Microeconomics Perfect Comp/Monopolistic Comp/Monopolys
A single-price monopoly can sell 10 units of its product at a price of $45 each but to sell 11 units, the monopoly must cut the price to $44. What is the marginal revenue of the extra unit sold?
$34
Price cap regulation is defined as regulation that
imposes a price ceiling on the regulated firm.
Mark owns a cattle ranch near Hugo, Oklahoma. Mark is currently producing beef at an output level where marginal revenue exceeds marginal cost. In order to maximize his profit, Mark should
increase his output.
In the long run, a perfectly competitive firm
makes zero economic profit.
The above figure illustrates a perfectly competitive firm. If the market price is $40 a unit, to maximize its profit (or minimize its loss) the firm should
produce 40 units.
With a natural monopoly
regulation can take the form of average cost pricing to allow coverage of costs.
Suppose a perfectly competitive market is in long-run equilibrium with a price of $12. Then there is a permanent increase in demand. As a result, in the short run the market price_______and in the long run the number of firms__________and the price is_____________the price was in the short run.
rises; increases; lower than
A price-discriminating monopoly
sells a larger quantity than it would if it were a single-price monopoly.
A price-discriminating monopoly is a monopoly that
sells different units of a good or service at different prices.
A single-price monopoly
sets a single price for all consumers.
Suppose that marginal revenue for a perfectly competitive firm is $20 . When the firm produces 10 units, its marginal cost is $20, its average total cost is $22, and its average variable cost is $17. Then to maximize its profit in the short run, the firm
should stay open and incur an economic loss of $20.
A profit-maximizing output for a single-price monopoly is determined by the intersection of the ________curves and the profit-maximizing price is found on the _________________
1. marginal cost and marginal revenue 2. demand
Technology reduces the average cost of production, so in the long run
1. perfectly competitive firms produce at a lower average cost 2. the market price of the good falls. 3. firms with older plants either exit the market or adopt the new technology.
A firm in monopolistic competition_____influence its price and______influence the market average price.
1.can 2. cannot
In monopolistic competition, profit is maximized by producing so that marginal revenue
= marginal cost and < than price.
The cranberry market is perfectly competitive. Reports that consuming cranberries can lead to improved health result in a permanent increase in the demand for cranberries and an immediate upward jump in the price of cranberries. As time passes, the price of cranberries
and the initial firms' economic falls; profit will be eliminated
Patents
are a legal barrier to entry.
A natural monopoly
arises when one firm can meet the entire market demand at a lower average total cost than two or more firms.
A perfectly competitive firm will continue to operate in the short run when the market price is below its average total cost if the price is
at least equal to the minimum average variable cost.
For a firm in monopolistic competition, the efficient scale is the amount of output at which_______is a minimum.
average total cost
In the long run, a firm in monopolistic competition maximizes its profit at a point where price is equal to_________
average total cost but the average total cost is not minimized.
At a long-run equilibrium in monopolistic competition, price equals
average total cost.
A perfectly competitive firm will shutdown when the price is just below the minimum point on the
average variable cost curve.
A single-price monopoly transfers
consumer surplus to producers.
With price discrimination, a monopoly
converts consumer surplus into economic profit.
When a firm adopts new technology, generally its
cost curves shift downward.
For the perfectly competitive broccoli producers in California, the market demand curve for broccoli is
downward sloping.
For a perfectly competitive firm, marginal revenue is
equal to the price.
$23. The firm's average total cost is $20. What is the firm's total cost?
$1,000
In the short run, a perfectly competitive firm can experience which of the following?
1. an economic profit 2.an economic loss but it continues to stay open 3. an economic loss equal to its total fixed cost when it shuts down
If the market price of a product is $14 and all sellers are price takers, then which of the following is correct?
Each seller's total revenue line is graphed as an upward-sloping straight line.
Which of the following is true about monopolistic competition but false about perfect competition?
Firms compete on their product's price as well as its quality and marketing.
If a large number of firms are competing, the market could be
perfect competition or monopolistic competition.
When a monopolistically competitive firm's demand curve shifts leftward, what happens to its marginal revenue curve?
It shifts leftward.
In the above figure, a perfectly competitive market will have a price of______and a single-price monopoly will have a price of________________
P2 and quantity of Q2; P1 and quantity of Q1
Which of the following explains why the marginal cost pricing rule results in an economic loss for a natural monopoly?
The ATC curve is downward sloping throughout the relevant range, therefore the MC is lower than the ATC.
_________ natural monopolies is a commonly used, potential solution to the problems presented by natural monopolies.
Regulating
Which of the following statements is correct?
The market demand and the firm's demand are the same for a monopoly.
What does monopolistic competition have in common with monopoly?
a downward-sloping demand curve
Compared to a perfectly competitive market, a single-price monopoly sets
a higher price.
