chap 14

Which of the following two market structures are LESS common?

Monopoly and perfect competition.

Most U.S. grocery stores sell a variety of boxed breakfast cereals. This observation indicates that the boxed breakfast cereal market is

a monopolistically competitive market

For a seller with market power, as the number of units sold increases, marginal revenue

falls further and further below the price

The restaurant industry is monopolistically competitive. Thus:

food served at each restaurant tends to be differentiated among the many sellers serving the market.

The monopoly firm's profit-maximizing price is:

given by the point on the demand curve for the profit-maximizing quantity.

Companies with market power face a trade-off between

having a higher profit margin and selling a larger quantity.

The degree to which a market provides socially optimal outcomes depends on the degree to which it

is closer to the competition outcome than market power outcomes.

(Figure: Market Power) Based on the demand curves for four sellers, which of the following sellers has the most market power?

not B ( y=-x)

Market power leads to markets that do NOT have socially optimal results. The _____ is higher and the _____ is lower than the socially optimal result in perfect competition.

price; output

The basic idea of a natural monopoly is that there is one producer, and new sellers are discouraged from entering the market because

they would have significantly higher marginal costs than the existing seller in the market.

According to the Rational Rule for Sellers, the manager of this company should choose to produce _____ of output and charge a price of _____.

two units; $450 (b/c that's where mr=mc)

(Table: Demand and Total Cost for Asgard) Use Table: Demand and Total Cost for Asgard. Valkyrie runs a natural monopoly that produces electricity for a small mountain village near Asgard. The table shows the demand facing Valkyrie and Valkyrie's total costs. The marginal revenue of the fifth unit of output is:

$150

Which of the following statements about the prevalence of different types of market structures is TRUE?

Oligopoly and monopolistic competition are more common than monopoly and perfect competition.

Following the Rational Rule for Sellers, how does output for a seller who has market power compare to output for a seller who does not have market power?

Output is higher without market power than with market power.

(Figure: A Fly Fishing Salmon Monopoly) Use Figure: A Fly Fishing Salmon Monopoly. Andrew is the only licensed fly-fishing guide in Matane, Quebec. If Andrew maximizes profit, then he will sell _____ guided tours at _____ each.

Q2; P1

In 1984, a judge declared that American Telephone and Telegraph was a monopolist. Assuming that AT&T has a linear demand curve and that it is maximizing its profits at its current level of output, one may conclude that, if AT&T were to increase its price, its total revenue would:

fall

In an oligopoly:

the actions of one firm depend of the actions of other firms.

(Figure: Marginal Revenue) What is the marginal revenue of the fourth unit in the following example?

$2

Fiona has a monopoly on motorboat rentals on Nantucket Island during the summer. She can rent five boats per week at $21,000 each. If she wants to rent six, she can only charge $20,000 each. The price effect of renting the sixth motorboat is:

-$5,000.

Samantha has a monopoly in the retail of ski-doos. She can sell five units per week at a price of $21,000 each, but to sell her full weekly capacity of six units, she must charge $20,000 each. The price effect of selling the sixth ski-doo is:

-$5,000.

Which of the following statements is an accepted insight into imperfect competition?

A seller's best choice depends on the actions that other businesses take.

What level of market power exists for sellers in a perfectly competitive market?

All sellers lack market power.

Which of the following is NOT an example of illegal collusion in a market?

Sellers include complete and accurate lists of ingredients on all products.

Which of the following markets is an example of a perfectly competitive market?

Shares of McDonald's stock

How would the discount effect on marginal revenue differ for a seller increasing sales from 100 units to 101 units compared to an increase in sales from 1,000 units to 1,001 units?

The discount effect would be smaller for a change from 100 to 101 units than 1,000 to 1,001 units.

The demand curve for a monopoly is:

above the MR curve.

