Econ 202 Test 3 Questions - Assignment Essays

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Economists would describe the U.S. automobile industry as

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an oligopoly.

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In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies?

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oligopoly

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Which of the following industries most closely approximates pure competition?

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agriculture

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Economists use the term imperfect competition to describe

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those markets that are not purely competitive.

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In which of the following industry structures is the entry of new firms the most difficult?

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pure monopoly

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An industry comprising 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example of

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monopolistic competition.

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An industry comprising four firms, each with about 25 percent of the total market for a product, is an example of

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oligopoly

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An industry comprising a very large number of sellers producing a standardized product is known as

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pure competition.

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An industry comprising a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is called

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oligopoly

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Which of the following statements applies to a purely competitive producer?

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It will not advertise its product.

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A purely competitive seller is

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a "price taker."

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Which of the following is not a characteristic of pure competition?

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pricing strategies by firms

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Which of the following is not a basic characteristic of pure competition?

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considerable nonprice competition

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The demand schedule or curve confronted by the individual, purely competitive firm is

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perfectly elastic

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Which of the following is characteristic of a purely competitive seller's demand curve?

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Price and marginal revenue are equal at all levels of output.

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In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, total revenue graphs as

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straight, upsloping line.

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In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, marginal revenue graphs as a

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straight line, parallel to the horizontal axis

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In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm,

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the demand and marginal revenue curves will coincide.

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If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue

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will also be $5.

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Price is constant to the individual firm selling in a purely competitive market because

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each seller supplies a negligible fraction of total supply.

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For a purely competitive seller, price equals

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all of these.

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For a purely competitive firm, total revenue

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has all of these characteristics.

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The marginal revenue curve of a purely competitive firm

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is horizontal at the market price

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The demand curve in a purely competitive industry is, while the demand curve to a single firm in that industry is .

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downsloping; perfectly elastic

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A perfectly elastic demand curve implies that the firm

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can sell as much output as it chooses at the existing price

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The fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies that

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product price is constant at all levels of output.

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Which of the following statements is correct?

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The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping.

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Chart Question:
Refer to the diagram, which pertains to a purely competitive firm. Curve A represents

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total revenue only.

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Chart Question:
Refer to the diagram, which pertains to a purely competitive firm. Curve C represents

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average revenue and marginal revenue.

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Marginal revenue is the

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change in total revenue associated with the sale of one more unit of output.

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Firms seek to maximize

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total profit.

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A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating

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marginal revenue and marginal cost.

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In the short run, a purely competitive firm that seeks to maximize profit will produce

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where total revenue exceeds total cost by the maximum amount.

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Chart Question:
Refer to the short-run data in the accompanying graph. The profit-maximizing output for this firm is

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320 units.

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Chart Question:
Refer to the short-run data in the accompanying graph. Which of the following is correct?

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Any level of output between 100 and 440 units will yield an economic profit.

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A competitive firm will maximize profits at that output at which

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total revenue exceeds total cost by the greatest amount.

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Chart question:
Curve (1) in the diagram is a purely competitive firm's

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total economic profit curve.

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Chart Question:
Curve (2) in the diagram is a purely competitive firm's

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marginal revenue curve.

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Chart Question:
Curve (3) in the diagram is a purely competitive firm's

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total revenue curve.

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Chart Question:
Curve (4) in the diagram is a purely competitive firm's

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total cost curve

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Chart Question:
Refer to the diagram. Other things equal, an increase of product price would be shown as

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an increase in the steepness of curve (3), an upward shift in curve (2), and an upward shift in curve (1).

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Chart Question:
The firm represented by the diagram would maximize its profit where

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the vertical distance between curves (3) and (4) is the greatest.

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A firm reaches a break-even point (normal profit position) where

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total revenue and total cost are equal.

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The MR = MC rule applies

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to firms in all types of industries.

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When a firm is maximizing profit, it will necessarily be

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maximizing the difference between total revenue and total cost.

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The MR = MC rule can be restated for a purely competitive seller as P = MC because

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each additional unit of output adds exactly its price to total revenue

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In the short run, the individual competitive firm's supply curve is that segment of the

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marginal cost curve lying above the average variable cost curve.

