Econ unit 10, chapter 12

Profit for the monopoly firm is maximized where _____.

MR = MC

Marginal revenue product cannot be calculated as MP x P for the firm with market power because _____.

MR =/= P

Marginal revenue product is calculated as _____ for the firm with market power.

MR x MP

The firm with market power will hire variable input until _____.

MRP = wage

Industry and firm demand are the same for the _____ firm.

Monopoly

Monopolistic competition is similar to _____ because output of firms is differentiated.

Monopoly

A firm in a monopolistic competition will have _____ profits in the long run.

Zero

In the short-run, a firm in a monopolistic competition behaves like ______.

A monopoly

T/F: Advertising does not contribute to brand loyalty.

False

T/F: Economies of scale is a barrier to entry in an industry with a very high demand for product.

False

When the cost to learn about a new product is high, this can lead to the barrier to entry called _____.

Consumer lock-in

If the MC of production from plant A is greater than the MC of production from plant B, the manager should _____.

Decrease production at plant A and increase production at plant B

_____ ensure that a monopoly maintains its market power.

Entry barriers

Click and drag: Order the steps for the profit-maximizing output and pricing decision for the firm with market power.

Estimate the demand equation; Find the inverse demand equation; Solve for marginal revenue; Estimate AVC and MC; Find the output and price where MR - SMC; Check the shut-down rule

Select all that apply: Examples of government-created barriers to entry include _____.

Exclusive franchises; Licenses; Patents

Select all that apply: A firm wishing to enter an industry in which the long-run average costs curve continues to decline over ranges of output that are high relative to the market demand for the good would find entry prohibitive because of _____.

Government created entry barriers; Economies of scale

A low Lerner Index means that firms _____.

Have little market power

The Lerner Index is _____ when demand is inelastic.

Higher

Select all that apply: A strong barrier to entry _____.

Hinder the introduction of goods to compete with those that already exist; Protect the profits of existing firms; Exists when it is difficult for new firms to enter a market

In the long-run, a firm in monopolistic competition will produce _____.

LAC = P

In the long-run, the monopoly firm will choose plant size so that _____.

LMC = MR

Substitutes for a good can be identified by finding goods with _____ cross-price elasticities.

Large, positive

An inelastic demand curve indicates that as prices increase, consumers will decrease _____ they would if the demand curve were elastic.

Less than

Elasticity of demand can measure market power because the ______ elastic is demand, the ______ competitors firm has.

Less; fewer

For the firm with market power, the marginal revenue curve _____ the demand curve.

Lies below

The monopoly firm will never operate on the inelastic portion of the demand curve because _____.

MR < 0

A monopoly firm maximizes profit where MR = MC

MR < P

A firm in monopolistic competition will maximize profit where _____.

MR = MC

The firm with market power will employ all variable inputs at the level where _____.

MRP = input price

A _____ identifies the producers and products or service types that compete in a particular geographic area that is large enough to include all competing sellers.

Market definition

Select all that apply: In the long-run the monopoly firm _____.

May leave the industry if earning losses; Will adjust plant size as demand conditions warrant; Can continue to earn a profit as no new firms can enter

Under _____, the market consists of a large number of relatively small firms that produce similar but differentiated products and have some market power.

Monopolistic competition

A _____ firm produces a product for which there are no close substitutes.

Monopoly

When the value of a good is enhanced when many people use the good, that good is characterized by _____.

Network effects

A firm in monopolistic competition will have zero profits in long run because _____.

New firms will enter when profits are earned in the short run

The Lerner Index is calculated _____.

P - MC / P

The monopoly firm will shut down in the short run when _____.

P < AVC

The monopoly firm will earn a profit in the short-run if _____.

P > ATC

The monopoly firm will continue to operate even if earning losses in the short-run if _____.

P > AVC

The slope of the linear MR curve is _____ the slope of the linear demand curve.

twice as steep as

A monopolistic competitive firm is one that _____.

Sells a produce with similar, but not perfect, substitutes, but low entry barriers

Select all that apply: The characteristics of monopolistic competition include _____.

Similar product; Unrestricted entry and exit; Large number of relatively small firms

Costs of setup that can be so high that a manager may reasonably conclude that entering business may not be profitable are a barrier to entry called _____.

Sunk costs

When a firm produces output in two plants, the manager should allocate production between the two plants so that _____.

The MCs of the last unit produced in each plant are equal

If the wage is greater than the average revenue product for the firm _____.

The firm should shut down in the short-run

The relevant portion of the MRP curve for hiring is _____.

The portion below ARP

A network effect occurs when _____.

The value of a good increases as more people use the product

A firm in a monopolistic competition faces a ______ demand curve.

Relatively elastic

Select all that apply: Sunk costs _____.

Can be a barrier to entry; Should be ignored because they do not affect post-entry profit

Customers may create a barrier to entry through always buying the same brand of a product. This is called _____.

Brand loyalty

When one firm or a few firms controls all the known supply of an input, this _____.

Is a barrier to entry

Select all that apply: Market power _____.

Is the power to change prices without losing all their sales; Is something competitive firms don't have; Makes long-run economic profit possible

The monopoly firm's demand curve ______.

Is the same as the market demand

_____ causes firms in monopolistic competition to have some market power.

Product differentiation

Firms with market power sell _____.

Products that are different from other firms' products

A large, positive cross-price elasticity measures that consumers view the two goods as _____.

Readily substitutable