ECO/365 Microeconomics - Product Markets: Perfect Competition, Pure Monopoly, Monopolistic Competition and Oligopoly
The table below shows Ali's monthly costs of producing wheat. Suppose the current market price of wheat is $56.00 per bushel. Ali's Wheat Production Costs Quantity (bushels) - AVC (dollars) - ATC (dollars) - MC (dollars) 0 — — — 500 - $40.00 - $240.00 - $40.00 1,000 - 35.00 - 85.00 - 30.00 1,500 - 30.00 - 63.33 - 20.00 2,000 - 30.00 - 55.00 - 30.00 2,500 - 31.00 - 51.00 - 35.00 3,000 - 32.67 - 49.33 - 41.00 3,500 - 34.86 - 49.15 - 48.00 4,000 - 37.50 - 50.00 - 56.00 4,500 - 40.57 - 51.67 - 65.00 5,000 - 44.00 - 54.00 - 75.00 Instructions: Enter your answers as a whole number. If you are entering a negative number include a minus sign. a. If the market price is $56.00 per bushel of wheat, and Ali chooses to produce wheat, how much will he produce per month to maximize his profits in the short run? b. Calculate Ali's monthly profits (express a loss as a negative number) if he chooses to produce the profit-maximizing quantity of wheat at a price of $56.00. c. Assume that the market price of wheat falls to $35.00 per bushel. How much wheat will Ali choose to produce per month in order to maximize his profits in the short run? d. Calculate Ali's monthly profits (express a loss as a negative number) if he chooses to produce the profit-maximizing quantity of wheat at a price of $35.00. e. If the market price of wheat instead falls to $20.00 per bushel, how much wheat will Ali choose to produce per month in order to maximize his profits in the short run?
a. 4,000 b. 24,000 (56x4,000)-(50x4,000) 224,000-200,000 c. 2,500 d. -40,000 (35x2500)-(51x2500) 87,500-127,500 e. 0 Since price is less than average variable cost
The table below shows Ali's monthly costs of producing wheat. Suppose the current market price of wheat is $84.85 per bushel. Ali's Wheat Production Costs Quantity (bushels) - AVC (dollars) - ATC (dollars) - MC (dollars) 0 — — — 500 - $19.85 - $29.85 - $4.85 1,000 - 16.85 - 22.35 - 14.85 1,500 - 14.85 - 23.18 - 22.85 2,000 - 19.85 - 26.10 - 34.85 2,500 - 24.85 - 29.85 - 44.85 3,000 - 29.85 - 34.02 - 54.85 3,500 - 34.85 - 38.42 - 64.85 4,000 - 39.85 - 42.98 - 74.85 4,500 - 44.85 - 47.63 - 84.85 5,000 - 49.85 - 52.35 - 94.85 Instructions: Round your answers to two decimal places. If you are entering a negative number include a minus sign. a. If the market price is $84.85 per bushel of wheat, and Ali chooses to produce wheat, how much will he produce per month to maximize his profits in the short run? b. Calculate Ali's monthly profits (express a loss as a negative number) if he chooses to produce the profit-maximizing quantity of wheat at a price of $84.85. c. Assume that the market price of wheat falls to $22.85 per bushel. How much wheat will Ali choose to produce per month in order to maximize his profits in the short run? d. Calculate Ali's monthly profits (express a loss as a negative number) if he chooses to produce the profit-maximizing quantity of wheat at a price of $22.85. e. If the market price of wheat instead falls to $14.85 per bushel, how much wheat will Ali choose to produce per month in order to maximize his profits in the short run?
a. 4500 b. 167490 c. 1500 d. -495 e. 0
The table below shows the marginal revenue and costs for a monopolist. Demand, Costs, and Revenues Price (dollars) - Quantity Demanded - Marginal Revenue (dollars) - Marginal Cost (dollars) - Average Total Cost (dollars) $130 - 200 - $110 - $25 - $139.00 120 - 300 - 90 - 32 - 103.30 110 - 400 - 70 - 40 - 87.50 100 - 500 - 50 - 50 - 80.00 90 - 600 - 30 - 62 - 77.00 80 - 700 - 10 - 77 - 77.00 What is the monopolist's profit at the profit-maximizing level of output?
