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Characteristics of perfect competition
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- There are many buyers and sellers, each with a small market share
- The product is standardized across sellers
- free entry and free exit
- The product is standardized across sellers
- free entry and free exit
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Price taker
answer
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Average fixed cost
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fixed cost per unit of output produced
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Average variable cost
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variable cost per unit of output produced
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Marginal cost
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change in total cost generated by an additional unit of output
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Marginal revenue
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change in total revenue generated by an additional unit of output
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Marginal product
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Average total cost
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total cost per unit of output produced
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Break-even price
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Shut-down price
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Types of markets: perfect competition
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How it reacts in short and long run
output decisions in this market
output decisions in this market
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Types of markets: monopolistic competition
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Many firms competing to sell similar but differentiated products
Example: retail clothing store in large shopping malls
Example: retail clothing store in large shopping malls
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Types of markets: Oligopoly
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When a few large firms have all or most of the sales in an industry, downward sloping D curve
Example: Coca-cola or Pepsi
Example: Coca-cola or Pepsi
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Type of market: Monopoly
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Only seller in the market, produce a unique product with no close substitutes, entry of other firms is restricted by patents, have absolute power over setting market price, can make economic profits in the long run because they can set price without competition
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Concepts of efficiency
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Prisoner's Dilemma
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a situation where individual decision-makers have an incentive to choose in a way that creates a less optimal outcome for the individuals as a group. It shows why two completely rational individuals might not cooperate, even if it appears that it is in their best interests to do so.
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How entry and exit affect profits in the long run for a perfectly competitive, monopolistic, and monopolistic competitive firm
answer
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Externality (positive and negative)
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Coase Theorem
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Public goods
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Private goods
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Common resources
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Artificially Scarce Goods
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Marginal social costs
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Marginal social benefits
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Consumer surplus
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Producer surplus
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Deadweight loss
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Autarky
answer
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Imports/Exports
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Tariff
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As a firm increases labor, what happens to the marginal product of labor (the extra output added by the last laborer)?
a. it increases
b. it decreases
c. it stays the same
a. it increases
b. it decreases
c. it stays the same
answer
it decreases
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The marginal cost curve always intersects the ATC and AVC at their minimum point
true
false
true
false
answer
true
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Which of the following is an example of a standardized product?
a. Bushel of wheat
b. A pair of nike shoes
a. Bushel of wheat
b. A pair of nike shoes
answer
Bushel of wheat
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The supply curve is the same as which curve?
a. Marginal cost
b. Average total cost
c. Average variable cost
d. Marginal revenue
a. Marginal cost
b. Average total cost
c. Average variable cost
d. Marginal revenue
answer
Marginal cost
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Look at the figure The Marginal Decision Rule. At q2, or _____ , the ____ price equal to marginal cost.
a. profit-minimizing quantity; break-even
b. maximum-cost output; break-even
c. minimum-cost output; shut-down
d. profit-maximizing quantity; market
a. profit-minimizing quantity; break-even
b. maximum-cost output; break-even
c. minimum-cost output; shut-down
d. profit-maximizing quantity; market
answer
profit-maximizing quantity; market
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Look at the figure The Marginal Decision Rule. Given the market price P1, B is the _____ curve
a. average fixed cost
b. marginal product
c. marginal revenue
d. marginal cost
a. average fixed cost
b. marginal product
c. marginal revenue
d. marginal cost
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Marginal revenue
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If a perfectly competitive firm decreases production from 11 units to 10 units and the market price is $20 per unit, total revenue for 10 units is:
a. $20
b. $10
c. $200
d. $210
a. $20
b. $10
c. $200
d. $210
answer
$200
question
If a perfectly competitive firm is producing a quantity where MC < MR, then profit:
a. can be increased by decreasing the price
b. can be increased by increasing production
c. is maximized
d. can be increased by decreasing production
a. can be increased by decreasing the price
b. can be increased by increasing production
c. is maximized
d. can be increased by decreasing production
answer
can be increased by increasing production
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If a perfectly competitive gardening shop sells 30 evergreen bushes at $10 per bush, its marginal revenue is:
a. more than $10
b. less than $10
c. $300
d. $10
a. more than $10
b. less than $10
c. $300
d. $10
answer
$10
question
Individuals in a market who must take the price price as given are:
a. price searchers
b. quantity takers
c. price takers
d. quantity minimizers
a. price searchers
b. quantity takers
c. price takers
d. quantity minimizers
answer
price takers
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Price in a perfectly competitive industry:
a. is always equal to marginal revenue for the firm
b. is indeterminate in the short run
c. must be greater than average total cost or the firm will shut down in the short run
d. is determined by each firm, depending on its costs of production
a. is always equal to marginal revenue for the firm
b. is indeterminate in the short run
c. must be greater than average total cost or the firm will shut down in the short run
d. is determined by each firm, depending on its costs of production
answer
is always equal to marginal revenue for the firm
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Look at the table Soybean Cost. What is the break even price for this farmer?