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Which of the following is not a valid generalization concerning the relationship between price and costs for a purely competitive seller in the short run?

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Price must be at least equal to average total cost.

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Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation

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is realizing an economic profit of $40.

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A purely competitive firm's short-run supply curve is

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upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

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Suppose you find that the price of your product is less than minimum AVC. You should

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close down because, by producing, your losses will exceed your total fixed costs.

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If a purely competitive firm shuts down in the short run,

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it will realize a loss equal to its total fixed costs.

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A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its

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total variable costs.

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Output Marginal Revenue Marginal Cost
0 -- --
1 $16 $10
2 16 9
3 16 13
4 16 17
5 16 21

The data in the accompanying table indicates that this firm is selling its output in a(n)

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purely competitive market.

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Output Marginal Revenue Marginal Cost
0 -- --
1 $16 $10
2 16 9
3 16 13
4 16 17
5 16 21

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $10, the firm's profit-maximizing level of output would be

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Output Marginal Revenue Marginal Cost
0 -- --
1 $16 $10
2 16 9
3 16 13
4 16 17
5 16 21

Refer to the data in the accompanying table. At the profit-maximizing output, the firm's total revenue is

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$48

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Output Marginal Revenue Marginal Cost
0 -- --
1 $16 $10
2 16 9
3 16 13
4 16 17
5 16 21

Refer to the data in the accompanying table. Assuming total fixed costs equal to zero, the firm's

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economic profit is $16

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In the short run, a purely competitive firm will always make an economic profit if

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P > ATC.

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Suppose that at 500 units of output, marginal revenue is equal to marginal cost. The firm is selling its output at $5 per unit, and average total cost at 500 units of output is $6. On the basis of this information, we

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cannot determine whether the firm should produce or shut down in the short run.

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If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing

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price and average variable cost.

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A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should

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produce because the resulting loss is less than its TFC.

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The lowest point on a purely competitive firm's short-run supply curve corresponds to

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the minimum point on its AVC curve.

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Chart Question:

Refer to the diagram for a purely competitive producer. The lowest price at which the firm should produce (as opposed to shutting down) is

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Chart Question:

Refer to the diagram for a purely competitive producer. The firm will produce at a loss at all prices

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between P2 and P3

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Chart Question:

Refer to the diagram for a purely competitive producer. If product price is P3,

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economic profits will be zero

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Chart Question:

Refer to the diagram for a purely competitive producer. The firm's short-run supply curve is

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the bcd segment and above on the MC curve.

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The short-run supply curve of a purely competitive producer is based primarily on its

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MC curve.

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On a per-unit basis, economic profit can be determined as the difference between

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product price and average total cost

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In the short run, a purely competitive seller will shut down if

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price is less than average variable cost at all outputs.

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Chart Question:

According to the accompanying diagram, to maximize profit or minimize losses, this firm will produce

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E units at price A.

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Chart Question:

Refer to the accompanying diagram. At the profit-maximizing output, total revenue will be

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0AHE.

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Chart Question:

According to the accompanying diagram, at the profit-maximizing output, total fixed cost is equal to

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BCFG.

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Chart Question:

According to the accompanying diagram, at the profit-maximizing output, total variable cost is equal to

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0CFE.

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Chart Question:

According to the accompanying diagram, at the profit-maximizing output, the firm will realize

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an economic profit of ABGH.

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If a purely competitive firm is producing at some output level less than the profit-maximizing output, then

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marginal revenue exceeds marginal cost.

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Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost
1 $100.00 $17.00 $117.00 $17
2 50.00 16.00 66.00 15
3 33.33 15.00 48.33 13
4 25.00 14.25 39.25 12
5 20.00 14.00 34.00 13
6 16.67 14.00 30.67 14
7 14.29 15.71 30.00 26
8 12.50 17.50 30.00 30
9 11.11 19.44 30.55 35
10 10.00 21.60 31.60 41
11 9.09 24.00 33.09 48
12 8.33 26.67 35.00 56

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $12, the competitive firm should produce

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zero units at a loss of $100.