$10,000
Demand and Revenues for a Monopoly Price (dollars) - Quantity (units) - Total Revenue (dollars) - Marginal Revenue (dollars) $40 - 0 - ? - ? $35 - 5 - ? - ? $30 - 10 - ? - ? $25 - 15 - ? - ? $20 - 20 - ? - ? $15 - 25 - ? - ? Using the demand schedule, what is the marginal revenue (MR) for the 10th unit?
$25 TR = P × Q. TR at 5 = (35)(5) = $175. TR at 10 = (30)(10) = $300. MR = change in TR/change in Q. (300 − 175)/(10 − 5) = (125)/(5) = $25.
Demand and Revenues for a Monopoly Price (dollars) - Quantity (units) - Total Revenue (dollars) - Marginal Revenue (dollars) $40 - 0 - ? - ? $35 - 5 - ? - ? $30 - 10 - ? - ? $25 - 15 - ? - ? $20 - 20 - ? - ? $15 - 25 - ? - ? Using the demand schedule, what is the total revenue (TR) for the 15th unit?
$375 TR = P × Q. TR at 10 = (30)(10) = $300. TR at 15 = (25)(15) = $375.
Multiple Choice Question Using the graph, what price should the monopoly charge for the profit-maximizing level of output?
$6
Marginal revenue is the:
additional revenue associated with the sale of an additional unit of output.
Referring to the graph, the profit or loss amount for Sandra's Sweets at the profit-maximizing output and price is $.
-1280
Use the following graphs to answer the next question. In graph 1, a decreasing line labeled MR intersects an increasing line from origin labeled D. In graph 2, two decreasing lines, MR and D begin from the same point at the vertical axis and MR has a greater slope than D. MR lies near the origin. In graph 3, two decreasing parallel lines, MR and D are drawn. MR lies near the origin. In graph 4, two decreasing lines, MR and D begin from the same point at the vertical axis. D has a greater slope than MR, lies near the origin, and meets the horizontal axis. Which of the above shows the correct relationship between demand and marginal revenue for a pure monopoly?
Graph 2
What is true about firms in monopolistic competition in the short-run?
Monopolistically competitive firms can generate an economic profit, a normal profit, or an economic loss.
The graph below depicts the revenue and cost curves for Pike's Flower Shop. Instructions: Enter your answers as a whole number. a. What is the market price for a bouquet of flowers? b. What is the profit-maximizing level of output for Pike's? c. What are Pike's weekly profits at the profit-maximizing level of output? d. At what market price is a normal profit generated?
a. $14 (MR line) b. 150 (MR intercepts MC) c. $600 d. $8
Monopolistic competition is characterized by firms
producing differentiated products.
A monopoly is not really a monopoly when there are no _ to entry.
barriers, obstacles, or impediments
Monopolies do not achieve allocative efficiency because they do not produce in such a way that their price or marginal _ equals their marginal _.
benefit, benefits, or revenue; revenues, cost, or costs
In a perfectly competitive market, we assume the product is identical in the minds of _.
consumers
The difference between the economic surplus when the market is at its competitive equilibrium and the economic surplus when the market is not in equilibrium is the:
deadweight loss.
The strategy of distinguishing one firm's product from the competing products of other firms is called product _.
differentiation
Use the following graph for a perfectly competitive firm to answer the next question. The firm is:
earning a normal profit.
Normal profit is also known as zero _ profit.
economic
Total revenue minus the implicit and explicit costs of production is _ profit.
economic
Total revenue minus the implicit costs and explicit costs of production is _ profit.
economic
Zero _ profit is the revenue needed for a company to break even and meet operating costs without a loss.
economic
Zero _ profit is when the firm's revenue equals its economic costs without a loss.
economic
Zero _ profit is when the firm's revenue equals its operating costs without a loss.
economic
_ profit creates an incentive for other monopolistically competitive firms to enter the market.
economic
When a firm has a loss, the total revenue is _ than the total cost.
less
When compared with a perfectly competitive market with identical costs of production, a pure monopoly will produce:
less output and charge a higher price.