a. $14.00
b. $14.50
c. $13.50
d. $13.00
a. $14.00
b. $14.50
c. $13.50
d. $13.00
answer
$13.50
question
Look at the table Soybean Cost. What is the shut-down price for this farmer?
a. $13
b. $11
c. $12
d. $10
a. $13
b. $11
c. $12
d. $10
answer
$10
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Look at the table Total Cost for a Perfectly Competitive Firm. If the market price is $5, the profit-maximizing quantity of output is ___ units
a. 9
b. 5
c. 7
d. 8
a. 9
b. 5
c. 7
d. 8
answer
9
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Use Figure: Payoff Matrix for Ajinomoto and ADM. The equilibrium combination occurs when ADM produces ____ million pounds and Ajinomoto produces ____ million pounds.
a. 30;30
b. 30;40
c. 40;40
d. 40;30
a. 30;30
b. 30;40
c. 40;40
d. 40;30
answer
40;40
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Is the example above (Figure: payoff Matrix for Ajinomoto and ADM) and example of a Prisoner's Dilemma?
a. No, each company can earn positive profits regardless
b. Yes, each firm will have an incentive to produce 40 million pounds and sacrifice $20 million in profit
c. No, each firm will be able to earn $180 million in profit
d. Yes, both firms will produce 30 million pounds and be arrested for collusion
e. None of the above
a. No, each company can earn positive profits regardless
b. Yes, each firm will have an incentive to produce 40 million pounds and sacrifice $20 million in profit
c. No, each firm will be able to earn $180 million in profit
d. Yes, both firms will produce 30 million pounds and be arrested for collusion
e. None of the above
answer
Yes, each firm will have an incentive to produce 40 million pounds and sacrifice $20 million in profit
question
For a perfectly competitive firm, which of the following is true?
a. They will maximize profit by setting MR=MC
b. They will maximize profit by choosing to produce in the middle of a linear demand curve
c. They will maximize profit by setting TR=TC
d. All of the above
a. They will maximize profit by setting MR=MC
b. They will maximize profit by choosing to produce in the middle of a linear demand curve
c. They will maximize profit by setting TR=TC
d. All of the above
answer
They will maximize profit by setting MR=MC
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A perfectly competitive firm is less likely to produce___ and charge ____ than a monopoly
a. less; less
b. less; more
c. more; more
d. more; less
a. less; less
b. less; more
c. more; more
d. more; less
answer
more; less
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When a monopoly maximizes profit; the loss of surplus by consumers is ______ the monopolist's gain in profit
a. less than
b. equal to
c. more than
d. sometimes more than and sometimes less than
a. less than
b. equal to
c. more than
d. sometimes more than and sometimes less than
answer
more than
question
In a monopolistically competitive industry
a. output could be increased without an increase in total cost
b. to maximize profits, firms set MR = MC, and people would be better off if output were reduced
c. People would be better off if output were reduced
d. A firm maximizes profits when MR MC yet P > MC
a. output could be increased without an increase in total cost
b. to maximize profits, firms set MR = MC, and people would be better off if output were reduced
c. People would be better off if output were reduced
d. A firm maximizes profits when MR MC yet P > MC
answer
a firm maximizes profits when MR = MC yet P > MC
question
The demand curve for a monopoly is:
a. The MR curve above the horizontal axis
b. the MR curve above the AVC curve
c. the entire MR curve
d. above the MR curve
a. The MR curve above the horizontal axis
b. the MR curve above the AVC curve
c. the entire MR curve
d. above the MR curve
answer
above the MR curve
question
If a firm operating in monopolistic competition is producing a quantity that generates MC < MR, then the marginal decision rule tells us that profit:
a. can be increased by increasing the price
b. is maximized only if MC = P
c. can be increased by increasing production
d. can be increased by decreasing production
a. can be increased by increasing the price
b. is maximized only if MC = P
c. can be increased by increasing production
d. can be increased by decreasing production
answer
can be increased by increasing production
question
The profit-maximizing rule MC = MR is followed by firms operating in: Select one:
a. either monopolistic competition or perfect competition, depending on the costs of production
b. monopolistic competition but not perfect competition