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8 units at an economic profit of $16

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produce 7 units at a loss of $14.00.

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Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost
1 $100.00 $17.00 $117.00 $17
2 50.00 16.00 66.00 15
3 33.33 15.00 48.33 13
4 25.00 14.25 39.25 12
5 20.00 14.00 34.00 13
6 16.67 14.00 30.67 14
7 14.29 15.71 30.00 26
8 12.50 17.50 30.00 30
9 11.11 19.44 30.55 35
10 10.00 21.60 31.60 41
11 9.09 24.00 33.09 48
12 8.33 26.67 35.00 56

The accompanying table gives cost data for a firm that is selling in a purely competitive market. Which of the following tables gives the firm's short- run supply schedule?

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Price Qs
$50 11
42 10
36 9
32 8
20 6
13 0

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Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost
1 $100.00 $17.00 $117.00 $17
2 50.00 16.00 66.00 15
3 33.33 15.00 48.33 13
4 25.00 14.25 39.25 12
5 20.00 14.00 34.00 13
6 16.67 14.00 30.67 14
7 14.29 15.71 30.00 26
8 12.50 17.50 30.00 30
9 11.11 19.44 30.55 35
10 10.00 21.60 31.60 41
11 9.09 24.00 33.09 48
12 8.33 26.67 35.00 56

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If there were 1,000 identical firms in this industry and total, or market, demand is as shown in the second table, equilibrium price will be

Price Quantity Demanded
$50 3,000
42 6,000
36 9,000
32 11,000
20 14,000
13 19,500

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$36

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If at the MC = MR output, AVC exceeds price,

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some firms should shut down in the short run

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Chart Question:

In the provided diagram, the profit-maximizing output

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is n

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Chart Question:

In the provided diagram, at the profit-maximizing output, total profit is

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efbc

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Chart Question:

In the provided diagram, the short-run supply curve for this firm is the

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segment of the MC curve lying to the right of output level h.

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Chart Question:

According to the information in the provided diagram, this firm is selling its product in a(n)

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purely competitive market.

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In the short run, a purely competitive seller will shut down if product price

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is less than AVC.The short-run supply curve for a purely competitive industry can be found by

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The short-run supply curve for a purely competitive industry can be found by

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summing horizontally the segments of the MC curves lying above the AVC curve for all firms.

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DASH Airlines is considering the addition of a flight from Red Cloud to David City. The total cost of the flight would be $1,100, of which $800 are fixed costs already incurred. Expected revenues from the flight are $600. DASH should

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add this flight, because marginal revenue exceeds marginal costs and total revenue exceeds total variable cost.

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In contrast to American firms, Japanese firms frequently make lifetime employment commitments to their workers and agree not to lay them off when product demand is weak. Other things being equal, we would expect Japanese firms to

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continue to produce in the short run at lower prices than would American firms.

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Assume for a competitive firm that MC = AVC at $12, MC = ATC at $20, and MC = MR at $16. This firm will

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minimize its losses by producing in the short run.

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The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing it is known as the

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profit-maximizing rule.

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If a purely competitive firm is producing at the P = MC output and realizing an economic profit, at that output

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marginal revenue exceeds ATC.

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If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should

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not change its output.

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Chart Question:

At P2 in the accompanying diagram, this firm will

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produce 44 units and earn only a normal profit.

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Chart Question:

At P1 in the accompanying diagram, this firm will produce

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47 units and realize an economic profit

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Chart Question:

At P4 in the accompanying diagram, this firm will

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shut down in the short run

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Chart Question:

At P3 in the accompanying diagram, this firm will

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produce 40 units and incur a loss.

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The Ajax Manufacturing Company is selling in a purely competitive market. Its output is 100 units, which sell at $4 each. At this level of output, total cost is $600, total fixed cost is $100, and marginal cost is $4. The firm should

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produce zero units of output.

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If a purely competitive firm is maximizing economic profit,

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it may or may not be maximizing per-unit profit

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Output Total Cost
0 $50
1 90
2 120
3 140
4 170
5 210
6 260
7 330

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If product price is $60, the firm will

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produce 6 units and realize a $100 economic profit.

