Basic ECON Chap 9-11
Frances sells pencils in the perfectly competitive pencil market. Her output per day and costs are seen in the table to the right. a. If the current equilibrium price in the pencil market is $1.60, what price will Frances charge?
$1.60
Which of the following statements is true when the difference between TR and TC is at its maximum positive value?
Both A and B are true.
A monopolist is a price maker because
when a monpolist raises its prices, it loses some but not all customers.
At that level of output, the cable company will earn economic profits of $ (thousand per month) .
52
What quantity of pencils will maximize Frances' profit? ___ pencils.
6
Why do single firms in perfectly competitive markets face horizontal demand curves?
With many firms selling an identical product, single firms have no effect on market price.
The orange farmer will make a profit if the price of oranges is above $ per crate.
20.00
Specifically, marginal revenue for the first painting is $ 200, marginal revenue for the second painting is $ 100, marginal revenue for the third painting is $ 0, marginal revenue for the fourth painting is $ negative 100, and marginal revenue for the fifth painting is $ negative 200.
200, 100, 0, (-) 100, (-)200.
Suppose a cable company provides cable service to a small town. The total revenue, marginal revenue, total cost, and marginal cost of providing various quantities of cable subscriptions (units in thousands per month) are presented in the table below. Assume the local cable company is a monopoly. To maximize profits, the monopoly should produce (thousand) units
4
Name one barrier to entry a new firm would face in competing with: i. Google in online advertising ii. Apple in smartphones iii. Facebook in social media apps iv. Amazon in online retailing
All of the above.
A column on forbes.com discusses Google, Apple, Facebook, and Amazon, all of which operate in oligopolistic markets. The column argues that the concerns of some policymakers and economists about the market power of these firms may be overstated because: "History teaches us that in a fast-moving industry, driven by fast-changing technologies, barriers to entry may be far less significant than one might believe." Source: Jeremy Ghez, "Why U.S. Tech Giants Might Not Dominate The World After All," forbes.com, November 16, 2016. What does the columnist mean by "barriers to entry"?
Anything that keeps new firms from entering an industry in which firms are earning economic profits.
The figure illustrates the average total cost (ATC) and marginal cost (MC) curves for an orange farmer in California. Assume the market for oranges is perfectly competitive. Suppose the market price of oranges is $26.00 per crate. Characterize the farmer's profit.
At a $26.00 price, the farmer will make a profit
Erin Reinhardt and her friend Carol Newman have just arrived in the country Boloni for a summer holiday. While renting a car on their first day in Boloni they notice that the car rental rates are so much higher than rates back home. Carol says that in a matter of time, competition should drive prices down. Erin feels that the market for car rentals is probably competitive enough; it could just be high cost of operations in Boloni that are responsible for the high prices. Which of the following conclusions is most strongly supported by the given information?
Both Carol and Erin think that the car rental industry in Boloni does not have significant barriers to entry.
What characterizes perfectly competitive markets? Perfectly competitive markets have
Identical products sold by all firms
How might "fast-changing technology" reduce the importance of the barriers to entry you identified above?
It may create opportunities for new firms to offer goods and services that better serve their customers' wants.
Suppose that a perfectly competitive industry becomes a monopoly.
Suppose that a perfectly competitive industry becomes a monopoly. As a result, consumer surplus will decrease , producer surplus will increase , and deadweight loss will increase .
Suppose a small town has only one artist who sells paintings, making that artist a monopoly. One of the artist's paintings is demanded at a price of $200, two paintings are demanded at a price of $150, three at $100, four at $50, and five if the paintings are given away (with a price of zero).
The demand curve is downward sloping .
A firm producing good Y recently increased monthly production from 1,500 units to 2,000 units. This had no impact on the market price of good Y. At the new production level of 2,000 units, the firm's average cost is $3.5 while its marginal cost of production is $4. The marginal revenue however is fixed at $5 for all levels of output. Jake Williamson is the operations head of the firm. Jake feels that, since the firm has the capacity, it should have increased production further to 2,500 units which would have maximized profits. On the other hand, Mathew Hayden of the market research team anticipates an increase in price to $5.5 in the near future. He therefore claims that the firm may not be maximizing economic profit in the short run even at 2,500 units. Jake and Mathew will most likely agree on which of the following?
The firm should increase production from the current level.
The government of a small country, Ecotopia, is investigating whether a leading telephone company, Ringabell Telco, has violated antitrust laws. Recent media reports claim that Ringabell keeps its rates too low in order to attract customers away from the competition. This, the media claims, is the reason for Ringabell's large market share. However, a spokesperson for Ringabell defends the company by stating that its dominant market share speaks for the quality of its services and strong customer loyalty. Which of the following, if true, would weaken Ringabell Telco's argument?
The majority of Ringabell's customers are in long-term contracts with high switching penalties.
UPS and FedEx both struggle to deliver the surge of packages they receive during the December holiday season. According to an article in the Wall Street Journal, in 2014, both firms considered charging firms such as Amazon rates that would be 10 percent higher for packages delivered during the week before Christmas. Such higher rates would likely have increased the profits of both firms. Neither UPS nor FedEx raised rates during the holiday season of 2014, but both firms did raise them during the 2016 holiday season. Use game theory to explain why in 2014 neither firm raised rates during the holiday season, but two years later both firms did. In 2014 neither firm raised rates during the holiday season because they were
competing in a prisoner's dilemma.
Both firms raised rates two years later because they were
cooperating as in a repeated game.
The marginal revenue curve is
downward sloping with twice the slope of the demand curve.
What are the three conditions for a market to be perfectly competitive? For a market to be perfectly competitive, there must be
many buyers and sellers, with all firms selling identical products, and no barriers to new firms entering the market.
A monopolistically competitive firm produces where _________, while a perfectly competitive firm produces where _________.
price is greater than marginal cost; price is equal to marginal cost
Is the loss in efficiency due to market power large or small? Explain. The loss in efficiency due to market power is
small because competition limits market power comma even when the market is not perfectly competitive.
Do consumers benefit in any way from monopolistic competition relative to perfect competition? Compared to perfect competition, when a consumer purchases a product from a monopolistically competitive firm, the consumer benefits from purchasing a product
that is appealing because it is differentiated.
Find the correct quantities for the missing values in the table, as represented by (i, ii, iii, and iv; enter all values as dollars and cents).
(i) Marginal revenue is $ 1.60. (ii) Total revenue is $ 6.40. (iii) Marginal revenue is $ 1.60. (iv) Total revenue is $ 11.20.
