Micro Test 3: Module 10
what are some characteristics of monopolies?
-a good or service for which there are no close substitutes -the firm's having significant price control -a single seller -a market with barriers to entry
To calculate the profit, which three pieces of information need to be identified ?
-quantity of output -price -average total cost
Companies produce at a loss if:
Average Variable Cost (AVC) < Price < ATC
The profit maximizing output level occurs where:
MR = MC
Companies shut down if:
Price < AVC
Companies produce at a profit if:
Price > Average Total Cost (ATC)
Suppose Carl's Candies sells 100 boxes of candy for $4 each. The total fixed cost of the 100 boxes is $100, and the average variable cost of the boxes is $1.50 per box. Carl's makes a total profit of:
Profit = (Price - ATC) x Q ATC = AFC + AVC (1+1.50= 2.50) AFC = TFC/Q ($100/100=1) profit = ($4-$2.50) x 100 $1.50 x 100 = $150
A monopoly is not really a monopoly when there are no _________ to entry.
barriers
For a monopoly, the marginal revenues per unit fall _______ the price per unit, because when the price _________ , the monopoly gives up some revenue on units it could have sold at higher prices.
below ; decreases
Because monopolies have market power and can influence the price of the goods they sell, they tend to produce lower output and charge a higher price than would prevail in a ___________ equilibrium
competitive
A monopoly will charge consumers the price that they are willing and able to pay for the amount of output available, which is shown along the _____ curve.
demand
A pure monopoly has the overall market ______ to itself, because it is the only seller in a market.
demand
The ______ curve faced by a perfectly competitive firm is perfectly elastic.
demand
The ________ curve faced by a pure monopoly is downward sloping.
demand
Profit maximization implies that monopoly firms should expand production up to the point where the marginal revenue _________ the marginal cost
equals
As the market price decreases, all else held constant, a profit-maximizing firm will _____ its production.
lower
If a monopoly wants to sell more units, it must ____ the price for every unit it sells.
lower
Monopolies maximize profits by choosing levels of output ______ than those found in purely competitive markets.
lower
A pure monopoly is a price ______ engaging in non-price competition.
maker
The extra or additional revenue associated with the production of an additional unit of output is the ________ revenue
marginal
Profit __________ implies that monopoly firms should expand production up to the point where the marginal revenue equals the marginal cost.
maximization
Due to the market inefficiencies created by _______ , one of the roles of government is to limit their market power or even to eliminate them entirely.
monopolies
Due to the market inefficiencies created by ________ , one of the roles of government is to limit their market power or even to eliminate them entirely.
monopolies
__________ reduce the availability of goods and services and consumers' ability to buy those goods
monopolies
A profit-maximizing ______ will always operate on the elastic portion of a linear demand curve.
monopoly
A pure ________ is the only seller in a marker
monopoly
A pure _________ will charge consumers the price that they are willing and able to pay for the amount of output available.
monopoly
For the profit-maximizing level of output, the price charged by a _______ is not just different but greater than marginal revenue.
monopoly
If a _________ want to sell more units, it must lower the price for every unit it sells.
monopoly
To affect the quantity demanded by consumers, as the only supplier in the market, a ________ must change the ________ of its products, which also affects total revenue and marginal revenue.
monopoly ; price
A _________ profit simply indicates that the firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or to compete in a different industry.
normal
The level of profit that occurs when total revenue is equal to total cost is known as ______ profit.
normal
Monopoly power is the ability of a monopoly to influence ________ by controlling the _________ that it produces in the market.
prices ; output
Allocative efficiency is:
producing the goods and services so that their marginal benefit equals their marginal cost
For the profit-maximizing level of output, the price charged by a monopoly is not just different but greater than marginal _______
revenue
Total _______ equals price times quantity
revenue
Profit equal the total __________ minus the total _______
revenue ; cost
As the market price ______ , all else held constant, a profit-maximizing firm can afford to expand its production.
increases
The level of profit that occurs when the total revenue is less than the total cost is called an economic _______
loss
A company can break even and meet operating costs without a loss when it earns _____ economic profit
zero
normal profit is also known as _______ economic profit
zero
