unit 4 test microeconomics
A monopolistically competitive profit maximizing firm is currently producing at and selling 2,000 units of output. At this output level, marginal revenue is $9 average revenue is $10 and average variable cost is $8. The product price is
$10
total cost is calculated by
(AVC+AFC) x quantity; heading to the ATC curve from the profit-maximizing quantity
characteristics of monopolistic competition:
-easy entry and exit -zero economic profit in the long-run -differentiated products and non-price competition -inefficiency -MR<D
regulating a monopoly:
-government regulators will force the monopoly to have allocatively efficient pricing at P=MC -regulators set the price=ATC wishing to let the monopoly break even and earn a normal profit
characteristics of oligopolies:
-high barriers to entry -differentiated or similar product -interdependence -few firms -deadweight loss -price leadership -collusion
summary of monopolistic competition
-relatively easy entry -differentiated products -advertising, non-price competition -inefficient, excess capacity -large number of buyers and sellers -long-run equilibrium; zero economic profits -allocatively efficient; P>MC -P>MR -Deadweight loss
price discrimination works best under the following conditions:
-separate markets for consumers based on different price elasticites' relatively elastic demand -no opportunities of resale of the product -price differences not based on cost differences -firm is a price maker
reasons why monopolies have high barriers to entry:
-the government may give sole production rights to a single firm -a firm may control the resources required for production of a product -a firm that becomes very large may gain significant production advantages over its rivals by being able to produce with lower costs (economies of scale) -government can grant sole production rights of a product to a single firm
antitrust policy
A policy designed to ensure competition and prevent monopoly, which is the control of a market by one company.
after the monopolist takes over, the consumer surplus is
ABG
the total profits for this monopolist are identified by
ABJK
in a perfectly competitive market, the original consumer surplus is
ACF
Assume that the market is a profit maximizing monopoly, which of the following areas shows a consumer surplus
AP1B
Which of the following statements relating to a firm in an imperfectly competitive market and a firm in a perfectly competitive market is true?
An imperfectly competitive firm must lower its price to increase sales, while a perfectly competitive firm can increase sales by increasing output at the current price
the total costs for the monopolist are identified by
BOQJ
Given that each firm is aware of the information in the payoff matrix, which of the following is true
Both alpha and beta have a dominant strategy to price low
Nash equilibrium occurs with which combination of strategies
Both firms charging a lower price
Game theory is a useful model used to explain the behavior of firms in a market when the firms are
Interdependent
Which of the following will the firm do in the long run if market conditions do not change
It will exit the industry
a monopolist determines price and output where
MR=MC
In a monopolistic competition, a goal of advertising is to
Make a firms demand curve less elasric
Assume that a monopolistically competitive firm is currently maximizing profit with an output at 100 units and a price of $50. Which of the following is true
Marginal cost is greater than marginal revenue when the firm produces 150 units of output
which of the following about the relationship between MR and Price under monopolistic competition and perfect competition is correct
Monopolistic competition: MR<P Perfect competition: MR=P
Collusion, price leadership, and price wars are usually observed in which of the following market structures
Oligopolies
Game theory is most commonly used for analyzing the pricing behavior of firms in which market structure
Oligopoly
For a firm shown in the graph above, which combination of output and price will maximize its profit
Output Q1, Price P4
the unregulated monopolists price would be
P1
the "fair-return" price of the regulated monopolist would be
P3
the socially optimal price would be
P4
which of the following is not a characteristic of oligopoly
P=MC
a monopoly is also not productively efficient because it produces at __________ rather than P= minimum ATC
P>ATC
monopolies are not allocatively efficient because they produce at _____ not P=MC
P>MC
which of the following is a characteristic of monopolistic competition
P>MC
Which of the following is a necessary condition for price discrimination
The seller can separate consumers according to their elasticities of demand
Game theory is most useful in describing outcomes in markets where
There are interdependent firms
If zeta, a single producer, had exclusive control of a key resource need to produce good Z, a likely result would be which of the following?