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Output Total Cost
0 $50
1 90
2 120
3 140
4 170
5 210
6 260
7 330

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If product price is $45, the firm will

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produce 5 units and realize a $15 economic profit.

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Output Total Cost
0 $50
1 90
2 120
3 140
4 170
5 210
6 260
7 330

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If product price is $25, the firm will

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shutdown and incur a $50 dollar loss

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Assume a purely competitive firm is selling 200 units of output at $3 each. At this output, its total fixed cost is $100 and its total variable cost is
$350. This firm

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is making a profit, but not necessarily the maximum profit.

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Chart Question:

Refer to the accompanying diagram. This firm will earn only a normal profit if product price is

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Chart Question:

Refer to the accompanying diagram. The firm will realize an economic profit if price is

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Chart Question:

Refer to the accompanying diagram. The firm will produce at a loss if price is

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Chart Question:

Refer to the accompanying diagram. The firm will shut down at any price less than

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Chart Question:

Refer to the accompanying diagram. The firm's supply curve is the segment of the

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MC curve above its intersection with the AVC curve.

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Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost
1 $150.00 $25.00 $175.00 $ 25.00
2 75.00 23.00 98.00 21.00
3 50.00 20.00 70.00 14.00
4 37.50 21.00 58.50 24.00
5 30.00 23.00 53.00 31.00
6 25.00 25.00 50.00 35.00
7 21.43 28.00 49.43 46.01
8 18.75 33.00 51.76 68.07
9 16.67 39.00 55.67 86.95
10 15.00 48.00 63.00 128.97

The accompanying table gives cost data for a firm that is selling in a purely competitive market. The marginal cost column reflects

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the law of diminishing returns.

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. $150; $300

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$60;$210

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$150, zero, and $150, respectively

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9 units at an economic profit of $281.97.

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8 units at an economic profit of $130.72

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6 units at a loss of $90.

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4 units at a loss of $138.

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0 units at a loss of $150.

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A purely competitive seller should produce (rather than shut down) in the short run

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if total revenue exceeds total cost or if total cost exceeds total revenue by some amount less than total fixed cost.

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Total Output Total Fixed Cost Total Variable Cost Total Cost
0 $50 $0 $50
1 50 70 120
2 50 120 170
3 50 150 200
4 50 220 270
5 50 300 350
6 50 390 440

The accompanying table gives cost data for a firm that is selling in a purely competitive market. The data are for

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the short run

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$10, $60, and $70, respectively.

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$80

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4 units of output

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realize a $30 economic profit.

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In the short run, a purely competitive firm will earn a normal profit when

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P = ATC.

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Quantity Demanded Price Quantity Supplied
400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000

The accompanying table applies to a purely competitive industry composed of 100 identical firms. The equilibrium price in this purely competitive market is

answer

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Quantity Demanded Price Quantity Supplied
400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000

The accompanying table applies to a purely competitive industry composed of 100 identical firms. At the equilibrium price, each of the 100 firms in this industry will produce

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6,000 units of output.

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Quantity Demanded Price Quantity Supplied
400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000

The accompanying table applies to a purely competitive industry composed of 100 identical firms. For each of the 100 firms in this industry, marginal revenue and total revenue will be

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$3 and $18,000, respectively.

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Quantity Demanded Price Quantity Supplied
400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000

The accompanying table applies to a purely competitive industry composed of 100 identical firms. If each of the 100 firms in the industry is maximizing its profit, each must have a marginal cost

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Quantity Demanded Price Quantity Supplied
400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000

The accompanying table applies to a purely competitive industry composed of 100 identical firms. If each of the 100 firms in the industry is maximizing its profit and earning only a normal profit, each must have a total cost of

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$18,000

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Quantity Demanded Price Quantity Supplied
400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000

The accompanying table applies to a purely competitive industry composed of 100 identical firms. If each of the 100 firms in the industry is maximizing its profit and earning only a normal profit, each must have an average total cost of

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(Consider This) An unprofitable motel will stay open in the short run if

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price (average nightly room rate) exceeds average variable cost.

