Principle of Microeconomics Exam 3 Study Set

Generally, the monopolistic competitor is in long run equilibrium when a) MR = MC and P = ATC. b) P = MC = ATC. c) P = MC and P > ATC. d) MR = MC = ATC. e) b and d

a) MR = MC and P = ATC.

Which of the following statements is true about monopolistically competitive firms? a) Unlike perfectly competitive firms, monopolistically competitive firms are able to raise their prices without losing all of their customers. b) Like perfectly competitive firms, monopolistically competitive firms are not able to raise prices without losing all of their customers because they face competition from firms selling similar products. c) Like perfectly competitive firms, monopolistically competitive firms maximize their profits by settling price equal to marginal cost. d) Unlike perfectly competitive firms, monopolistically competitive face perfectly inelastic demand curves.

a) Unlike perfectly competitive firms, monopolistically competitive firms are able to raise their prices without losing all of their customers.

Price discriminating firms often ________ prices to children and the elderly because they have a ________ willingness to pay than other consumers. a) discount; lower b) charge higher; greater c) discount; higher d) charge higher; lower

a) discount; lower

The number of sellers in a perfectly competitive market is ___________, the number of sellers in a monopolistic competitive market is ____________, and the number of sellers in an oligopoly is _________. a) many; many; few b) many; few, few c) few; many; many d) few; few many

a) many; many; few

Abby operates a small deli downtown. The deli industry is monopolistically competitive. In the long run, Abby will produce where: a) marginal revenue equals marginal cost. b) price equals minimum average total cost. c) price equals marginal cost. d) price equals marginal revenue.

a) marginal revenue equals marginal cost.

Consider an industry that is made up of six firms with the following market shares: Firm A - 50%, Firm B - 20%, Firms C and D - 10% each, and Firms E and F - 5% each. What is the value of the Herfindahl-Hirschman Index? a) 2,500 b) 3,150 c) 8,100 d) 10,000

b) 3,150

Which of the following is TRUE of firms in both perfect competition and monopolistic competition? a) The long-run price is equal to marginal revenue, marginal cost, and average total cost. b) Long-run economic profits are equal to zero. c) The long-run level of output is at the point where average total cost is minimized. d) Price is equal to marginal cost, ensuring that the efficient level of output is produced.

b) Long-run economic profits are equal to zero.

Which of the following statements is true of price discrimination? a) Successful price discrimination will provide the firm with lower total profits than if it did not discriminate b) Successful price discrimination will provide the firm with more profit than if it did not discriminate c) Successful price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly. d) Successful price discrimination occurs when there are differences in the costs of producing for different groups of buyers

b) Successful price discrimination will provide the firm with more profit than if it did not discriminate

Which of the following is not a characteristic of oligopoly? a) There are few sellers. b) There are few buyers. c) Firms produce and sell either homogeneous or differentiated products. d) There are significant barriers to entry. e) b and c

b) There are few buyers.

The demand facing a monopolistically competitive firm is ________ a perfectly competitive firm and ________ a monopolistic firm. a) as elastic as; less elastic than b) less elastic than; more elastic than c) more elastic than; less elastic than d) more elastic than; as elastic as

b) less elastic than; more elastic than

The demand schedule of a monopolistically competitive firm when compared to the demand schedule of a perfectly competitive firm is a) more price elastic. b) less price elastic. c) perfectly price elastic. d) perfectly price inelastic.

b) less price elastic.

Suppose Curtis, seven years old, is selling lemonade to his neighbors and he sells each of his buyers the refreshment for the maximum price that each buyer is willing to pay. Curtis is practicing: a) perfect competition. b) perfect price discrimination. c) second-degree price discrimination. d) third-degree price discrimination.

b) perfect price discrimination.

Suppose that your school pays one rate for the first one million kilowatts of electricity and a lower rate for any power it uses over one million kilowatts. What economic concept is occurring here? a) perfect price discrimination b) second-degree price discrimination c) third-degree price discrimination d) economies of scale

b) second-degree price discrimination

If a monopolist's price is $50 at 63 units of output, and marginal revenue equals marginal cost and average total cost equals $43, then the firm's total profit is a) $3,150. b) $2,709. c) $441. d) $7.

c) $441. Profit = (P-ATC)*q = (50-43)*63=441

A monopolist can sell 8,000 units at a price of $10 per unit. Lowering price to all buyers by $1 raises the quantity demanded by 500 units. What is the change in total revenue resulting from this price change? a) $3,500 b) -$12,500 c) -$3,500 d) -$18,000 e) There is not enough information provided to answer the question.

c) -$3,500

Which of the following is true of the dominant strategy equilibrium? a) A dominant strategy equilibrium always leads to the best outcome for each player. b) A dominant strategy equilibrium cannot be a Nash equilibrium. c) A dominant strategy equilibrium is a Nash equilibrium if each player chooses a strategy that is a best response to the strategies of others. d) A dominant strategy equilibrium occurs if the sum of the players' payoff is zero.

c) A dominant strategy equilibrium is a Nash equilibrium if each player chooses a strategy that is a best response to the strategies of others.

When ________ for a monopolistically competitive firm, the firm is in long-run equilibrium. a) MR = MC and P > ATC b) MR > MC and P > ATC c) MR = MC and P = ATC d) MR < MC and P < ATC

c) MR = MC and P = ATC

Which of the following statements is false? a) The monopolist has the ability to control to some degree the price of the product it sells. b) The monopolist faces a downward-sloping demand curve. c) The monopolist is a price taker. d) The monopoly firm is the industry.

c) The monopolist is a price taker.

