question
In the long run, which of the following outcomes is most likely for a firm?
answer
Zero economic profits but positive accounting profits.
question
If the market for eggs is perfectly competitive, then we can conclude that the demand curve for eggs of individual sellers is _____________, and the market demand curve for eggs is ___________.
answer
perfectly elastic; downward sloping
question
A monopoly has to decide on both the price and the quantity of products it will sell, while a firm in a competitive market decides only the price.
answer
False
question
A market for a particular good tends to be monopolistic if
answer
The good has very few substitutes.
question
Monopolies do not have to be concerned about competition from entrepreneurs and innovators because these start-up companies are almost always small and cannot serve large enough markets to compete with a monopoly.
answer
??? true
question
If economic profits exist in perfect competition, in the long run firms will enter because of easy entry, the _______ curve will shift to the right, and _______ will _______ .
answer
Supply; output; increase.
question
A monopoly is likely to _______ and _______ than if the same product or service was being produced and sold in a highly competitive market
answer
Produce less; charge more
question
If the cost of oil and other sources of energy decrease substantially, then the supply curves of goods that require energy to produce and transport will
answer
Shift to the right causing prices to decline.
question
According to the model of perfect competition, a firm in a perfectly competitive market that earns zero economic profit will exit the industry in order to take advantage of more profitable opportunities.
answer
(???) false
question
Apple invests heavily in research and development and promotional expenditures to maintain among customers the perception of high quality in terms of reliability of Apple product, the interface between its various products, and the attractiveness of both its products and packaging. This reputation for quality:
answer
All of the above
(Creates a barrier to entry that makes it more difficult for competitors to offer substitutes, Makes demand less price elastic, Shifts demand for Apple's product to the right, Allows Apple to charge higher prices)
(Creates a barrier to entry that makes it more difficult for competitors to offer substitutes, Makes demand less price elastic, Shifts demand for Apple's product to the right, Allows Apple to charge higher prices)
question
Everything else being the same, the easier it is for consumers to acquire information about prices and the availability of products, the more competitive the market it will be.
answer
(???) true
question
Relative to managers in more monopolistic industries, managers in more competitive industries more likely to spend their time on:
answer
Looking for cost-reducing efficiencies
question
The most common reason why some firms are able to exist over long periods of time as monopolies and earn monopoly profits is:
answer
Both A and B
(They are able to design unique and valuable products that other firms are not able to imitate, There are large economies of scale that make it difficult for other firms to enter the market because of the necessary capital investment required to compete.)
(They are able to design unique and valuable products that other firms are not able to imitate, There are large economies of scale that make it difficult for other firms to enter the market because of the necessary capital investment required to compete.)
question
Assume that a perfectly competitive market is in equilibrium and the typical firm in the industry is earning zero economic profits. If an advance in production technology suddenly reduces the marginal costs of production, then we should expect profits to increase and new firms to enter the market and cause the price to decline.
answer
true
question
At the individual firm level, which of the following types of firms faces downward-sloping demand curve?
answer
A monopoly but not a perfectly competitive firm
question
Which of the following types of firms are guaranteed to make positive economic profit?
answer
Neither a perfectly competitive firm nor a monopoly
question
What is the main difference between a competitive firm and a monopoly firm?
answer
Monopoly firms can generally earn positive profits over a longer period of time.
question
Which of the products below is closest to operating in a perfectly competitive industry?
answer
Eggs
question
A firm in a perfectly competitive market (a price taker) faces what type of demand curve?
answer
Perfectly Elastic
question
A perfectly competitive firm's profit maximizing price is $15. At MC=MR, the output is 100 units. At this level of production, average total costs are $12. The firm's profits are
answer
$300 in the short run
question
What would happen to revenues if a firm in a perfectly competitive industry raised prices?
answer
They would fall to zero
question
If a firm in a perfectly competitive industry is experiencing average revenues greater than average costs, in the long-run
answer
Some firms will enter the industry and price will fall
question
Entry and Elasticity
Suppose that new entry decreased your demand elasticity from -2 to -3 (made demand more elastic). By how much should you adjust your price of $10?
Suppose that new entry decreased your demand elasticity from -2 to -3 (made demand more elastic). By how much should you adjust your price of $10?
answer
1) find marginal cost (P-MC)/Q=1
(10-MC)/10=1/2
MC=5
2) Determine price with new marginal cost
(P-5)/P=1/3
P= $7.50
(10-MC)/10=1/2
MC=5
2) Determine price with new marginal cost
(P-5)/P=1/3
P= $7.50
question
Snacks, Beer, and Marijuana
Snack food vendors and beer distributors earn some monopoly profits in their local markets but see them slowly erode from various new substitutes. When California voted on legalizing marijuana, which side would you think that California beer distributors were on? What about snack food venders? Why?
Snack food vendors and beer distributors earn some monopoly profits in their local markets but see them slowly erode from various new substitutes. When California voted on legalizing marijuana, which side would you think that California beer distributors were on? What about snack food venders? Why?
answer
Beer and marijuana are substitutes. This would shift some of the demand away from beer, causing them to oppose legalization.
Marijuana and snack foods are complements. Snack food companies would see an increase in profits, causing them to support legalization.
Marijuana and snack foods are complements. Snack food companies would see an increase in profits, causing them to support legalization.
question
Competitive Industries
Relative to managers in more monopolistic industries, are managers in more competitive industries more likely to spend their time on reducing costs or on pricing strategies?
Relative to managers in more monopolistic industries, are managers in more competitive industries more likely to spend their time on reducing costs or on pricing strategies?
answer
Because there is elastic demand, they will focus on reducing costs to increase profits.
question
Economic Profit
Describe the difference in economic profit between a competitive firm and a monopolistic firm in both the short and long run. Which should take longer to reach the long-run equilibrium?
Describe the difference in economic profit between a competitive firm and a monopolistic firm in both the short and long run. Which should take longer to reach the long-run equilibrium?
answer
In the short run, the monopolistic firm will have higher economic profits. In the long run, both will have economic profits of zero. It will take the monopolistic firm longer to reach the long run.
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