There would be a barrier to entry and Zeta would have a monopoly on good Z
per-unit profit
This is calculated by taking the total profit divided by the quantity; P-ATC
which of the following statements relating to a firm in an imperfectly competitive market and a firm in a perfectly competitive market is true
When an imperfectly competitive firm raises the price, it will likely continue to sell units of output, but when a perfectly competitive firm raises the price, it will sell no output
natural monopoly
a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
nash equilibrium
a situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen
dominant strategy
a strategy that is best for a player in a game regardless of the strategies chosen by the other players
a monopolistically competitive firm is neither
allocatively nor productively efficient
collusion
an agreement among firms to divide the market, set prices, or limit production
which of the following is true of a natural monopoly
as output increases, the long-run average total cost curve decreases
the payoff matrix below shows the per-unit profits associated with the production strategies of two utility companies, UA and UB. Each firm has two choices: to reduce production by 10% or by 20%. based on the information, which of the following is true
both companies have an incentive to reduce production by 10%
given the data in the game theory matrix, if both firms know all the information in the matrix and cooperate in their pricing, what will each firm choose
both firm a and b: high
the graph above shows a firm's cost and revenue curves. this profit-maximizing firm will
charge a higher price than that necessary to maximize revenues
in game theory, this is the best choice for one player regardless of what the other player chooses
dominant strategy
a firm with market power engages in price discrimination to
earn a higher profit
which of the following statements is true for both a monopolistically competitive firm and a perfectly competitive firm in long-run profit maximizing equilibrium
economic profits equal zero, and marginal revenue equals marginal cost
a profit-maximizing monopoly will always produce in the _______ of the demand curve (upper half)
elastic range
what is a characteristic of monopolistic competition
excess capacity
the profit maximizing firm depicted in the graph above should
exit if conditions do not improve in the long run
given the data in the game theory matrix, what are both firms' dominant pricing strategies
firm a: high firm b: no dominant strategy
pam and tara run two competing lemonade stands in a town. in the payoff matrix above, the first entry in each cell shows the profits to Pam, and the second entry in each cell shows the profits to Tara. According to the information, which of the following is true
if pam sets the high price, tara will do best by charging the low price
which of the following statements concerning a natural monopoly is true
if the monopolist chooses to produce the quantity at which price is equal to average cost, it would earn a normal profit
monopolistically compeitive firms are considered inefficient in allocating society's resources for which of the following reasons
in equilibrium, the marginal benefit exceeds the marginal cost of production
For an unregulated monopolist, the profit-maximizing quantity will always be
in the elastic region of the demand curve
governments regulate natural monopolies with the goal of
increasing efficiency and decreasing deadweight loss
a cartel is difficult to maintain for which of the following reasons
individual cartel members are tempted to cheat on the agreement
a monopolist will not produce in the _______ , as the additional revenue from a sale is negative
inelastic
which of the following statements about the firm whose cost and revenue curves are shown above is correct
its profit-maximizing output level is 200 untis
Generally monopolies are considered inefficient because they
lead to an under allocation of resources in the affected market
the profit-maximizing output level produced by an unregulated monopoly is
less than the socially optimal level, since the price paid by consumers exceeds the firms marginal cost
which of the following is not a characteristic of monopolistically competitive markets
long-run economic profits
when a monopoly wants to sell more units, it must
lower its price for all buyers; the additional MR received decreases faster than the price, from which the demand curve is derived
assume that a monopolistically competitive firm is currently maximizing profit with an output of 100 units and a price of $50. which of the following is true
marginal cost is greater than marginal revenue when the firm produces 150 units of output
a monopolist will not produce in the inelastic range as
marginal revenue is negative and a decrease in price here decreases total revenue
___________________ have downsloping demand curves, with marginal revenue less than demand
monopolies (and other imperfectly competitive firms)
firms that are ____________ have characteristics of both a monopoly and perfect competition
monopolistic competition
in this market structure, short-run profits attract new competition, causing the demand curve to shift to the left and decrease for the existing firms in the market, resulting in zero economic profit in the long-run equilibrium
monopolistic competition
A ______ is a market structure where one single firm constitutes an entire industry and no close substitutes exist for consumers
monopoly
in monopoly MR eventually becomes _______; this is why the MR curve falls _____ the quantity axis and is in the ______ range of the demand curve
negative; below; inelastic
in which of the following market structures is it sometimes assumed that rival firms will match price decreases but not match price increases
oligopoly
which of the following market structures is where MR=D=AR=P?