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(Consider This) An otherwise unprofitable motel located on a largely abandoned roadway might be able to stay open for several years by

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reducing or eliminating its annual maintenance expenses

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(Last Word) Fixed costs for a firm are analogous to

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starting out in a hole that represents economic losses if the firm produces nothing

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(Last Word) Oil wells and seasonal resorts will often shut down temporarily because

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prices for their output temporarily fall below their average variable costs of production.

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(Last Word) Temporary shutdowns of firms are most widespread when

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the economy experiences recession.

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Oligopoly firms may produce either standardized or differentiated products.

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TRUE

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The term imperfect competition refers to every market structure besides pure competition.

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TRUE

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Firms in a monopolistically competitive industry have no reason to engage in nonprice competition because their products are uniquely different from other sellers in the market

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FALSE

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Although individual purely competitive firms can influence the price of their product, these firms as a group cannot influence market price.

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FALSE

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In a purely competitive industry, competition centers more on advertising and sales promotion than on price.

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FALSE

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Price and marginal revenue are identical for an individual purely competitive seller.

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TRUE

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The demand curve for a purely competitive industry is perfectly elastic, but the demand curves faced by individual firms in such an industry are downsloping.

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FALSE

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Marginal revenue is the addition to total revenue resulting from the sale of one more unit of output.

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TRUE

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In maximizing profit, a firm will always produce that output where total revenues are at a maximum.

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FALSE

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In the short run, a competitive firm will always choose to shut down if product price is less than the lowest attainable average total cost.

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FALSE

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A competitive firm will produce in the short run so long as its price exceeds its average fixed cost.

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FALSE

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Chart Question:

The firm described in the accompanying graph will maximize profits by producing output D.

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FALSE

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Chart Question:

In the accompanying diagram, at the profit-maximizing output, total revenue will be 0GLD.

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FALSE

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Chart Question:

In the accompanying diagram, at output C, production will result in an economic profit.

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TRUE

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Chart Question:

In the accompanying diagram, at any price below R, the firm will shut down in the short run.

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TRUE

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Chart Question:

In the accompanying graph, if demand fell to the level of FNJ, there would be no output at which the firm could realize an economic profit.

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FALSE

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Chart Question:

In the accompanying diagram, if the firm produced D units of output at price G, it would earn a normal profit.

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TRUE

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The short-run supply curve slopes upward because producers must be compensated for rising marginal costs.

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TRUE

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Which of the following distinguishes the short run from the long run in pure competition?

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Firms can enter and exit the market in the long run but not in the short run.

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The primary force encouraging the entry of new firms into a purely competitive industry is

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economic profits earned by firms already in the industry.

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In a purely competitive industry,

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there may be economic profits in the short run but not in the long run.

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Balin's Burger Barn operates in a perfectly competitive market. Balin's is currently earning economic profits of $20,000 per year. Based on this information, we can conclude that

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Balin's is operating in the short run, but not the long run.

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Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm

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should continue producing in the short run but leave the industry in the long run if the situation persists.

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Karlee's Kreations sells handbags in a purely competitive market. Karlee's is currently breaking even. Based on this information, we can conclude that Karlee's Kreations

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may be operating in either short-run or long-run equilibrium.

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Which of the following is true concerning purely competitive industries?

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In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.

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If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then

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new firms will enter this market.

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Long-run adjustments in purely competitive markets primarily take the form of

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entry or exit of firms in the market.

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Long-run competitive equilibrium

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results in zero economic profits.

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Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Currently Betty's MR = $15, MC = $12, ATC = $10, and AVC = $8. Based on this information, we can conclude that

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potential new firms will be encouraged by Betty's success to enter the market.

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We would expect an industry to expand if firms in that industry are

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earning economic profits.

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Which of the following statements is correct?

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Economic profits induce firms to enter an industry; losses encourage firms to leave.

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Suppose a purely competitive, increasing-cost industry is in long-run equilibrium. Now assume that a decrease in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price

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and industry output will be less than the initial price and output

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Suppose the market for corn is a purely competitive, constant-cost industry that is in long-run equilibrium. Now assume that an increase in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price will be

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the same as the initial equilibrium price, but the new industry output will be greater than the original output.