Price ceilings tend to create shortages when used to

bring down price in a competitive market

Suppose that Louise is the only person licensed to rent out paddle boats on the lake near her home during the summer. When she increases her rentals from 10 paddleboats to 11 paddleboats, the market rental price declines from $30 per rental to $29 per rental. The marginal revenue of the 11th rental is:

$19

(Table: Demand and Total Cost for Asgard) Use Table: Demand and Total Cost for Asgard. Valkyrie runs a natural monopoly that produces electricity for a small mountain village near Asgard. The table shows the demand facing Valkyrie and Valkyrie's total costs. The table shows the demand facing Valkyrie and Valkyrie's total costs. The firm's maximum profit is:

$225

(Table: Demand and Total Cost for Asgard) Use Table: Demand and Total Cost for Asgard. Valkyrie runs a natural monopoly that produces electricity for a small mountain village near Asgard. The table shows the demand facing Valkyrie and Valkyrie's total costs. To maximize profits, Valkyrie should charge a price of:

$400

(Table: Demand and Total Cost for Asgard) Use Table: Demand and Total Cost for Asgard. Valkyrie runs a natural monopoly that produces electricity for a small mountain village near Asgard. The table shows the demand facing Valkyrie and Valkyrie's total costs. The marginal revenue of the second unit of output is:

$450

(Table: Prices and Demand for New York Rangers Signature Jerseys) Use Table: Prices and Demand for New York Rangers Signature Jerseys. The New York Rangers have a monopoly on Rangers jerseys. The marginal cost of producing a jersey is $18. The Rangers should produce _____ jerseys and charge _____ to maximize its profits.

3; $24

(Table: Demand and Total Cost for Asgard) Use Table: Demand and Total Cost for Asgard. Valkyrie runs a natural monopoly that produces electricity for a small mountain village near Asgard. The table shows the demand facing Valkyrie and Valkyrie's total costs. The firm's profit-maximizing output is _____ megawatts of electricity.

4

When collusion occurs, sellers in a market

act like a monopolist to increase profits.

A characteristic of oligopoly that is not present in other market structures is that there

are a small number of sellers and they have market power.

A characteristic of perfect competition that is not present in any other market structure is that there

are many sellers that produce identical products.

If Penelope, a monopolist, is producing a quantity whereMC> MR, then profit:

can be increased by decreasing production.

If Penelope, a monopolist, is producing a quantity whereMC < MR, then profit:

can be increased by increasing production.

A price-taker is a seller that:

charges the current market price for its product

A merger benefits society when it results in

cost savings.

What are the main positive and negative impacts of mergers?

lower costs and increased market power

The change in total revenue from selling one additional unit of output is the

marginal revenue

A market characterized by many producers producing a similar yet differentiated product would be considered:

monopolistically competitive.

(Figure: The Profit-Maximizing Output and Price in the Diamond Market) Use Figure: The Profit-Maximizing Output and Price in the Diamond Market. Assume that there are no fixed costs and that AC = MC = $200. Under perfect competition, the price of the good would be _____, and _____ units would be produced.

not $200; 8, i think its $600; 8

(Table: Demand and Total Cost for Asgard) Use Table: Demand and Total Cost for Asgard. Valkyrie runs a natural monopoly that produces electricity for a small mountain village near Asgard. The table shows the demand facing Valkyrie and Valkyrie's total costs. The marginal cost of the fourth unit of output is:

not $225

What type of relationship exists between the level of a company's market power and the price that its owner is able to charge for its product?

positive

(Table: Demand for Cappuccinos at Charlie's Crazy Cappuccino House) Use Table: Demand for Cappuccinos at Charlie's Crazy Cappuccino House. Charlie's Crazy Cappuccino House is the only source of cappuccinos for hundreds of miles in any direction. Charlie currently sells two cappuccinos. If he lowers the price and sells three cappuccinos, the _____ effect will dominate the _____ effect, and total revenue will _____.

quantity; price; increase

If Penelope, a monopolist, is producing a quantity whereMC = P, then profit:

can be increased by decreasing production.

(Table: Demand for Cappuccinos at Charlie's Crazy Cappuccino House) Use Table: Demand for Cappuccinos at Charlie's Crazy Cappuccino House. Charlie's Crazy Cappuccino House is the only source of cappuccinos for hundreds of miles in any direction. If Charlie's marginal cost of selling cappuccinos is constant at $2, his profit-maximizing level of output is _____ cups at _____ per cup.

4; $6

Rahul owns a salmon farm with market power in Washington. Rahul's optimal output occurs where marginal revenue _____ marginal cost. Because of monopoly power, Rahul's supply curve _____.

equals; does not exist

Based on the Rational Rule for Sellers, how does a manager set price and quantity? If the company has no market power, the marginal cost _____ price. If the company has market power, the marginal cost is _____ than price.

equals; less