Microeconomics Exam 3

Metropolitan power and light is a monopoly in the electrical generation and distribution industry. If it charges $1 per kilowatt hour, it's marginal revenue could be

$0.75 (for a monopolist, marginal revenue is less than price)

If price is $10 and quantity sold is 55, average revenue is equal to

$10 (divide total revenue by number of units sold)

Food sold on the street and developing countries are an example of perfectly competitive markets. If a vendor sells an item for the equivalent of four dollars each and sells a total of 25, then his or her total revenue is

$100 (price x quantity)

Suppose that a monopolist decides to produce and sell 10 units that can be sold in the market for $150 each. If the firm wishes to sell 11 units, they must charge $149 each. The marginal revenue from selling the 11th unit is

$139

In a perfectly competitive market. If at its optimal level of output marginal revenue is $200 per surfboard and the price of each surfboard is $200, what is the marginal cost of each surfboard?

$200 (mr = price and the firm will produce at level of output which mr = mc)

If Ocean Magic sells surfboards for $400 each and it sells a total of 20 surfboards, what is its marginal revenue

$400 (price equals marginal revenue in competitive markets)

Suppose that a price discriminating monopolist faces a downward sloping demand curve with a vertical intercept of eight dollars given the firm's cost conditions a monopolist would choose a price of four dollars and sell four units of output. How much consumer surplus would be lost if the firm could practice first-degree price discrimination

$8 (The loss and consumer surplus would be the additional profit to the firm additional profit would be the area of the triangle under the demand curve and above the price of four dollars the triangle has a height of four dollars and a base of for its area is there for eight dollars)

Which of the following is an example of price discrimination

A car dealership where salespeople and buyers haggle over the price

In the long run, which factor of production can a firm NOT adjust

All factors of production can be adjusted in the long run

Define first degree price discrimination

Also known as perfect price discrimination, involves charging each customer the maximum price he or she is willing to pay

What is an oligopoly

An industry in which there are only a small number of large firms

The commercial airline manufacturing industry tends to have very little competition because it is prohibitively expensive to start a new company in this industry this is an example of

Barriers to entry

Short-run economic profits in a perfectly competitive industry will ___________ an industry in the long run

Cause firms to enter

Which of the following is not a loss directly attributed to monopolies A. Deadweight loss B. Rent seeking C. X-inefficiency D. Incentive to innovate

D. Incentive to innovate

If economic profit is greater than normal profit in a perfectly competitive market, P-ATC is

Greater than zero

What is the shape of the long run supply curve in a constant cost industry

Horizontal

When should a firm shut down?

If the price is below average total cost and also below average variable cost, then save should shut down in the short run

What happens to consumer surplus when a firm engages in perfect price discrimination

It is reduced to zero (The monopolist keeps the entire consumer surplus when it engages in perfect price discrimination)

If a market goes from perfectly competitive to a monopoly what would you expect to happen to number of units bought and sold

It would fall below the given units

What would happen if the market price for surfboards fell below ocean magics average total cost but stayed above its average variable cost

It would have to keep operating but decrease production

The market price and a monopoly market is $15 and 2000 units are bought and sold. Assume the market becomes perfectly competitive what would you expect to happen to the number of units bought and sold

It would rise above 2,000 units (output is expected to rise)

Industries with one firm have

No competition

In the long run, perfectly competitive firms can only earn

Normal profits

A key characteristic of individual firms in perfectly competitive markets is that they are

Price takers

Define rent seeking

Rent sinking occurs when I monopoly uses its resources to protect its position. This includes such activities as lobbying, extending patents, and restricting the number of licenses permitted

If the sum of squared market Shares is above 2500 in the HHI what does this imply about the industry being measured

The industry is highly concentrated

Assume that the tofu market is a competitive market. If the price of tofu is four dollars and the marginal cost of tofu is four dollars, then which of the following statements is correct

There is allocative efficiency and productive efficiency. (Allocative when price = mc, which is also equal to least atc)

AMC theaters offer different ticket prices for children, adults, and senior citizens this pricing strategy is an example of

Third-degree price discrimination

When does a firm earn a normal profit?

When price crosses the lowest point on the average total cost curve