ECO 3320 Final Exam - Assignment Essays

question

A firm has a marginal cost of $20 and charges a price of $40. The Lerner index for this firm is:

answer

0.50

question

The Lerner index/Price Markup=

answer

(p-MC)/p

question

An industry is comprised of 20 firms, each with an equal market share. What is the four-firm concentration ratio of this industry?

answer

0.2

question

An unregulated industry has a Lerner index of zero. These numbers:

answer

are consistent with the industry being perfectly competitive

question

The industry elasticity of demand for gadgets is -2, while the elasticity of demand for an individual gadget manufacturer's product is -2. Based on the Rothschild approach to measuring market power, we conclude that:

answer

there is significant monopoly power in this industry

question

A Herfindahl index of 10,000 suggests:

answer

monopoly

question

In perfect competition, which is NOT true?

answer

Every firm has a small but perceivable market power.

question

Suppose that there are two industries, A and B. There are five firms in industry A with sales at $5 million, $2 million, $1 million, $1 million, and $1 million, respectively. There are four firms in industry B with equal sales of $2.5 million for each firm. The four-firm concentration ratio for industry A is:

answer

0.9

question

answer

2,500

question

The ranking of industries by the four-firm concentration ratio usually, but not always, reveals the same pattern as ranking by HHI. When a discrepancy is found it is usually due to the following:

answer

The four-firm concentration index contains data on only the largest four firms, while the HHI is based on data for all firms in the industry and the HHI is based on squared market shares, while the four-firm concentration ratio is not.

question

The industry elasticity of demand for telephone service is −2, while the elasticity of demand for a specific phone company is −5. What is the Rothchild index?

answer

0.4

question

A local telephone company charges $.10/min. based on a $.08/min. marginal cost of operation. What is the Lerner index?

answer

0.2

question

Which of the following may transform an industry from oligopoly to monopolistic competition?

answer

entry

question

Which of the following statements is true?

answer

the market structure of an industry frequently changes over time

question

Monopolistic competition is characterized by:

answer

differentiated products

question

The chemical industry has a Lerner index of 0.67. Based on this information, a firm with marginal cost of $10 should charge a price of:

answer

$30.30

question

Which of the following is true under monopoly?

answer

P>MC

question

You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q^2. Your firm's maximum profits are:

answer

question

In a competitive industry with identical firms, long-run equilibrium is characterized by:

answer

MR=MC, P=MC, P=AC

question

You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q^2. The profit-maximizing output for your firm is:

answer

question

ou are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q^2. Your firm's maximum profits are:

answer

question

You are the manager of a monopoly that faces a demand curve described by P = 85 − 5Q. Your costs are C = 20 + 5Q. The revenue-maximizing output is:

answer

None of the answers are correct

question

Which of the following is true under monopoly?

answer

None of the answers are correct

question

Which of the following market structures would you expect to yield the greatest product variety?

answer

monopolistic competition

question

Which of the following industries is best characterized as monopolistically competitive?

answer

Toothpaste

question

Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets?

answer

There is free entry and long-run profits are zero

question

Economies of scale exist whenever:

answer

average total costs decline as output increases.

question

The source(s) of monopoly power for a monopoly may be:

answer

economies of scale, economies of scope, patents-->all of the statements associated with this question are correct

question

Let the demand function for a product be Q = 100 − 2P. The inverse demand function of this demand function is:

answer

P=50-0.5Q

question

In the long run, monopolistically competitive firms produce a level of output such that:

answer

P>MC, P=ATC, ATC> minimum average costs-->all of the statements associated with the question are correct

question

You are the manager of a monopoly that faces an inverse demand curve described by P = 200 − 15Q. Your costs are C = 15 + 20Q. The profit-maximizing price is:

answer

$110

question

Profit=

answer

Revenue-Cost

question

Revenue=

answer

Price x Quantity

question

Herfindahl-Hirschman Index

answer

the sum of rates for each industry squared x 10,000

the closer to 10,000 the more monopolistic

question

The Rothschild Index

answer

=Et/Ef

Et=total market elasticity
Ef=individual firm elasticity

question

MR=MC is....