Monopolies produce _ output than competitive markets and are likely to hire _ labor.
less; less
The level of profit that occurs when the total revenue is less than the total cost is known as a(n) _.
loss
If a monopoly wants to sell more units, it must _ the price for every unit it sells.
lower, reduce, or decrease
A pure _ has the overall demand to itself because it is the only seller in a market.
monopoly
Producing output at the lowest possible total cost per unit of production is:
productive efficiency.
All firms maximize _ by producing the quantity of output at which the marginal revenue is equal to the marginal cost.
profit
Total _ equals price times quantity.
revenue
For the profit-maximizing level of output, the price charged by a monopoly is not just different but greater than marginal _.
revenue, cost, or costs
A monopolistically competitive firm should produce output until the marginal _ equals the marginal _.
revenue; cost
All firms maximize profits by producing the quantity of output at which the marginal _ is equal to the marginal _.
revenue; cost
Profit equals (average (revenue/cost) minus average total (revenue/cost) multiplied by output.
revenue; cost
Profit equals (average _ minus average total _) multiplied by output.
revenue; cost
Profit equals total _ minus total _.
revenue; cost
When a firm has a loss, the total _ is less than the total _.
revenue; cost
Given that oligopolistic firms face other competitors in their markets, their behavior must definitely be:
strategic
When the total revenue earned by a firm is less than the total cost of production,:
the firm faces a loss.
One difference between monopolistic competition and pure competition is that
there is some control over price in monopolistic competition.
A pure monopoly will generate an economic profit whenever:
total revenue is greater than total cost.
The price of a good times the number of units sold gives us:
total revenue.
Use the following graph for a profit-maximizing pure monopoly to answer the next question. At equilibrium, the firm will be generating:
an economic profit.
The total revenue divided by the number of units of a product sold is the _ revenue.
average
Which of the following markets could be considered monopolistically competitive? (Choose all that apply.)
Fast food; Clothing; Hotels
Average revenue is the:
amount of revenue per unit of a product sold.
Which of the following is true under conditions of perfect competition?
No single firm can influence the market price.
One feature of pure monopoly is that the firm is
a price maker.
Use the following graph to answer the next question. What is the difference between the perfectly competitive equilibrium level of output and the pure monopoly equilibrium level of output?
20 units
The figure below shows the demand, marginal revenue, marginal cost, and average total cost curves for a monopolist. For this monopolist, the profit-maximizing quantity is _ units and the profit-maximizing price is $_ .
75; $250
In order for a monopolistically competitive firm to produce at a point that is both productively and allocatively efficient, which of the following has to be true about the profit-maximizing quantity?
Demand = Marginal Cost = ATC
Which of the following best represents the pricing behavior of firms in an oligopolistic market?
Looking Over Your Shoulder Handbag Co. chooses the price it charges by estimating what its rivals are most likely to do and then taking their responses into consideration.
_ competition is a market structure characterized by the interaction of large numbers of buyers and sellers in which the sellers produce a standardized or homogeneous product.
Perfect
Compared to an unregulated natural monopoly, what is true about the price charged and quantity produced when a natural monopoly is regulated?
Price is lower and Quantity is higher
Determine whether the following firms operate in an industry that is considered a perfectly competitive market or pure monopoly. a. Katherine's Orchard sells apples in Washington, a state in which many orchards are selling similar apples. b. The Station operates a gas station in a small town, with no close competitors for miles. c. Moe's Service Center is the only service station in town to offer brand name tires. d. The Coffee Shop offers coffee for the market price. It is unable to charge any price above the market price or customers will purchase coffee from a competitor.
a. perfectly competitive market b. pure monopoly c. pure monopoly d. perfectly competitive market
Pure monopolies do not achieve _ efficiency meaning that they do not produce the amount of output that maximizes the sum of producer and consumer surplus.
allocative
The value of the _ surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium is the deadweight loss.
economic, social, or total
When monopolistically competitive firms follow the marginal revenue and the marginal cost rule, the result can be _ profits, _ profits, or even losses, depending on market conditions.
economic; normal
Total revenue minus the _ and _ costs of production is economic profit.
explicit; implicit
The marginal cost is the:
extra or additional cost associated with the production of an additional unit of output.
