econ quiz 3

Refer to the graph above. If this monopolist sets the price to maximize profit it will earn economic profit of

$2,400 per day

Refer to the graph above. Assuming that the monopoly maximizes profit the social cost of monopoly will be

$20,000 per day

Refer to the graph above. If this monopolist were forced to set price equal to average cost, it would charge a price of

$3

Refer to the graph above. If the firm is producing 120 units of output, profit is equal to

-$38

If this firm is producing a quantity that maximizes profit, this firm:

. is earning an economic profit equal to $2,000

At the socially optimum quantity of production price equals

. marginal cost

In a perfectly competitive market the demand curve faced by an individual firm is

. perfectly elastic

Refer to the graph above. If this monopolist were allowed to choose the profit-maximizing level of output, it would produce:

200 units of output

Refer to the graph above. What level of output should the perfectly competitive firm produce to maximize profits?

8.

Refer to the graph above in question 3. What distance represents average profits?

AB

Refer to the graph above. A perfectly competitive firm would never operate if the price drops to which segment of the marginal cost curve?

AC

An assumption of a competitive market is that both the buyers and sellers are price takers. When we go to the mall to shop for clothing or to the grocery to buy food, what do we usually observe?

Buyers are often price takers but sellers are usually price makers.

If a college student's demand for magazine subscriptions is more price-elastic than a business executive's demand for magazine subscriptions, then which of the following pricing strategies would a price discriminating magazine publisher follow?

Charge a higher price to business executives

Which graph depicts a perfectly competitive firm in long-run equilibrium?

Graph II

Which of the following is one of the necessary conditions for perfect competition?

Large number of firms.

If MC = Q/15 represents marginal cost for a monopolist and market demand is given by Qd = 500 -10P, then the equation for marginal revenue is:

MR = 50 - (1/5)Q

In the early 2000s many drugs, which provide significant revenue to firms that make them, were slated to lose patent protection. Why are patents important to those who hold them?

Patents act as a barrier to entry allowing monopoly profits.

A monopoly firm is different from a competitive firm in that:

a monopolist can influence market price while a competitive firm cannot

During a recession, the price of restaurant meals falls by over ten percent. The most likely cause is:

a shift of the demand curve to the left

A perfectly competitive firm facing a price of $50 decides to produce 500 widgets. Its marginal cost of producing the last widget is $50. If the firm's goal is maximize profit, it should

continue producing 500 widgets

To maximize profits, a perfectly competitive firm should produce where marginal

cost equals marginal revenue

All of the following can be barriers to entry except

government antitrust policies

Patents do all of the following except

increase quantity produced above its competitive level

Refer to the table above that shows the demand schedule for a firm that has a monopoly in the sale of personal computers in the country of Oz. If the firm were to set the price of computers at $2,000

marginal revenue would be negative

Perfectly competitive firms:

maximize profits

U.S. pharmaceutical companies often sell drugs at a lower price in foreign markets, where demand is more price-elastic, than in U.S. markets. The main reason for this price discrimination is that companies must charge high prices to some consumers in order to recover development costs. U.S. consumers end up paying:

more because they have less price-elastic demand

If market demand increases in a perfectly competitive increasing-cost industry

new firms will enter the industry, factor prices will rise, and the price at which each firm earns zero economic profit will increase

A natural monopoly

occurs when a single firm can supply the entire market demand for a product at a lower average total cost than would be possible if two or more firms supplied the market

A perfectly competitive firm in the long run earns

positive normal profits but zero economic profits

In the early 2000s, Microsoft created a special version of its Windows operating system that it sold at a low price in countries where cheap, pirated software was widespread. The cost of producing another copy of this software is the same as the cost of producing another copy of the regular Windows product. Selling this "special edition" software at a low price in certain countries is very similar to what economists call

price discrimination

Barriers to entry

restrict the number of firms in an industry

Germany uses a two-tiered patent system, granting shorter periods of patent protection to inventions that are considered minor. If the U.S. were to adopt such a system, it would

serve to encourage research and development on important inventions without inefficiently granting lengthy patent protection to every invention

Refer to the graph above. Suppose that market price is $3. Given this price, a perfectly competitive firm should

shut down immediately

Spam (junk e-mail) is a major annoyance for many people who use the internet. However, spammers sometimes have to send thousands of messages to get even one response that pays money. Given this information:

spamming can be profitable even with very low numbers of buyers because the marginal cost of sending spam is virtually zero

Refer to the graph above. If the government set the selling price equal to the marginal cost, the firm in the graph would be

sustaining losses and would eventually go out of business

Refer to the graph above depicting a perfectly competitive firm. If the price of the product is $3

the firm may continue to operate in the short-run but will exit the industry in the long-run

Read the text above to answer this question. What would create a market with one buyer in the situation described?

the government prohibits other buyers

Marginal revenue is not equal to price for a monopolist because:

the monopolist must lower the price of all units in order to sell more

Refer to the above graph of average costs for a typical firm. If this industry consisted of one firm producing 1000 units and one firm producing 500 units:

the smaller firm would likely be forced out through price competition

Refer to the graphs above depicting a perfectly competitive market and firm. If market demand is D0, then

this market is in long-run equilibrium because the firm is earning zero economic profit