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Which of the following statements is correct?

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The long-run supply curve for a purely competitive increasing-cost industry will be upsloping.

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A constant-cost industry is one in which

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if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth.

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Which of the following will not hold true for a competitive firm in long-run equilibrium?

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P equals AFC.

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Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed, product price will be

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higher, and total output will be larger than originally.

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Assume a purely competitive, increasing-cost industry is in long-run equilibrium. If a decline in demand occurs, firms will

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leave the industry and price and output will both decline.

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When a purely competitive firm is in long-run equilibrium,

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price equals marginal cost.

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A purely competitive firm

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cannot earn economic profit in the long run

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A constant-cost industry is one in which

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resource prices remain unchanged as output is increased.

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An increasing-cost industry is associated with

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an upsloping long-run supply curve

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GRAPH QUESTION:

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. Which of the following is correct?

answer

The diagrams portray short-run equilibrium but not long-run equilibrium.

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GRAPH QUESTION:

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. In the long run we should expect

answer

firms to leave the industry, market supply to fall, and product price to rise.

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GRAPH QUESTION:

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. The predicted long-run adjustments in this industry might be offset by

answer

a technological improvement in production methods.

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Assume a purely competitive firm is maximizing profit at some output at which long-run average total cost is at a minimum. Then

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there is no tendency for the firm's industry to expand or contract.

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An increasing-cost industry is the result of

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higher resource prices that occur as the industry expands.

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A purely competitive firm is precluded from making economic profits in the long run because

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of unimpeded entry to the industry.

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If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to

answer

increase, output to increase, price to decrease, and profits to decrease.

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Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium. We can

answer

not compare the original and the new prices without knowing what cost conditions exist in the industry.

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Under what conditions would an increase in demand lead to a lower long-run equilibrium price?

answer

The firms in the market are part of a decreasing-cost industry.

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In a decreasing-cost industry,

answer

lower demand leads to higher long-run equilibrium prices.

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A decreasing-cost industry is one in which

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input prices fall or technology improves as the industry expands.

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When LCD televisions first came on the market, they sold for at least $1,000, and some for much more. Now many units can be purchased for under $400. These facts imply that

answer

the LCD television industry is a decreasing-cost industry.

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Suppose that an industry's long-run supply curve is downsloping. This suggests that

answer

it is a decreasing-cost industry.

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Suppose an increase in product demand occurs in a decreasing-cost industry. As a result

answer

the new long-run equilibrium price will be lower than the original long-run equilibrium price.

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Purely competitive industry X has constant costs and its product is an inferior good. The industry is currently in long-run equilibrium. The economy now goes into a recession and average incomes decline. The result will be

answer

an increase in output, but not in the price, of the product.

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Suppose losses cause industry X to contract and, as a result, the prices of relevant inputs decline. Industry X is

answer

an increasing-cost industry.

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GRAPH QUESTION:

The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's total revenue

answer

is $400. Remember price x quantity

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GRAPH QUESTION:

The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's total cost

answer

is $400.

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GRAPH QUESTION:

The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's economic profit

answer

is zero.

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If the long-run supply curve of a purely competitive industry slopes upward, this implies that the prices of relevant resources

answer

rise as the industry expands.

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GRAPH QUESTION:

Line (1) in the diagram reflects the long-run supply curve for

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an increasing-cost industry.

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GRAPH QUESTION:

Line (2) in the accompanying diagram reflects the long-run supply curve for

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a constant-cost industry.

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GRAPH QUESTION:

Line (1) in the diagram reflects a situation where resource prices

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increase as industry output expands.

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GRAPH QUESTION:

Line (2) in the diagram reflects a situation where resource prices

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remain constant as industry output expands.

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Allocative efficiency is achieved when the production of a good occurs where

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P = MC.

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A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is

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producing less output than allocative efficiency requires.

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Resources are efficiently allocated when production occurs where

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price is equal to marginal cost.

