ECO Exam 4
When a company spends money for television commercials, it intends to shift the
demand curve to the right and make demand less elastic.
A purely monopolistic firm:
faces a downsloping demand curve.
The markup the firm charges in a monopolistically competitive market is ___________ the markup charged by a firm in a perfectly competitive market, and the excess capacity in a monopolistically competitive market is ___________ the firm's excess capacity in a perfectly competitive market.
greater than; greater than
In order to sell more units, a monopolist must lower its prices. As shown in the table below, total revenue will initially ____________ and then ______________.
increase, decrease
The demand curve faced by a pure monopolist:
is less elastic than that faced by a single purely competitive firm.
A natural monopoly occurs when:
long-run average costs decline continuously through the range of demand.
A firm in monopolistic competition tends to have more control over price when it is
more successful at differentiating its product
Approximately what percentage of the operating system market did Microsoft control in 2003?
more than 90%
Large minimum efficient scale of plant combined with limited market demand may lead to:
natural monopoly
Monopolies choose their profit maximizing
output level and price
In the graph below, which point represents quantity sold by monopolistically competitive firms in the long run, after advertising?
point 3
Monopoly power measures the ability to set the ________ for a good.
price
Because the monopolist's demand curve is downsloping:
price must be lowered to sell more output.
Which of the following best approximates a pure monopoly?
the only bank in a small town
Refer to the above graph. In the short run, this monopolistically competitive firm will set price at:
$65 and produce 35 units of output
Refer to the above table. What will be the economic profit or loss for this monopolistically competitive firm at the profit-maximizing level of output?
+20
Suppose an unregulated natural monopoly becomes regulated using marginal-cost pricing. As a result, the firm's profits would
become negative
Which of the following is characteristic of a pure monopolist's demand curve?
It is the same as the market demand curve.
A monopolistically competitive industry is like a purely competitive industry in that:
Neither industry has significant barriers to entry
A good example of a monopolistically competitive market is
local restaurants.
If a monopolistic firm is selling its 100th unit of output for $35, its marginal revenue:
will be less than $35.
Assume that a monopolist faces the demand schedule given below, and a constant marginal cost of $2 for each unit of output. To maximize profits, this monopolist would produce ____ units of output and charge a price of ____ per unit. Price Quantity 10 0 8 1 5 2 3 3 1 4 Price x quantity = total revenue. TR1 unit - TR0 units = MR1 unit
2 units; $5
Which of the following is true with regard to monopoly?
A monopolist charges a price where marginal cost is equal to marginal revenue.
Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by:
Marginal cost = marginal revenue
In the graph below, what quantity will a monopolist produce?
Q2
In which industry is monopolistic competition most likely to be found?
Retail trade
Which of the following is not a barrier to entry?
X-inefficiency
Which region represents the consumer surplus in the monopoly outcome?
a
Which of the following is considered a natural barrier?
economics of scale
Based on the graph above, if the situation persists in the long run, the firm would The firm in the graph above is losing money. In the short run, depending on variable costs, the firm could produce at a loss, or shut down. However if the firm has been unable to correct its losses in the long run, it will exit the industry.
exit the industry
A monopolist is ______ likely to advertise than a monopolistically competitive firm.
less
Under monopolistic competition, there are
no long-run barriers to entry of new firms.
Approximately what percentage of the operating system market did Android devices control in 2010?
15%
Which of the following is a way in which monopolistically competitive firms can choose to differentiate?
??? How much they pay in taxes
Compared to perfect competition, monopoly results in
fewer units produced and sold
Which region or regions represent the total surplus in the monopoly outcome?.
A + B + C + D
Which of the following is correct?
A purely competitive firm is a "price taker," while a monopolist is a "price maker."
In monopolistic competition, the firm's optimal price is
greater than marginal cost.
In 1911, the U.S. government sued Standard Oil, a U.S. company, for violation of antitrust laws. The company broke up into 34 smaller companies. This is an example of
promoting competition.
Based on the two graphs, which of the firms is facing greater market competition?
Firm B
The Water and Electric Board in Eugene, Oregon, is a monopolist in the supply of electricity. The city government must approve the rates the company charges for its electricity. This is an example of
regulating markets
Which of the following is true regarding regulating natural monopolies?
Price can be set equal to the average total cost
Based on the picture, which of the following is true?
The commercials on television tend to give the impression that the goods are high quality.
Which of the following does not necessarily apply to a pure monopoly?
The firm will charge the highest price possible
Titleist's advertising slogan is "The #1 ball in golf." Consumers can also buy generic golf balls. The manufacturers of generic golf balls do not engage in any advertising. Assume that the average total cost of producing Titleist and generic golf balls is the same. Which producer has a stronger incentive to maintain quality control in the production of golf balls?
Titleist
If both Pepsi and Coca Cola increase their advertising, it can be said that
the costs of production will increase for both companies.
or an imperfectly competitive firm:
the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.
Firms that advertise during the Super Bowl build brand recognition, which helps to differentiate their product from the competition. As a result, the firms in the snapshot expect
their demand curve to be steeper.
In monopolistic competition, demand for a single firm's product is
a fraction of overall market demand.
Compared to perfect competition, monopolies charge
a higher price
Which of the following is a firm in the most perfectly competitive market?
a local independent corn farmer
Suppose there was only one producer of an expensive heart medication. The source of that producer's monopoly would most likely come from
a patent to produce the drug
Pure monopoly refers to:
a single firm producing a product for which there are no close substitutes.
Over the long run, a monopolist
can continue to make economic profits if it can maintain a monopoly and keep competitors from entering the market.
