Read & Interact: Baye & Prince: Chapter 8

When firms in monopolistic competition earn positive economic profits, other firms tend to _________________________ the market.

enter

When firms in a competitive industry sustain losses, they will ____________________ the industry in the long run.

exit

When firms in monopolistic competition sustain economic losses, firms tend to __________________________ the market

exit

A market with many "small" buyers and sellers, identical products, no transaction costs, and free entry and exit where buyers and sellers have perfect information is called __________.

perfect competition

For a perfectly competitive firm, marginal revenue is equal to the market

price

A firm in monopolistic competition faces a demand curve with own-price elasticity equal to -2 and an advertising elasticity equal to 0.2.This firm should devote ____________% of its revenues to advertising.

10

A firm in monopolistic competition faces a demand curve with own-price elasticity equal to -5 and an advertising elasticity equal to 0.15.This firm should devote __________% of its revenues to advertising.

3

Define the competitive firm's demand.

Df = P = MR

A monopolist's marginal revenue (MR) is given by:

MR = P[ (1+E) /E]

What is the marginal revenue (MR) of the inverse linear demand function, P(Q) = a + bQ?

MR = a + 2bQ

Given a revenue function: R(Q) = P(Q)Q The monopolist's marginal revenue (MR) is given by

MR = dR/dQ MR = P(1+E/E) MR = dP/dQ (Q + P)

Suppose a market contains one supplier of a good that has no close, available substitutes. What type of market structure is this?

Monopoly

Which is a strategy firms use to tailor goods and services to meet the needs of a particular segment of the market?

Niche marketing

What do the key assumptions of a perfectly competitive market imply?

No one firm can influence market price.

As firms exit a perfectly competitive industry in the long run, what happens to the profits of the remaining firms?

Profits increase due to increased market price.

In perfect competition, profit equals

Revenues - Costs

What happens to the industry supply as firms exit a perfectly competitive industry in the long run?

Supply decreases

The demand curve for a perfectly competitive firm is a __________________________ line at the market _________________________

- horizontal - price

A firm in monopolistic competition faces a demand curve with own-price elasticity equal to -5 and an advertising elasticity equal to 0.15.This firm should devote _________________% of its revenues to advertising.

3

Which of the following is NOT a source of monopoly power?

Free entry and exit

A monopolist's linear inverse demand curve is P(Q) = 750 - 3Q. Which of the following is the monopolist's marginal revenue?

MR = 750 - 6Q

What does the free entry and exit assumption imply for a perfectly competitive market?

New firms will leave if they incur losses. New firms will enter when profits exist. In the long run, economic profits are zero.

If consumers are willing to pay more for "Roper's Rice" than they are for "Rice by Russell", then "Roper's Rice" is enjoying additional value due to

brand equity

What is the key difference in determining the profit-maximizing price and output under monopoly versus monopolistic competition?

There is no difference.

Since each producer in a perfectly competitive market has no influence on market price, the demand curve for the individual firm is

a horizontal line equal to the market price.

The monopolist is restricted to price-quantity combinations that lie on the demand curve as a result of decisions made by

consumers

The welfare loss to society due to the level of output produced by a monopolist is called the __________________ loss of monopoly.

deadweight

If MR is less than MC, a profit-maximizing monopolist should:

decrease output to maximize profits

For a monopolist, it is necessary to _______ price to increase output by one unit. As a result, the price received from all previous units _________.

decrease; decreases

In order to maximize profits, a monopolist should produce where marginal revenue is ________ marginal cost.

equal to

A monopolist charges a ________ price and produces ________ output than a perfectly competitive industry.

higher; less

When a monopolist increases output by one unit, total revenue

increases by less than price.

In monopolistic competition, each firm uses the ___________ demand curve and the marginal revenue curve to establish output and price. In monopoly, the firm uses the __________ demand curve and the marginal revenue curve to establish output and price.

individual; market

When many buyers and sellers freely enter and exit a market having similar, yet differentiated products, it is called

monopolistic competition

Fast-food hamburgers are characterized by a large group of sellers producing slightly different goods. What type of market is this?

monopolistically competitive

Economies of scale and scope, cost complementarity, and patents are all sources of _______________________________ power.

monopoly

The market structure where a firm has a large degree of market power is called

monopoly

In order to maximize profits in the short run, a manager must determine how much output should be produced, given

only variable inputs within his or her control.

A market with many "small" buyers and sellers, identical products, no transaction costs, and free entry and exit where buyers and sellers have perfect information is called

perfect competition

π = P(Q) - C(Q) defines

profits

A period of time during which at least one input is fixed is called the ______ run.

short

Marginal revenue is

the change in total revenue from a one-unit change in output.

The price an individual producer in a perfectly competitive market faces is determined by:

the market supply and market demand

The demand curve faced by a monopolist is

the same as the market demand curve.

Marginal revenue is the ________________ of the total revenue curve.

derivative