answer

true in perfect competition

question

If economic profit is >0 then

answer

it will only last in the SR, in the LR entry into industry starts causing market price to decrease

question

If economic profit is <0 then

answer

firms continue to operate/produce in the SR as long as their revenue covers their Variable Costs (VC) and a small part of Fixed Cost (FC)

question

Shut down occurs when

answer

P (market price)<minimum AVC

question

Profit Maximization

answer

Profit varies with the level of output because both revenue and cost vary with out put

question

2 Steps to profit maximization

answer

1.Output Decision: what is the output level, q, that maximizes profit or minimizes loss?
2. Shutdown Decision: is it more profitable to produce q or shut down and produce no output (P<minimum AVC)

question

Marginal Profit=

answer

change in price/change in q

question

Profit maximization

answer

MR=MC

question

Shutdown Rules

answer

1. Shutdown only if loss is reduced
2.Shut down only if revenue < avoidable cost

question

Horizontal Dimension

answer

size of the firm in its primary market

question

Vertical Dimension

answer

stages of the production process in which the firm participates in

question

What are the four main market structures

answer

Perfect Competition
Monopoly
Oligopoly
Monopolistic

question

Perfect Competition

answer

1. Large number of buyers and sellers
2. Identical products
3. Full information
4. Negligible transaction costs
5. Free entry and Exit (no barriers to entry)

question

Monopoly Profit Maximization

answer

MR= change in revenue/ change in q

question

MR & Elasticity Relationship :

answer

MR=p(1+1/e)

question

Price elasticity of demand

answer

percent change of q/ percent change of p

question

Where demand curve is unitary=-1

answer

MR=0

question

Where demand curve is inelastic=-1<e greater than or equal to 0

answer

MR=negative

question

Where the demand curve is elastic<-1

answer

MR=positive

question

Profit Maximizing Price:

answer

p=[1(1+1/e)]MC

question

Lerner Index and Elasticity

answer

(p-MC)/p=-1/e

question

Less power with better substitutes

answer

When better substitutes are introduced into the market, the demand becomes more elastic

question

Less power with more firms:

answer

When more firms enter the market, people have more choices, the demand becomes more elastic

question

Less power with closer competitors:

answer

When firms that provide the same service locate closer to this firm, the demand becomes more elastic

1 of 59

question

A firm has a marginal cost of $20 and charges a price of $40. The Lerner index for this firm is:

answer

0.50

question

The Lerner index/Price Markup=

answer

(p-MC)/p

question

An industry is comprised of 20 firms, each with an equal market share. What is the four-firm concentration ratio of this industry?

answer

0.2

question

An unregulated industry has a Lerner index of zero. These numbers:

answer

are consistent with the industry being perfectly competitive

question

answer

there is significant monopoly power in this industry

question

A Herfindahl index of 10,000 suggests:

answer

monopoly

question

In perfect competition, which is NOT true?

answer

Every firm has a small but perceivable market power.

question

answer

0.9

question

answer

2,500

question

The ranking of industries by the four-firm concentration ratio usually, but not always, reveals the same pattern as ranking by HHI. When a discrepancy is found it is usually due to the following:

answer

question

The industry elasticity of demand for telephone service is −2, while the elasticity of demand for a specific phone company is −5. What is the Rothchild index?

answer

0.4

question

A local telephone company charges $.10/min. based on a $.08/min. marginal cost of operation. What is the Lerner index?

answer

0.2

question

Which of the following may transform an industry from oligopoly to monopolistic competition?

answer

entry

question

Which of the following statements is true?

answer

the market structure of an industry frequently changes over time

question

Monopolistic competition is characterized by:

answer

differentiated products

question

The chemical industry has a Lerner index of 0.67. Based on this information, a firm with marginal cost of $10 should charge a price of:

answer

$30.30

question

Which of the following is true under monopoly?

