micro econ exam 3
Refer to Figure 13-4.What is the area that represents the total revenue made by the firm?
0 P2 c Qa
Refer to Figure 13-4. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged?
P2
Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing price?
P4
Refer to Table 13-2. What is the output (Q) that maximizes profit and what is the price (P) charged?
P=$50; Q=6 cases
A firm will make a profit when
P>ATC
Which of the following is not a characteristic of long-run equilibrium in a monopolistically competitive market?
Production is at minimum average total cost.
Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing output?
Q2 units
Refer to Table 13-3. What are the profit-maximizing/loss-minimizing output level and price?
Q=4; P=$17
To maximize their profits and defend those profits from competitors, monopolistically competitive firms must
To differentiate their products
If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm
should shut down
An individual seller in perfect competition will not sell at a price lower than the market price because
the seller can sell any quantity she wants at the prevailing market price.
Refer to Table 13-2. What is Eco Energy's profit?
$145
If the market price is $25, the average revenue of selling five units is
$25
Refer to Table 13-3. What is the amount of the firm's loss at its optimal output level?
$41
Refer to Figure 12-5. The firm's manager suggests that the firm's goal should be to maximize average profit. If the firm does this, what is the amount of profit that it will earn?
$6,600
Refer to Figure 12-5. If the market price is $20, what is the firm's profit-maximizing output?
1,350 units
Refer to Figure 12-4. If the market price is $30, the firm's profit-maximizing output level is
180
Although advertising raises the price of a monopolistic competitor's product, it does confer a benefit to consumers. Which of the following is a benefit to consumers?
Advertising could provide consumers with useful information about new products and enable them to comparison shop.
Refer to Figure 14-2. If the government delays Gigacom's entry and Xenophone moves first, what is the likely outcome in the market?
Both offer DSL internet service; Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million.
Refer to Figure 14-2. Now suppose that the government delays Xenophone's entry and Gigacom moves first, what is the likely outcome in the market?
Both offer internet service via cable line; Xenophone earns a profit of $6 million and Gigacom earns a profit of $9 million.
What is the dominant strategy in the prisoner's dilemma?
Each prisoner confesses because this is the rational action to pursue.
Which of the following characteristics is common to monopolistic competition and perfect competition?
Entry barriers into the industry are low.
Refer to Figure 14-2. If the government delays Gigacom's entry and Xenophone moves first, is a threat by Gigacom that it will provide DSL service if Gigacom provides cable service a credible threat?
No, because Gigacom will lose $4.5 million in profits if it carries out its threat.
Is a monopolistically competitive firm productively efficient?
No, because it does not produce at minimum average total cost.
Refer to Table 14-1. Is there a dominant strategy for Star Connections and if so, what is it?
No, its outcome depends on what Godrickporter does.
Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's average profit?
P - ATC
Refer to Table 12-3. What price (P) will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?
P = $12.50; profit = $22.50
A firm will break even when
P = ATC
Refer to Figure 12-3. If the firm is producing 500 units, what is the amount of its profit or loss?
There is insufficient information to answer the question.
Refer to Table 14-1. Is there a dominant strategy for Godrickporter and if so, what is it?
Yes, Godrickporter should increase its advertising spending.
Refer to Figure 14-1. If Lexus lowers its price, will this deter BMW from entering the market?
Yes, because BMW stands to lose $100 million if it competes with Lexus.
Refer to Figure 14-1. Should Lexus lower its price in order to deter BMW's entry into the luxury hybrid automobile market?
Yes, it will drive BMW out of the market
Refer to Table 14-2. Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?
Yes, the current situation is a Nash equilibrium.
A perfectly competitive firm earns a profit when price is
above minimum average total cost
Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?
advertising that it will match its rival's price
In a decision tree, the difference between a decision node and a terminal node is that
at a decision node, a decision must be made while a terminal node shows the payoff.
For productive efficiency to hold
average total cost is minimized in production
Why does a prisoner's dilemma lead to a noncooperative equilibrium?
because each rational player has a dominant strategy to play a certain way regardless of what other players do
An oligopoly firm is similar to a monopolistically competitive firm in that
both firms have market power
A set of actions that a firm takes to achieve a goal, such as maximizing profits, is called
business strategy
Both individual buyers and sellers in perfect competition
have to take the market price as a given.