If a natural monopoly is regulated using
a marginal cost pricing rule, the firm incurs an economic loss.
The process of price cap regulation includes which of the following?
a price ceiling.
The demand curve facing a single-price monopoly is
above the marginal revenue curve.
In a perfectly competitive industry, when a firm is producing so that its total revenue equals its total cost, the firm is
earning zero economic profit, that is, earning a normal profit.
A monopoly creates a deadweight loss because the monopoly
produces less than the efficient quantity.
If the price is $2 and the firm's marginal cost is $2, the firm should
shut down.
A natural barrier to entry is defined as a barrier that arises because of
technology that allows economies of scale over the entire relevant range of output.
For a monopoly, marginal revenue is equal to
the change in total revenue brought about by a one-unit increase in quantity sold.
The price charged by a perfectly competitive firm is =
the market price.
Comparing a perfectly competitive market to a single-price monopoly with the same costs, we see that
the perfectly competitive market achieves efficiency in resource use while the monopoly market does not. When a perfectly competitive industry is taken over by a monopoly, some consumer surplus is transferred to the monopolist in the form of economic profit.
A single-price monopoly has marginal revenue and marginal cost equal to $19 at 15 units of output where the price on the demand curve is $38. At this output, average total cost is $15. What is the total profit earned?
$345
Juan's Software Service Company is in a perfectly competitive market. Juan has total fixed cost of $25,000, average variable cost for 1,000 service calls is $45, and marginal revenue is $75. Juan's makes 1,000 service calls a month. What is his economic profit?
$5,000
Suppose the Busy Bee Caf´e is the monopoly producer of hamburgers in Hugo, Oklahoma. The above figure represents the demand, marginal revenue, and marginal cost curves for this establishment. What quantity will the Busy Bee produce to maximize its profit?
20 hamburgers per hour
Suppose a perfectly competitive firm's minimum average variable cost is $3 when it produces
50.
When compared to a perfectly competitive market, a single-price monopoly with the same costs produces________output and charges________price.
a smaller; a higher
For a natural monopoly, economies of scale
exist along the long-run average cost curve at least until it crosses the market demand curve.
Keith is a perfectly competitive carnation grower. The market price is $2 per dozen carnations. Keith's average total cost to grow carnations is $2.50 per dozen. In the long run, Keith will
exit the industry if the price and his costs do not change.
If a regulatory agency sets the price equal to marginal cost for a natural monopoly, the
government might have to provide a subsidy to the firm to keep it in business.
A perfectly competitive firm definitely earns an economic profit in the short run if price is
greater than average total cost.
For a single-price monopoly, price is
greater than marginal revenue.
A natural monopoly's average cost curve
intersects the demand curve while the average cost curve slopes downward.
Peter's Pencils is a perfectly competitive company producing pencils. Suppose Peter is producing 1,000 pencils an hour. If the total cost of 1,000 pencils is $500, the market price per pencil is $2, and the marginal cost is $2, then Peter
is maximizing his profit and is earning an economic profit.
With perfect price discrimination, the level of output
is the same as the amount produced in a perfectly competitive market.
If a monopolistically competitive seller's marginal cost is $3.56, the firm will decrease its output if
its marginal revenue is less than $3.56.
Compared to a perfectly competitive industry, a single-price monopoly produces
less output.
A single-price monopoly faces a linear demand curve. If the marginal revenue for the second unit is $20, then the marginal revenue for the third unit is_____
less than $20.
The firm's over-riding objective is to
maximize economic profit.
In the short run, a perfectly competitive firm
might make an economic profit, an economic loss, or a normal profit.
Suppose a perfectly competitive market is in long-run equilibrium and then there is a permanent increase in the demand for that product. The new long-run equilibrium will have
more firms in the market.
A monopoly
must determine the price it will charge.
A single-price monopoly
must lower the price for all customers if it wants to increase its sales.
Because of the number of firms in monopolistic competition
no one firm can dominate the market.
In monopolistic competition there are_______barriers to entry, so therefore in the long run, economic profit____________
no; equals zero
A monopoly is a market with
one supplier.
The major difference between monopolistic competition and monopoly is
only a monopoly can earn an economic profit in the long run.
In the long run, existing firms exit a perfectly competitive market
only if they incur an economic loss.
What is the difference between perfect competition and monopolistic competition?
perfect competition = identical goods monopolistic competition = slightly different goods
Suppose a perfectly competitive market is in short-run equilibrium. Firms that are incurring a_________economic loss________________.
persistent; exit the industry and shift the market supply curve leftward
In order for a hotel to successfully price discriminate so that senior citizens are given a discount, the hotel must be able to
prevent senior citizens from reselling their rooms to younger customers.
For a perfectly competitive corn grower in Nebraska, the marginal revenue curve is
the same as its demand curve.
One of the requirements for a monopoly is that
there is a unique product with no close substitutes.