answer

P>MC

question

You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q^2. Your firm's maximum profits are:

answer

question

In a competitive industry with identical firms, long-run equilibrium is characterized by:

answer

MR=MC, P=MC, P=AC

question

You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q^2. The profit-maximizing output for your firm is:

answer

question

ou are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q^2. Your firm's maximum profits are:

answer

question

You are the manager of a monopoly that faces a demand curve described by P = 85 − 5Q. Your costs are C = 20 + 5Q. The revenue-maximizing output is:

answer

None of the answers are correct

question

Which of the following is true under monopoly?

answer

None of the answers are correct

question

Which of the following market structures would you expect to yield the greatest product variety?

answer

monopolistic competition

question

Which of the following industries is best characterized as monopolistically competitive?

answer

Toothpaste

question

Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets?

answer

There is free entry and long-run profits are zero

question

Economies of scale exist whenever:

answer

average total costs decline as output increases.

question

The source(s) of monopoly power for a monopoly may be:

answer

economies of scale, economies of scope, patents-->all of the statements associated with this question are correct

question

Let the demand function for a product be Q = 100 − 2P. The inverse demand function of this demand function is:

answer

P=50-0.5Q

question

In the long run, monopolistically competitive firms produce a level of output such that:

answer

P>MC, P=ATC, ATC> minimum average costs-->all of the statements associated with the question are correct

question

You are the manager of a monopoly that faces an inverse demand curve described by P = 200 − 15Q. Your costs are C = 15 + 20Q. The profit-maximizing price is:

answer

$110

question

Profit=

answer

Revenue-Cost

question

Revenue=

answer

Price x Quantity

question

Herfindahl-Hirschman Index

answer

the sum of rates for each industry squared x 10,000

the closer to 10,000 the more monopolistic

question

The Rothschild Index

answer

=Et/Ef

Et=total market elasticity
Ef=individual firm elasticity

question

MR=MC is....

answer

true in perfect competition

question

If economic profit is >0 then

answer

it will only last in the SR, in the LR entry into industry starts causing market price to decrease

question

If economic profit is <0 then

answer

firms continue to operate/produce in the SR as long as their revenue covers their Variable Costs (VC) and a small part of Fixed Cost (FC)

question

Shut down occurs when

answer

P (market price)<minimum AVC

question

Profit Maximization

answer

Profit varies with the level of output because both revenue and cost vary with out put

question

2 Steps to profit maximization

answer

1.Output Decision: what is the output level, q, that maximizes profit or minimizes loss?
2. Shutdown Decision: is it more profitable to produce q or shut down and produce no output (P<minimum AVC)

question

Marginal Profit=

answer

change in price/change in q

question

Profit maximization

answer

MR=MC

question

Shutdown Rules

answer

1. Shutdown only if loss is reduced
2.Shut down only if revenue < avoidable cost

question

Horizontal Dimension

answer

size of the firm in its primary market

question

Vertical Dimension

answer

stages of the production process in which the firm participates in

question

What are the four main market structures

answer

Perfect Competition
Monopoly
Oligopoly
Monopolistic

question

Perfect Competition

answer

1. Large number of buyers and sellers
2. Identical products
3. Full information
4. Negligible transaction costs
5. Free entry and Exit (no barriers to entry)

question

Monopoly Profit Maximization

answer

MR= change in revenue/ change in q

question

MR & Elasticity Relationship :

answer

MR=p(1+1/e)

question

Price elasticity of demand

answer

percent change of q/ percent change of p

question

Where demand curve is unitary=-1

answer

MR=0

question

Where demand curve is inelastic=-1<e greater than or equal to 0

answer

MR=negative

question

Where the demand curve is elastic<-1

answer

MR=positive

question

Profit Maximizing Price:

answer

p=[1(1+1/e)]MC

question

Lerner Index and Elasticity

answer

(p-MC)/p=-1/e

question

Less power with better substitutes

answer

When better substitutes are introduced into the market, the demand becomes more elastic

question

Less power with more firms:

answer

When more firms enter the market, people have more choices, the demand becomes more elastic

question

Less power with closer competitors:

answer

When firms that provide the same service locate closer to this firm, the demand becomes more elastic

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