Micro Exam
If a pure monopolist is operating in a range of output where demand is elastic,
marginal revenue will be positive but declining.
Suppose the market for corn is a purely competitive, constant-cost industry that is in long-run equilibrium. Now assume that an increase in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price will be
the same as the initial equilibrium price, but the new industry output will be greater than the original output.
A pure monopolist
will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.
Answer the question on the basis of the accompanying table, which shows the demand schedule facing a nondiscriminating monopolist. PQd$ 10172533415 Assume that this monopolist faces zero production costs. The profit-maximizing monopolist will set a price of
$5.
Suppose that a pure monopolist can sell 7 units of output at $9 per unit and 8 units at $8.50 per unit. For the monopolist to profitably produce and sell the eighth unit of output, its marginal cost must be anywhere at or below
$5.00.
A monopolist sells 6 units of a product per day at a unit price of $15. If it lowers the price to $14, its total revenue increases by $22. This implies that its sales quantity increases by
2 units per day.
Answer the question on the basis of the provided demand and cost data for a pure monopolist. Demand DataCost DataPriceQuantity DemandedOutputTotal Cost$ 5.5033$ 5.005.00446.004.50556.503.85667.503.35779.002.908811.002.509914.00 The profit-maximizing level of output will be
5 units.
(Consider This) Which of the following statements is true about U.S. firms?
Over half are bankrupt within the first five years after starting up.
Which of the following conditions is true for a purely competitive firm in long-run equilibrium?
P = MC = minimum ATC.
Allocative efficiency is achieved when the production of a good occurs where
P = MC.
Resources are efficiently allocated when production occurs at that output at which
P equals MC.
What happens in a decreasing-cost industry when some firms leave and the industry's output contracts?
The average cost will increase.
Refer to the accompanying graphs for a competitive market in the short run. Which of the following statements is true?
The representative firm is experiencing economic losses.
What do economies of scale, the ownership of essential raw materials, and patents have in common?
They are all barriers to entry.
Pure monopoly refers to
a single firm producing a product for which there are no close substitutes.
Refer to the two diagrams for individual firms. Figure 2 pertains to
an imperfectly competitive seller.
One explanation for the existence of an increasing-cost industry is that
as the industry expands, prices are bid up for some factors of production.
The accompanying graph shows the long-run supply and demand curves in a purely competitive market. We know that in this market, the marginal
benefit exceeds marginal cost at the output level of Q 2.
Refer to the graph, which shows a linear demand curve for a monopolist. In which range of the demand curve (or output quantity) will the firm operate?
between quantities 0 and S
Under pure competition, in the long run
both allocative efficiency and productive efficiency are achieved.
The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the total opportunity cost of producing the equilibrium output level would be represented by the area
c
Refer to the diagram for a pure monopolist. Monopoly profit
cannot be determined from the information given.
If the entry or exit of firms does not affect the resource prices in an industry, we refer to it as a
constant-cost industry.
Productive efficiency refers to
cost minimization, where P = minimum ATC.
In response to a cost-reducing technological breakthrough in the production of its product, a profit-maximizing monopolist will normally
decrease the price it charges for its product.
Creative destruction is illustrated by which of the following pairs of products?
digital cameras and film
In long-run equilibrium, a purely competitive firm will operate where price is
equal to MR, MC, and minimum ATC.
If there is a decrease in demand for a product in a purely competitive industry, it results in an industry contraction that will end when the product price is
equal to its marginal cost.
Assume that a monopolist faces a linear demand curve and that it produces the output quantity where total revenue is maximized. At that output, the price elasticity of demand for the product is
equal to one.
Assume a pure monopolist is charging price P and selling output Q, as shown on the diagram. On the basis of this information, we can say that
if marginal costs were somehow zero, the firm would be maximizing its profits.
The provided graph depicts a situation where, if the market demand for the product increases, the prices of the resources used by the firms in the industry would
increase
Suppose that a monopolist calculates that at its present output level, marginal revenue is $1.00 and marginal cost is $2.00. It could maximize profits or minimize losses by
increasing price and decreasing output.
The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's total cost
is $400.
Assume a purely competitive increasing-cost industry is in long-run equilibrium. If a decline in demand occurs, firms will
leave the industry, price will fall, and quantity produced will fall.
In a decreasing-cost industry,
lower demand leads to higher long-run equilibrium prices.
In the diagram, at output level Q1,
neither productive nor allocative efficiency is achieved.
In pure competition, if the market price of the product is higher than the minimum average total cost of the firms, then
other firms will enter the industry and the industry supply will increase.
An exclusive legal right as sole producer for 20 years granted to an inventor of a product is called a
patent
Refer to the graph for a profit-maximizing monopolist. At equilibrium, the firm will be earning
positive profits.
Because the monopolist's demand curve is downsloping,
price must be lowered to sell more output.
Refer to the diagram. If this somehow was a costless product (that is, the total cost of any level of output was zero), the firm would maximize profits by
producing Q 2 units and charging a price of P 2.
Refer to the diagram for a nondiscriminating monopolist. Marginal revenue will be zero at output
q 2.
Long-run competitive equilibrium
results in zero economic profits.
One feature of pure monopoly is that the demand curve
slopes downward.
Creative destruction is
the process by which new firms and new products replace existing dominant firms and products.
One defining characteristic of pure monopoly is that
the monopolist produces a product with no close substitutes.
Answer the question on the basis of the accompanying demand schedule. PriceQuantity Demanded$ 10192837465 The marginal revenue obtained from selling the third unit of output is
$6
Total OutputPriceMarginal RevenueAverage Total CostMarginal Cost1$ 100$ 100$ 100.00$ 302908063.00263806052.67324704049.50405602049.6050650050.0052740−2052.2966830−4055.7580920−6060.671001010−8067.60130 Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's total profit will be
$82.
Refer to the graph, which shows the revenue curves for a monopolist. The elastic portion of the demand curve ranges from quantity
0 to Q 3.
The long-run supply curve would be perfectly elastic when
an increase in demand does not cause a change in product price.