The marginal revenue is the:
extra or additional revenue associated with the production of an additional unit of output.
In a perfectly competitive market, we assume the products are __ in the minds of consumers.
identical
Total revenue minus the _ costs and _ costs of production is economic profit.
implicit; explicit
As the market price _, all else held constant, a profit-maximizing firm can afford to expand its production.
increases
The marginal revenue curve faced by a perfectly competitive firm
is horizontal at the market price.
The extra or additional cost associated with the production of an additional unit of output is the _ cost.
marginal
The extra or additional revenue associated with the production of an additional unit of output is the _ revenue.
marginal
Extra or additional revenue associated with the production of an additional unit of output is the:
marginal revenue.
A person who invents the ability to time travel will likely operate as a(n) _ because there would be no substitutes and entering that market would be difficult for anyone else.
monopoly
A pure _ is a price maker engaging in nonprice competition.
monopoly
A pure _ is the only seller in a market.
monopoly
A(n) _ produces less output than a competitive firm and therefore is likely to hire less labor.
monopoly
The level of profit that occurs when total revenue is equal to total cost is known as _ profit.
normal
The long-run equilibrium in a monopolistically competitive market results in firms realizing _ profits, which removes all incentives for firms to enter or exit the industry.
normal
A(n) _ 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 or accounting
Referring to the graph, Sandra's Sweets is a monopolistically competitive firm that produces 120 cakes. This level of production is:
not productively or allocatively efficient.
The behavior followed by _ firms needs to be strategic, given that they face other competitors in their markets.
oligopolistic or oligopoly
In an _ market, there are relatively few firms and the product is either standardized or differentiated.
oligopoly or oligopolistic
A market structure characterized by the interaction of large numbers of buyers and sellers in which the sellers produce a standardized or homogeneous product is known as:
perfect competition.
Monopolistically competitive firms are unable to produce enough output to reach the minimum average total cost because of the:
presence of other monopolistically competitive firms in the industry.
Clara produces and sells tomatoes in a perfectly competitive market. This implies that Clara's marginal revenue generated from selling an additional unit of tomatoes is always equal to
price
In the long run, a monopolistically competitive firm will charge a(n) _ equal to the average total cost per unit produced.
price
The demand for a perfectly competitive firm's product is a horizontal line originating at the market _.
price
Monopoly power is the ability of a monopoly to influence _ by controlling the _ that it produces in the market.
price or output quantity or amount
Firms that take or accept the market price and have no ability to influence that price are known as:
price takers.
Pure monopolies do not achieve allocative efficiency meaning that they do not produce the amount of output that maximizes the sum of _ and _ surplus.
producer; consumer
The strategy of distinguishing one firm's product from the competing products of other firms is called _ differentiation.
product
Producing output at the lowest possible total cost of production per unit is _ efficiency.
productive
Use the graph of a monopolistically competitive firm above to answer the following question. What is the amount of profit or less Monica will make at the profit maximizing price and quantity?
Profit of $2000
A firm sustains a loss if:
TR < TC.
_ efficiency is producing the goods and services that consumers most want in such a way that the marginal benefit equals the marginal cost.
allocative
Producing the goods and services that consumers most want in such a way that the marginal benefit equals the marginal cost is:
allocative efficiency.
For the profit-maximizing level of output, the price charged by a monopoly is not just different but _ than marginal revenue.
greater
Matching Question Referring to the graph, assume the government wants to regulate the market for cable television, a natural monopoly. Match the price to the unregulated monopoly price, the regulated normal profit price, and the regulated competitive price.
Unregulated monopoly price-$60 Regulated Normal Profit price-$40 Regulated competitive price-$30
In monopolistic competition, once you find the profit-maximizing quantity, how do you find the profit-maximizing price?
You read the corresponding price from the demand curve.
A perfectly competitive producer is:
a "price taker."
The efficiency loss resulting from a monopolistic market is called:
a deadweight loss.
