0 20 11.00 What is the maximum profit that the monopolist can earn?
$20
A monopolist can sell 300 units of output for $50 per unit. Alternatively, it can sell 301 units of output for $49.60 per unit. The marginal revenue of the 301st unit of output is
-$70.40.
The table shows the demand schedule for a particular product. Quantity Demanded (Units) - Price (Dollars per unit) 0 16 1 14 2 12 3 10 4 8 5 6 6 4 7 2 8 0 If the marginal cost of production in this market is $4, what is the socially efficient quantity of output?
6 units
Which of the following is not an example of price discrimination?
A bakery charges a higher price for brownies than for cookies.
Suppose that a firm in a competitive market faces the following revenues and costs: Quantity (Units) - Marginal Cost (Dollars) - Marginal Revenue (Dollars) 12 5 7 13 6 7 14 7 7 15 8 7 16 9 7 17 10 7 If the firm is currently producing 14 units, what would you advise the owners?
Continue to operate at 14 units
oligopoly
Few large firms Interdependent decision making Substantial barriers to market entry Shared market power and considerable control over price Potential for long-run economic profit
monopoly
One firm No close substitutes for its product Nearly insurmountable barriers to entry Substantial market power and control over price Potential for long-run economic profit
Which of the following expressions is correct for a competitive firm?
Profit = (quantity of output) × (price − average total cost)
Suppose a firm in a competitive market earned $3,000 in total revenue and had a marginal revenue of $30 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?
$30 and 100 units
Suppose a firm produces 20 units of output. At this level of output, ATC = 35, P = 55, MR = 30, and MC = 30. The firm's economic profit is:
$400
is sean can sell 10 skateboards at $100 each or 11 skateboard at $95 each what is the marginal revenue of the 11th skateboard?
$45
monopolistic competition
Common Many buyers and seller Differentiated products Little to no barries to exit or enter a market Some control over price No long-run economic profit
monopolistic competition
Big number of sellers Differentiated products Positive economic profit in the short run Easy entry/exit to the market Zero economic profits in the long run
perfect competition characteristics
Many buyers and seller Homogenous (identical) products No barriers to exit or enter the market No control over price No long-run economic profit
The output level that maximizes profit is where
Marginal revenue is equal to marginal cost
Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly?
Monopolistic competition features many sellers.
conditions for price discrimination
Must have some control over price Must be able to separate the market into groups based on elasticities of demand Must be able to prevent arbitrage