EC 110 Exam 3

The table represents a demand curve faced by a firm in a competitive market. Quantity Demanded (Units) - Total Revenue (Dollars) 12 132 15 165 18 198 21 231 24 264 For this firm, the marginal revenue of the 15th unit is

$11

Which of the following is true about a monopolistically competitive firm?

It can earn an economic profit in the short run, but not the long run.

Two CEOs from different firms in the same market collude to fix the price in the market. This action violates the

Sherman Antitrust Act of 1890.

monopoly characteristics

Sole producer Barriers to enter Pull market power Firm demand curve is the same as the market demand curve

Which of the following is a necessary characteristic of a monopoly?

The firm is the sole seller of its product.

When an oligopoly market reaches a Nash equilibrium,

a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.

prisoner's dilemma

a game where the cooperative nash equilibrium always pays more than the non-cooperative nash equilibrium

When an industry is a natural monopoly,

a larger number of firms will lead to a higher average total cost.

if gnomes-r-us (a perfectly competitive industry) produces at its optimal output level where marginal cost intersects the average total cost curve at its minimum point, the firm will earn:

a normal profit

Granting a pharmaceutical company a patent for a new medicine will lead to

a product that is priced higher than it would be without the exclusive rights.

dominant strategy

a strategy that works always no matter what the other player responds

2nd degree price discrimination

acknowledge that people don't want to pay your high price so make a deal with the consumer. Buy one get one half off or buy one get one free

cartel

an agreement between firms (or countries) to formally collude on price and output and then agree on the distribution of output

nash equilibirum

an equilibrium outcome of the game where none of the players are willing to deviate from their choice unless another player deviates

price discrimination

charging consumers different prices for the same product

When a monopolist increases the amount of output that it produces and sells, average revenue

decreases, and marginal revenue decreases.

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue

does not change

Assume that this Friday you would like to go to the club. You ask your friends to go with you, but they all want to go to the movies. Despite your friends not wanting to go with you, you decide to go to the club anyway because you really want to go dancing. This type of thinking BEST resembles a:

dominant strategy.

One of the differences between perfect competition and monopoly is that the monopolistic firm's demand curve is

downward slope

In the prisoners' dilemma game, self-interest leads

each prisoner to confess.

______ is when firms leave the market for good. its a _____-run decisions

exiting; long

which of the following is likely to be a perfectly competitive industry?

farm commodities

Robin owns a horse stable and riding academy and gives riding lessons for children at "pony camp." His business operates in a competitive industry. Robin gives riding lessons to 20 children per month. His monthly total revenue is $4,000. The marginal cost of pony camp is $250 per child. In order to maximize profits, Robin should

give riding lessons to fewer than 20 children per month

An oligopolist will increase production if the output effect is

greater than the price effect.

In both perfect competition and monopolistic competition, each firm

has many competitors

The equilibrium quantity in markets characterized by oligopoly is

higher than in monopoly markets and lower than in perfectly competitive markets.

The kinked demand curve model assumes that if a firm raises its price, then its rivals will _____ the price increase, but if a firm lowers its price, its rivals will _____ the price decrease.

ignore; match

contestable market

industries in which the threat of competition keeps prices low

HHi > 2500

industry is highly concentrated

1500 < HHI < 2500

industry is moderately concentrated

HH! < 1500

industry is not concentrated

When profit-maximizing firms in competitive markets are earning profits,

new firms will enter the market.

A market structure with only a few sellers, each offering similar or identical products, is known as

oligopoly

Which of the following conditions is characteristic of a monopolistically competitive firm in both the short run and the long run?

p > mc

A firm in a competitive market has the following cost structure: Quantity (Units) - Total Cost (Dollars) 0 5 1 10 2 12 3 15 4 24 5 40 If the market price is $16, this firm will

produce 5 units of output in the short run and face competition from new market entrants in the long run

The deadweight loss associated with a monopoly occurs because the monopolist

produces an output level less than the socially optimal level.

which of the following is not a major barrier to entry for a monopolist?

product standardization

Economic ______ attracts entry Economic ______ leads to exit

profit; loss

3rd degree price discrimination

selling based on some individual characteristics (age, students)

The accountants hired by Forever Fitness have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, Forever Fitness should

shut down because staying open would be more expensive.

_____ _____ is when firms stop operating temporarily, just like some restaurants on the Strip during break. its a ______-run decision

shutting down; short

game theory

the study of how individuals and firms make strategic decisions to achieve goals when other players or factors can influence that outcome

1st degree price discrimination

when you charge everyone their willingness to pay; almost impossible to do

should a perfectly competitive firm keep producing even if it faces short-run losses?

yes, as long as it is covering its variable costs

​Cartels are difficult to maintain because

​each firm has an incentive to deviate from its agreed output level.

The following table provides information on the price, quantity, and average total cost for a monopoly. Price (Dollars per unit) - Quantity (Units) - Average Total Cost (Dollars per unit) 24 0 -- 18 5 14.00 12 10 11.00 6 15 10.67 0 20 11.00 What is the maximum profit that the monopolist can earn?

$20

A monopolist can sell 300 units of output for $50 per unit. Alternatively, it can sell 301 units of output for $49.60 per unit. The marginal revenue of the 301st unit of output is

-$70.40.

The table shows the demand schedule for a particular product. Quantity Demanded (Units) - Price (Dollars per unit) 0 16 1 14 2 12 3 10 4 8 5 6 6 4 7 2 8 0 If the marginal cost of production in this market is $4, what is the socially efficient quantity of output?

6 units

Which of the following is not an example of price discrimination?

A bakery charges a higher price for brownies than for cookies.

Suppose that a firm in a competitive market faces the following revenues and costs: Quantity (Units) - Marginal Cost (Dollars) - Marginal Revenue (Dollars) 12 5 7 13 6 7 14 7 7 15 8 7 16 9 7 17 10 7 If the firm is currently producing 14 units, what would you advise the owners?

Continue to operate at 14 units

oligopoly

Few large firms Interdependent decision making Substantial barriers to market entry Shared market power and considerable control over price Potential for long-run economic profit

monopoly

One firm No close substitutes for its product Nearly insurmountable barriers to entry Substantial market power and control over price Potential for long-run economic profit

Which of the following expressions is correct for a competitive firm?

Profit = (quantity of output) × (price − average total cost)

Suppose a firm in a competitive market earned $3,000 in total revenue and had a marginal revenue of $30 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

$30 and 100 units

Suppose a firm produces 20 units of output. At this level of output, ATC = 35, P = 55, MR = 30, and MC = 30. The firm's economic profit is:

$400

is sean can sell 10 skateboards at $100 each or 11 skateboard at $95 each what is the marginal revenue of the 11th skateboard?

$45

monopolistic competition

Common Many buyers and seller Differentiated products Little to no barries to exit or enter a market Some control over price No long-run economic profit

monopolistic competition

Big number of sellers Differentiated products Positive economic profit in the short run Easy entry/exit to the market Zero economic profits in the long run

perfect competition characteristics

Many buyers and seller Homogenous (identical) products No barriers to exit or enter the market No control over price No long-run economic profit

The output level that maximizes profit is where

Marginal revenue is equal to marginal cost

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly?

Monopolistic competition features many sellers.

conditions for price discrimination

Must have some control over price Must be able to separate the market into groups based on elasticities of demand Must be able to prevent arbitrage