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The term productive efficiency refers to

answer

the production of a good at the lowest average total cost

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If the price of product Y is $25 and its marginal cost is $18

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resources are being underallocated to Y.

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If the price of bottled water is $2 and the marginal cost of producing it is $2.50

answer

resources are being overallocated to bottled water.

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The term allocative efficiency refers to

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the production of the product mix most desired by consumers.

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Under pure competition, in the long run

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both allocative efficiency and productive efficiency are achieved.

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If for a firm P = minimum ATC = MC, then

answer

both allocative efficiency and productive efficiency are being achieved.

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GRAPH QUESTION:

The diagram portrays

answer

the equilibrium position of a competitive firm in the long run.

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GRAPH QUESTION:

If the competitive firm depicted in this diagram produces output Q, it will

answer

earn a normal profit.

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GRAPH QUESTION:

Refer to the diagram. By producing at output level Q,

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both productive and allocative efficiency are achieved.

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GRAPH QUESTION:

In the diagram, at output level Q1,

answer

neither productive nor allocative efficiency is achieved.

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GRAPH QUESTION:

At output level Q1, in this diagram,

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resources are underallocated to this product and productive efficiency is not realized.

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GRAPH QUESTION:

Refer to the diagram. At output level Q2,

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resources are overallocated to this product and productive efficiency is not realized.

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Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit. With no spillovers, this information means that

answer

price is greater than marginal cost.

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If production is occurring where marginal cost exceeds price, the purely competitive firm will

answer

fail to maximize profit and resources will be overallocated to the product.

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If a purely competitive firm is producing where price exceeds marginal cost, then

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the firm will fail to maximize profit and resources will be underallocated to the product.

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Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

answer

P = MC = minimum ATC.

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Allocative efficiency occurs whenever

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it is impossible to produce a net benefit for society by changing the combination of goods and services produced.

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In long-run equilibrium, purely competitive markets

answer

maximize the sum of consumer surplus and producer surplus.

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Which of the following would not be expected to occur in a purely competitive market in long-run equilibrium?

answer

Consumer and producer surplus will be minimized.

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Which of the following outcomes is consistent with a purely competitive market in long-run equilibrium?

answer

Combined consumer and producer surplus will be maximized.

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Entrepreneurs in purely competitive industries

answer

innovate to lower operating costs and generate short-run economic profits.

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Innovations that lower production costs or create new products

answer

often generate short-run economic profits that do not last into the long run

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The process by which new firms and new products replace existing dominant firms and products is called

answer

creative destruction.

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Creative destruction is

answer

the process by which new firms and new products replace existing dominant firms and products.

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The theory of creative destruction was advanced many years ago by

answer

Joseph Schumpeter

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Creative destruction is least beneficial to

answer

workers in the "destroyed" industries.

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Which of the following is an example of creative destruction?

answer

Automobile production causes the wagon industry to shut down.

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With the creation and growth of the Internet, vacationers can now book their own flights, hotels, rental cars, and other travel logistics online. If this capability resulted in creative destruction, which of the following industries would we have expected to
decline the most as a result?

answer

travel agencies

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(Consider This) The average life expectancy of a U.S. business is approximately

answer

10.2 years

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(Consider This) Approximately what percentage of start-up firms in the United States go bankrupt within the first two years?

answer

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(Consider This) Which of the following statements is true about U.S. firms?

answer

Over half are bankrupt within the first five years after starting up.

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(Last Word) Patents are most likely to infringe on innovation

answer

for products that incorporate many different technologies into a single product.

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(Last Word) "Patent trolls"

answer

buy up patents in order to collect royalties and sue other companies.

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(Last Word) Eliminating patents would tend to

answer

encourage innovation in products made up of many different technologies but discourage innovation of easy-to-copy products requiring large R&D costs to create.