c. both monopolistic competition and perfect competition
d. perfect competition but not monopolistic competition
a. either monopolistic competition or perfect competition, depending on the costs of production
b. monopolistic competition but not perfect competition
c. both monopolistic competition and perfect competition
d. perfect competition but not monopolistic competition
answer
both monopolistic competition and perfect competition
question
To be called an oligopoly, an industry must have: Select one:
a. independence in decision making
b. a horizontal demand curve
d. relatively easy entry and exit
d. a small number of interdependent firms
a. independence in decision making
b. a horizontal demand curve
d. relatively easy entry and exit
d. a small number of interdependent firms
answer
a small number of interdependent firms
question
What is the price elasticity of demand for a perfectly competitive market
a. -1
b. 0
c. infinity
a. -1
b. 0
c. infinity
answer
infinity
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A perfectly competitive firm has a perfectly elastic demand curve, but a firm in imperfect competition will have a downward sloping demand curve
a. True
b. False
a. True
b. False
answer
True
question
In a perfectly competitive firm, the Marginal Revenue is constant at all quantities
a. True
b. False
a. True
b. False
answer
True
question
For an imperfectly competitive firm, price will be larger than marginal revenue because the demand curve is above the marginal revenue curve
a. True
b. False
a. True
b. False
answer
True
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Total revenue is the same as profit
a. True
b. False
a. True
b. False
answer
False (TR is P*Q and Profit is TR-TC)
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If you have market power, you will have a downward sloping demand curve
a. True
b. False
a. True
b. False
answer
True
question
In a monopolistic competition, consumers can tell the difference between producer's products
a. True
b. False
a. True
b. False
answer
True
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Once you have the quantity produced by the market, what curve do you need to look for to determined the price charged win the market?
a. Demand
b. Marginal cost
c. Marginal Revenue
d. Average total cost
a. Demand
b. Marginal cost
c. Marginal Revenue
d. Average total cost
answer
Demand
question
If the ATC curve is below the demand curve, a firm will earn profits
a. True
b. False
a. True
b. False
answer
True
question
In monopolistic competition, the price equals the MR
a. True
b. False
a. True
b. False
answer
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question
Long run profit is zero for both perfect competition and monopolistic competition
a. true
b. false
a. true
b. false
answer
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question
What structure produces at a lower ATC in the long run?
a. True
b. False
a. True
b. False
answer
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question
Oligopolists will cut their price if their competitors cut theirs, but they will not increase their price because their competitors increase theirs.
a. True
b. False
a. True
b. False
answer
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question
Which market structure has more producers
a. Monopolistically Competitive Industry
b. Oligopolies
a. Monopolistically Competitive Industry
b. Oligopolies
answer
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question
Which of the following can earn long-run profits?
a. Monopolistically competitive firms
b. Monopolists
a. Monopolistically competitive firms
b. Monopolists
answer
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question
Will consumer surplus be larger in a Monopoly as compared to Perfect Competition?
a. Yes
b. No
a. Yes
b. No
answer
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question
A monopolist charges a higher price and produces a larger quantity than a Perfectly Competitive Industry?
a. True
b. False
a. True
b. False
answer
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question
Which structure has a more inelastic demand curve
a. Monopoly
b. Oligopoly
c. Monopolistically Competition
a. Monopoly
b. Oligopoly
c. Monopolistically Competition
answer
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question
A duopoly is a
a. Perfectly competitive industry
b. Oligopoly
c. Monopolistically competitive industry
d. Monopoly
a. Perfectly competitive industry
b. Oligopoly
c. Monopolistically competitive industry
d. Monopoly
answer
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