The table below shows the total cost (TC) and marginal cost (MC) for Baker Street, a perfectly competitive firm producing different quantities of apple pies. The market price of apple pies is $5.00 per pie. a. Fill in the marginal revenue (MR) and average revenue (AR) columns. Instructions: Round your answers to two decimal places. Baker Street's Costs and Revenues Quantity (apple pies) - TC (dollars) - MC (dollars) - MR (dollars) - AR (dollars) 10 - $65.00 - $4.00 - $? - $? 15 - 82.50 - 3.50 - ? - ? 20 - 102.50 - 4.00 - ? - ? 25 - 127.50 - 5.00 - ? - ? 30 - 162.50 - 7.00 - ? - ? 35 - 207.50 - 9.00 - ? - ? Instructions: Enter your answers as a whole number. b. At the market price of $5.00 per apple pie, how many apple pies should Baker Street make? c. If the market price for apple pies were to rise to $7.00 per apple pie, how many apple pies should Baker Street make?
a. MR: 5, 5, 5, 5, 5 AR: 5, 5, 5, 5, 5 b. 25 c. 30
Total revenue equals:
price times quantity.
Use the following graph showing cost curves for a perfectly competitive firm to answer the next question. If the market price decreases to $0.55, the profit-maximizing quantity of output is
0.
What are the likely reason(s) that the market for electricity is not perfectly competitive? Select all that apply.
There are a few sellers in the market. It is difficult to enter or exit the industry as a supplier.
The characteristic most closely associated with oligopoly is
a few large producers.
In perfect competition,:
firms cannot influence the market price with production decisions.
Monopolistic competition is characterized by excess capacity because
firms produce at an output level less than the least-cost output.
The demand for a perfectly competitive firm's product is a horizontal line originating at the:
market price.
Profit _ implies that monopolistically competitive firms should expand production up to the point where the marginal revenue equals the marginal cost.
maximization or maximizing
A market structure characterized by a relatively large number of sellers producing a differentiated product - for which they have some control over the price they charge - in a market with relatively easy market entry and exit is known as _ competition.
monopolistic
Because _ competitive firms have some control over prices, the firm will charge consumers the price they are willing and able to pay for the available output, which is found by projecting the profit-maximizing output level onto the _ curve.
monopolistic; demand
Use the following cost table to answer the next question. Output - Average Variable Cost - Average Total Cost - Marginal Cost 0 - - - - 2 - $2.50 - $27.50 - $2.5 4 - 2.00 - 14.50 - 1.5 6 - 2.00 - 10.33 - 2.0 8 - 2.13 - 8.38 - 2.5 10 - 2.30 - 7.30 - 3.0 12 - 2.50 - 6.67 - 3.5 14 - 3.00 - 6.57 - 6.0 16 - 4.00 - 7.13 - 11.0 The table shows cost data for a perfectly competitive firm. If the market price for the firm's product is $6, what output level will the firm produce to maximize profits?
14
Which of the following markets would most closely resemble monopolistic competition?
Wine
Monopolistic competition is a market characterized by:
a relatively large number of sellers producing a differentiated product - for which they have some control over the price they charge - in a market with relatively easy market entry and exit.
Acme Anvils has a newly patented anvil that is ready for the market. While there are plenty of other anvil producers, Acme's anvils are unique. Past models have been featured in a number of animated short films over the years. The weekly demand and cost information for Acme Anvils are described in the graph below. a. To maximize its profits, Acme should produce _ and charge a price of $_ per anvil. b. At its profit-maximizing level, Acme's weekly profits are $_ per week. c. Even though Acme has a patent on its particular type of anvil, there are many other potential anvil makers out there. Which of the following is most likely to happen in the long run?
a. 100; $600 (MR intercepts MC); (D price at inception quantity) b. $10,000 (100x600)-(100x500) (D quantity*price)-(ATC quantity*price) c. Other firms will look for other innovations to try to capture some of Acme's profits.
The graph below depicts the revenue and cost curves for a firm operating in the athletic apparel market. Instructions: Enter your answer as a whole number. If you are entering a negative number include a minus sign. a. To maximize its profits, the firm should produce _ units and charge a price of $ _. b. At the profit-maximizing level of output, average total cost per unit is $ _. c. At its profit-maximizing level, profits are $ _.
a. 80; $14 b. 16 c. $-160