Which of the following is the best example of price discrimination? a) a gas station charging less per gallon to customers who pay cash than customers who use a credit card b) an auto insurance company charging a higher premium to a seventeen year old boy with a driving record that includes three accidents than the premium charged to a middle-aged driver with a clean driving record c) a cellular telephone company charging lower rates to weekend callers than weekday callers d) a private attorney charging higher fees to clients receiving special services than clients receiving regular services

c) a cellular telephone company charging lower rates to weekend callers than weekday callers

A significant difference between perfect competition and monopolistic competition is that a) a perfectly competitive firm is a price searcher, while a monopolistic competitive firm is a price taker. b) a perfectly competitive firm faces a downward-sloping demand curve, while a monopolistic competitive firm faces a perfectly elastic demand curve. c) a perfectly competitive firm sells a homogeneous product, while a monopolistic competitive firm sells a differentiated product. d) a perfectly competitive firm sets price above marginal cost, while a monopolistic competitive firm sets price equal to marginal cost.

c) a perfectly competitive firm sells a homogeneous product, while a monopolistic competitive firm sells a differentiated product.

A significant difference between perfect competition and monopolistic competition is that: a) a perfectly competitive firm is a price setter, while a monopolistic competitive firm is a price taker. b) a perfectly competitive firm faces a downward-sloping demand curve, while a monopolistic competitive firm faces a perfectly elastic demand curve. c) a perfectly competitive firm sells a homogeneous product, while a monopolistic competitive firm sells a differentiated product. d) a perfectly competitive firm sets price above marginal cost, while a monopolistic competitive firm sets price equal to marginal cost.

c) a perfectly competitive firm sells a homogeneous product, while a monopolistic competitive firm sells a differentiated product.

There ___________ barriers to entry in a perfectly competitive market. There ____________ barriers to entry in monopolistic competition. There ____________ barriers to entry in oligopoly. There ____________ barriers to entry in monopoly. [Your answers should fill in blanks respectively.] a) are; are; are no; are no b) are no; are; are; are no c) are no; are no; are; are d) are no; are; are; are

c) are no; are no; are; are

The relationship between a monopolistic competitive firm's marginal revenue curve and its demand curve is that the a) two curves coincide and are horizontal at the market price. b) marginal revenue curve lies above the demand curve and the demand curve is horizontal at the market price. c) marginal revenue curve lies below the demand curve and both are downward sloping. d) two curves coincide and are downward sloping to the right. e) marginal revenue curve lies above the demand curve and both are downward sloping.

c) marginal revenue curve lies below the demand curve and both are downward sloping.

Perfect competition and monopolistic competition are similar in that both market structures include: a) very few firms. b) a homogeneous product. c) no barriers to entry. d) price-taking behavior by firms.

c) no barriers to entry.

If a monopolist is currently producing at where the marginal revenue is $18 a unit and its marginal cost is $18, then: a) to maximize profit, the firm should increase output. b) to maximize profit, the firm should decrease output. c) to maximize profit, the firm should continue to produce the output it is producing. d) Not enough information is given to say what the firm should do to maximize profit.

c) to maximize profit, the firm should continue to produce the output it is producing.

In this question, construct a payoff matrix for the following scenario. Martha and Oleg are competitors in a local market and each is trying to decide if it is worthwhile to advertise. If both of them advertise, each will earn a profit of $5,000. If neither of them advertise, each will earn a profit of $10,000. If one advertises and the other doesn't, then the one who advertises will earn a profit of $15,000 and the other will earn $7,000. To earn the highest profit, what should Martha do? a) Martha should advertise, and she will earn $5,000. b) Martha should advertise, and she will earn $15,000. c) Martha should not advertise, and she will earn $10,000. d) Martha has no dominant strategy.

d) Martha has no dominant strategy.

Which of the following is not a characteristic of a monopolistically competitive firm in long-run equilibrium? a) Marginal revenue is equal to marginal cost. b) Price is equal to average revenue. c) The firm has excess capacity. d) Price is equal to marginal cost.

d) Price is equal to marginal cost.

When a monopolist is maximizing profits, it has a) maximized its total revenue. b) set price equal to its average cost. c) maximized the difference between marginal revenue and marginal cost. d) equated marginal revenue and marginal cost.

d) equated marginal revenue and marginal cost.

Which of the following is NOT an example of price discrimination? a) rental car companies charging lower prices to local residents than to out-of-state residents b) student discounts at museums c) children's discounts at amusement parks d) mattress sales on Memorial Day

d) mattress sales on Memorial Day

Which of the following is never true when monopolistic competition arises in a specific market? a) each firm has a differentiated product. b) there are many producers. c) the product that the competing monopolies sell are close substitutes. d) the firms take prices as given. e) each firm chooses quantity by setting marginal revenue equal to marginal cost.

d) the firms take prices as given.

Larson's Italian Ice is a monopolistically competitive firm. If Larson's is losing money in the short run, which of the following is most likely to occur? a) New firms that sell Italian ice will enter the market, and Larson's cost curves will shift to the left. b) New firms that sell Italian ice will enter the market, and Larson's demand curve will shift to the left. c) New firms that sell Italian ice will enter the market, and Larson's demand curve will shift to the right. d) New firms that sell Italian ice will enter the market, and Larson's demand curve will become more inelastic. e) None of the above.

e) None of the above.

The perfectly competitive firm charges a price equal to __________ while the monopolist charges a price __________. a) marginal revenue; equal to marginal cost b) marginal cost; greater than marginal cost c) marginal revenue; greater than marginal revenue d) average total cost; greater than average total cost e) b and c

e) b and c