perfect competition
Which of the following enables a seller to capture the entire consumer surplus in a market
perfect price discrimination
which of the following enables a seller to capture the entire consumer surplus in a market
perfect price discrimination
one difference between a firm in a perfectly competitive market and an unregulated monopoly is that the
perfectly competitive firm can increase the quantity it sells at the market price, whereas the monopoly must lower its price to sell more
in the elastic range of demand for a monopolist, marginal revenue is always _______; and as they lower their prices to increase profits, total revenue _______
positive; increases
if a lump-sum tax is imposed on a monopolistically competitive firm, which of the following will happen to the price and quantity sold in the market
price and quantity will remain unchanged
which of the following is true of both monopolistically competitive and perfectly competitive firms in long-run equilibrium
price equal ATC
which of the following statements is true for a monopolist at the profit maximizing output level
price exceeds marginal revenue
A monopoly is both a firm and an industry
price-maker
total revenue is calculated by
taking the price x quantity at the profit-maximizing point
excess capacity
the difference between a firm's profit-maximizing quantity and the quantity that minimizes average cost
Which of the following is necessary for a firm to practice price discrimination
the firm can prevent resale of its goods.
which of the following is necessary for a firm to practice price discrimination
the firm can prevent the resale of its goods
which of the following statements is true for a perfectly competitive firm but not for a monopoly
the firm cannot affect the market price for its good
which of the following is true for a monopoly but not for a perfectly competitive firm
the firm faces a down-ward sloping demand curve
there are four firms in an oligopolistic industry. the four agree to collude and act like a monopoly. if one of the firms violates the agreement and charges a lower price or sells a larger quantity than what was agreed to, what will happen in the short run
the firm that cheats will earn higher profits and the industry profits will be lower
at the current quantity that a firm is selling, the firm has MR of $750 and a MC of $800. which of the following is true
the firm's profits would increase if the firm decreased the quantity sold
which of the following is true for a monopolist that engages in perfect price discrimination
the monopolist sells the allocatively efficient quantity of output
in monopolistic competition, an individuals firm's market power stems from which of the following
the production of a differentiated product
a monopolists demand curve is necessarily
the same as the market demand curve
which of the following is a necessary condition for price discrimination
the seller can separate consumers according to their elasticities of demand
game theory
the study of how people behave in strategic situations
From the point of view of economic efficiency, a monopolist produces
too little of a good and charges too high a price
The price of an airline ticket is typically lower if a traveler buys the ticket several weeks before the flight's departure date rather than on the day of departure. This pricing strategy is based on the assumption that
travelers demand becomes less elastic as the departure date approaches
evergreen and nature view are bidding for a landscaping contract. the payoff matrix above shows what each firms total weekly profits from all its operations will be for each combination of bids. the first entry in each cell shows evergreens profit, and the second entry in each cell shows nature view's profit. a nash equilibrium results under which of the following conditions
when the evergreen bids are high and the nature view bids are low
on a price discrimination graph:
Demand=MR No consumer surplus Profits increase
The profit maximizing firm depicted in the graph above should
Exit if conditions to the market do not improve
The condition of allocative efficiency is violated when
Firms are price makers
All of the following characterize both perfectly and monopolistically competitive markets except
Firms can affect the selling price of their product
Based on the information in the graph above, what are the profit maximizing quantities for a single price monopolist and for a monopolist that engages in perfect price discrimination
For a single price monopolist, Q0; with price discrimination, Q3
the deadweight loss is
GEF
which of the following is true of oligopolies? I: They make strategic decisions considering competitiors' actions II:there are low barriers to entry III: they are neither productively nor allocatively efficient IV: they are "price-takers" in the market
I and III only
which of the following are true about profit-maximizing monopolies?
II and IV only
Game theory is used to explain
Strategic behaviors of firms in oligopolies