Suppose that at the current level of production, the price of a monopolist's product is equal to $15 per unit. Marginal revenue is equal to $10 per unit, and marginal cost is equal to $15 per unit. This monopoly
can increase its profit by producing and selling fewer units of its product.
A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the tenth unit of sales per week is:
1000
Assume that a monopolist faces the demand schedule given in the table below and a constant marginal cost of $50 for each unit of output. To maximize profits, the monopolist would produce ____ units of output at a price of ____ per unit.
3,000; $70
Using the table below, determine the quantity at which a monopolist will produce. EXPLANATION: A profit-maximizing monopolist produces where MR = MC. To find the point where MR = MC using the information in the table, calculate MR for each quantity. The MC is the increase in variable cost for each quantity. At a quantity of 4, MR = 3 and MC = 1. At a quantity of 5, MR = 1 and MC = 2, so it doesn't make sense to produce the 5th unit as it will be produced at a loss because MC > MR.
4
Refer to the above table. What output will the monopolistically competitive firm produce?
5
Approximately what percentage of the operating system market did Android devices control in 2014?
60
A firm will earn economic profits whenever:
Average revenue exceeds average total costs
Which region or regions represent the producer surplus in the monopoly outcome?
B + C + D
In the long run, how is price related to marginal cost in both perfect competition and in monopolistic competition?
Because monopolistically competitive firms have market power, they set a price higher than marginal cost, while perfectly competitive firms cannot.
Titleist's advertising slogan is "The #1 ball in golf." Consumers can also buy generic golf balls. The manufacturers of generic golf balls do not engage in any advertising. Assume that the average total cost of producing Titleist and generic golf balls is the same. Which of the demand curves shows the long-run demand curve for Titleist?
D1
Which of the demand curves in the figure is consistent with a monopolistic competitor making zero economic profit in the long run?
D1; In long-run monopolistic competition, the demand curve is downward-sloping and tangent to the ATC curve at the profit-maximizing quantity.
In the figure below, which demand curve represents the firm that has run the more successful advertising campaign?
Db
Suppose that a monopolist calculates that at its present output level, marginal cost is $4.00 and marginal revenue is $5.00. The firm could increase profits by:
Decreasing price and increasing output
What region or regions of the graph represent deadweight loss in the monopoly outcome?
E +F
In the graph below, what price will a monopolist charge?
P2: where mc = MR at Quantity
A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should:
Increase the level of output
Suppose that a monopolist calculates that at present its output level, marginal revenue is $1.00 and marginal cost is $2.00. He or she could maximize profits or minimize losses by:
Increasing price and decreasing output
Refer to the above graph of a representative firm in monopolistic competition. If curve (2) represents ATC and line (3) represents demand, then curve (1) and line (4) would be:
MC and MR, respectively
Which of the following statements is true?
Monopolistically competitive firms produce less than those operating at the most efficient scale of production.
The supply curve for a monopoly is:
Not clearly defined
Suppose a firm comes up with a new air freshener that produces its own smells. They operate in monopolistic competition, and are making a profit. Which of the following would most likely occur?
Other firms are attracted by the profits and will want to produce a similar air freshener.
Monopolistic competition is characterized by firms:
Producing differentiated products
Which statement is correct?
Pure monopolists do not always realize positive profits, sometimes they suffer losses
Which of the following is a characteristic of monopolistic competition?
Relatively easy entry
In competitive markets, price is equal to marginal cost in the long run. In monopolistic competition, why is price greater than marginal cost in the long run?
The demand curves for the two types of firms are different. Monopolistically competitive firms have market power and a downward sloping demand curve, so they set a price higher than marginal cost.
Based on the graph below, how does the monopolist's profit-maximizing price and output compare to the efficient price and output?
The monopolist charges more and produces less
One difference between monopolistic competition and pure competition is that:
There is some control over price in monopolistic competition
What do economies of scale, the ownership of essential raw materials, and patents have in common?
They are all barriers to entry.
Which of the following is true regarding monopolies?
They engage in rent seeking.
Refer to the above graph. This monopolistically competitive firm is earning economic profits in the short run and:
Will earn only normal profits in the long run
If Coca-Cola increases its advertising, and the advertising is effective, we would expect the equilibrium price for Pepsi to ___________________ and the equilibrium quantity to _____________________.
decrease, decrease
Microsoft likely has to spend billions of dollars building and developing an operating system, but once it is produced, the cost to get the software to each customer is almost zero. When Microsoft sells more units, their average total costs decrease. This means Microsoft is said to have ____________________.
economies of scale
If Pepsi increases its advertising, and the advertising is effective, we would expect the equilibrium price for Pepsi to ___________________ and the equilibrium quantity to _____________________.
increase, increase
Refer to the above graph of a representative firm in monopolistic competition. If curve (2) represents ATC and line (3) represents demand, then we can conclude that the industry:
is in long-run equilibrium
Compare long-run equilibrium in a market with monopolistic competition and a competitive market. Long-run equilibrium under monopolistic competition results in __________ output and a ________ price than in a perfectly competitive market.
less; higher
A natural monopoly exists when a single seller experiences ____________ average total costs than any potential competitor.
lower
Under monopolistic competition, a market has
many firms
Under monopolistic competition, firms produce
products that are somewhat differentiated.
The year is 2278, and the starship Enterprise is running low on dilithium crystals, which are used to regulate the matter/antimatter reactions to propel the ship across the universe. Without the crystals, space-time travel is not possible. If the crystals are government owned or regulated, and the government wants to create the greatest welfare for society, the government should set the price
using the marginal-cost-pricing rule.
In the figure below, where does a monopoly operate to maximize profits?
where MR = MC