Sequential games are often used to analyze which two types of business strategies?
deterring entry by another firm and bargaining between firms
Marginal revenue for an oligopolist is
difficult to determine because the firm's demand curve is typically unknown.
Both buyers and sellers are price takers in a perfectly competitive market because
each buyer and seller is too small relative to others to independently affect the market price
In a subgame perfect equilibrium
each player's strategy constitutes a Nash equilibrium at every subgame of the original game.
The demand curve for each seller's product in perfect competition is horizontal at the market price because
each seller is too small to affect market price.
A monopolistically competitive industry that earns economic profits in the short run will
experience the entry of new rival firms into the industry in the long run
An oligopolistic industry is characterized by all of the following except
firms pursuing aggressive business strategies, independent of rivals' strategies.
Oligopolies are difficult to analyze because
how firms respond to a price change by a rival is uncertain.
A characteristic found only in oligopolies is
interdependence of firms
If a perfectly competitive firm's price is above its average total cost, the firm
is earning a profit.
If a firm faces a downward-sloping demand curve
it must reduce its price to sell more units
Refer to Figure 12-1. If the firm is producing 700 units
it should cut back its output to maximize profit.
Refer to Figure 12-1. If the firm is producing 200 units
it should increase its output to maximize profit.
Refer to Figure 12-4. If the market price is $30 and the firm is producing output, what is the amount of the firm's profit or loss?
loss of $1,080
Refer to Figure 13-11. The firm represented in the diagram
makes zero economic profit
The key characteristics of a monopolistically competitive market structure include
many small (relative to the total market) sellers acting independently.
A perfectly competitive firm's supply curve is its
marginal cost curve above its minimum average variable cost.
Producing a differentiated product occurs in which of the following industries?
monopolistic competition and oligopoly
If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then
new firms are attracted to the industry
When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell
nothing at all; the firm shuts down.
A monopolistically competitive firm faces a downward-sloping demand curve because
of product differentiation
In an oligopoly market
one firm's pricing decision affects all the other firms.
A very large number of small sellers who sell identical products imply
the inability of one seller to influence price.
Which of the following is the best example of an oligopolistic industry?
pharmaceutical industry
A monopolistically competitive firm maximizes profit where
price > marginal cost
For allocative efficiency to hold
price must equal the marginal cost of the last unit produced.
In a perfectly competitive market the term "price taker" applies to
sellers and buyers
The key characteristics of a monopolistically competitive market structure include
sellers selling similar but differentiated products
In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use
sequential games
If price exceeds average variable cost but is less than average total cost, a firm
should stay in business for a while longer until its fixed costs expire.
If a perfectly competitive firm's total revenue is less than its total variable cost, the firm
should stop production by shutting down temporarily.
Sequential games are used to analyze
situations in which one firm acts and other firms respond.
In the long run, a perfectly competitive market will
supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve.
If a firm shuts down it
will suffer a loss equal to its fixed costs.
A major difference between monopolistic competition and perfect competition is
that products are not standardized in monopolistic competition unlike in perfect competition
In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?
the demand curve will shift to the left and become more elastic
Brand management refers to
the efforts to maintain the differentiation of a product over time
Refer to Figure 12-10. The firm's short-run supply curve is its
the marginal cost curve from b and above
An oligopolist differs from a perfect competitor in that
there are no entry barriers in perfect competition but there are entry barriers in oligopoly
In the long run, if price is less than average cost
there is an incentive for firms to exit the market.
All of the following are ways by which existing firms can deter the entry of new firms into an industry except
threatening to raise prices.
Monopolistically competitive firms can differentiate their products
through marketing
What is the profit-maximizing rule for a monopolistically competitive firm?
to produce a quantity such that marginal revenue equals marginal cost
Which of the following is not a reason why government officials are willing to impose entry barriers?
to promote an equitable distribution of income
In the short run, a firm that is operating at a loss has two options. These options are
to shut down temporarily or continue to produce.
Refer to Table 14-2. Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor. What is the purpose of such a strategy?
to signal to each other that they intend to charge the high price
A firm that successfully differentiates its product or lowers its average cost of production creates
value for its customers
The prisoner's dilemma illustrates
why firms will not cooperate if they behave strategically
Refer to Figure 12-9. At price P1, the firm would produce
zero units