Practice Exam 3

The monopolist will produce _____ units of output and charge a price of _____.

32; $3.00

This profit-maximizing firm will produce _____ units of output and have total revenue of _____.

50; $275

For a monopolist that is unable to price discriminate, the marginal revenue of the 2nd unit is _____ and the marginal revenue of the 3rd unit is _____.

$30; $10

A monopolist that is able to price discriminate by charging each consumer the highest price the consumer is willing to pay would earn total revenue of _____ if it sold 2 units of output and total revenue of _____ if it sold 3 units of output.

$90; $120

Firms in monopolistically competitive markets:

(b) and (c) only

A profit-maximizing monopolist will produce where:

MR = MC

Which of the following holds for both monopoly firms and monopolistically competitive firms in long-run equilibrium?

P > MC

Which of the following is true for a profit-maximizing monopolist that charges all consumers the same price?

P > MR = MC

Which of the following is always true for a monopolist?

Profit is maximized where marginal revenue equals marginal cost.

Which strategy maximizes Wilbert's and William's combined profit?

Wilbur: high price and William: high price

To be successful in increasing prices for their product, members of a cartel must:

agree to limit their output.

A firm that is able to use price discrimination will seek to:

charge customers with more elastic demand a lower price.

From society's perspective:

competition leads to lower prices, higher output, and greater efficiency than monopoly.

All of the following are examples of barriers to entry except:

constant returns to scale.

A profit-maximizing, unregulated monopolist choose a level of output that:

creates a deadweight loss for society because marginal benefit exceeds marginal cost.

Assume all firms in an oligopolistic industry are colluding to set price and output to maximize total industry profit. If the firms are forced to stop colluding, the price of their product will most likely:

decrease but output will increase.

A monopolist that earns positive economic profit in short-run equilibrium will:

earn positive economic profit in the long run if it can maintain barriers to entry, assuming no changes in costs or market demand.

This profit-maximizing firm is:

earning an economic profit of $50 in the short run.

The monopolist is:

earning positive economic profit equal to $12.80

If, in the short run, perfectly competitive firms are earning positive economic profits, the adjustment to long-run equilibrium will include firms _____ the industry, causing market supply to _____ and market price to _____.

entering; increase; decrease

All of the following are assumptions of the model of perfect competition except:

entry into the market in the long run is restricted.

The game theory model assumes that:

firms anticipate rival firms' decisions when they make their own decisions.

Firms operating in perfectly competitive markets:

have no market power and are price takers.

The demand curve for an individual seller in a perfectly competitive market is:

horizontal (perfectly elastic) at the market-determined price.

The characteristic that distinguishes oligopoly from other market structures is:

interdependence among firms in pricing and output decisions.

A monopolistically competitive firm's demand curve is _____ elastic than a perfectly competitive firm's and _____ elastic than a monopolistic firm's.

less; more

Suppose that Wilbur must decide whether to charge a low price or a high price without knowing what William will do. According to game theory, he will most likely make his decision by assuming that William will set a ____ price, which means Wilbur will choose to set a _____ price.

low; low

Like a perfectly competitive firm, a monopolistically competitive firm:

maximizes profit by producing the quantity where marginal revenue equals marginal cost.

earning an economic profit of $50 in the short run.

minimize its losses by continuing to produce where MR = MC in the short run.

If electrical service can be more efficiently provided to a market by a single supplier than by many competing suppliers, the market is considered to be a(n):

natural monopoly.

An industry dominated by a few large firms whose pricing and output decisions are dependent on one another is:

oligopolistic.

Government deals with imperfect competition by:

restricting market power through antitrust laws and regulation.

The defining characteristics of a monopoly market are:

single supplier, unique product, and barriers to entry.

A natural monopoly can:

supply the entire market at a lower cost than many competing firms.

All of the following are characteristics of a monopolistically competitive market except:

the firms in the industry engage in interdependent decision making.

The demand curve for a monopoly firm is:

the same as the industry, or market, demand curve for its product.

A producer of widgets is most likely to be a monopolist when:

there are no close substitutes for widgets and there are barriers to entry into the widget industry.

For monopolistically competitive firms in long-run equilibrium, economic profit is:

zero because there are no barriers to entry.