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After all long-run adjustments have been completed, a firm in a competitive industry will produce that level of output where average total cost is at a minimum.

answer

TRUE

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The long-run supply curve for a decreasing-cost industry is downsloping.

answer

TRUE

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Long-run supply curves for a purely competitive industry can never be downsloping.

answer

FALSE

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Marginal cost is a measure of the alternative goods that society forgoes in using resources to produce an additional unit of some specific product.

answer

TRUE

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Because the equilibrium position of a purely competitive seller entails an equality of price and marginal costs, competition produces an efficient allocation of economic resources.

answer

TRUE

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Allocative efficiency is achieved by equalizing consumer surplus and producer surplus.

answer

FALSE

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GRAPH QUESTION:

If this diagram represents a typical firm in the industry and the firm is producing at the profit-maximizing level of output in the short run, then in the long run we would expect more firms to enter the market.

answer

TRUE

question

answer

FALSE

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GRAPH QUESTION:

If the firm shown in this graph is producing at the profit-maximizing level of output in the short run, then it is achieving productive and allocative efficiency.

answer

FALSE

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When entrepreneurs in competitive industries successfully innovate to lower production costs, it usually results in long-run economic profits for the firm.

answer

FALSE

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The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.

answer

TRUE

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Pure monopoly refers to

answer

a single firm producing a product for which there are no close substitutes.

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Which of the following is correct?

answer

A purely competitive firm is a "price taker," while a monopolist is a "price maker."

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A purely monopolistic firm

answer

faces a downsloping demand curve.

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Pure monopolists may obtain economic profits in the long run because

answer

of barriers to entry.

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Which of the following best approximates a pure monopoly?

answer

the only grocery store in a small isolated town

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Which of the following is a characteristic of pure monopoly?

answer

barriers to entry

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Which of the following is not a barrier to entry?

answer

X-inefficiency

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Barriers to entering an industry

answer

are the basis for monopoly.

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A natural monopoly occurs when

answer

long-run average costs decline continuously through the range of demand

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long-run average costs decline continuously through the range of demand

answer

natural monopoly.

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What do economies of scale, the ownership of essential raw materials, and patents have in common?

answer

They are all barriers to entry.

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The nondiscriminating pure monopolist's demand curve

answer

is the industry demand curve.

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The nondiscriminating monopolist's demand curve

answer

is less elastic than a purely competitive firm's demand curve.

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If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue

answer

will be less than $35.

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For an imperfectly competitive firm,

answer

the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.

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When a firm is on the inelastic segment of its demand curve, it can

answer

increase profits by increasing price.

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GRAPH QUESTION:

In the accompanying diagram, if price is reduced from P1 to P2, total revenue will

answer

increase by C − A.

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GRAPH QUESTION:

In the accompanying diagram, the quantitative difference between areas A and C for reducing the price from P1 to P2 measures

answer

marginal revenue

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A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the 10th unit of sales per week is

answer

$1,000.

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Price Quantity Demanded
$7 1
6 2
5 3
4 4
3 5
The marginal revenue obtained from selling the third unit of output is

answer

question

Price Quantity Demanded
$7 1
6 2
5 3
4 4
3 5

The marginal revenue obtained from selling the fourth unit of output is

answer

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Price Quantity Demanded
$7 1
6 2
5 3
4 4
3 5

At the point where 3 units are being sold, the coefficient of price elasticity of demand

answer

is greater than unity (one).

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With respect to the pure monopolist's demand curve, it can be said that

answer

price exceeds marginal revenue at all outputs greater than 1.

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GRAPH QUESTION:

The firm described in the accompanying diagram is selling in

answer

an imperfectly competitive market.

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GRAPH QUESTION:

In the accompanying diagram, demand is relatively elastic

answer

in the P2P4 price range

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GRAPH QUESTION:

In the accompanying diagram, demand is relatively inelastic

answer

at any price below P2

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GRAPH QUESTION:

Refer to the diagram. If this somehow was a costless product (that is, the total cost of any level of output was zero), the firm would maximize profits by

answer

producing Q2 units and charging a price of P2.

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The demand curve faced by a pure monopolist

answer

is less elastic than that faced by a single purely competitive firm.

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The marginal revenue curve for a monopolist

answer

becomes negative when output increases beyond some particular level.

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GRAPH QUESTION:

If the firm in the diagram lowers price from P1 to P2, it will

answer

lose P1P2ba in revenue from the price cut but increase revenue by Q1bcQ2 from the increase in sales.

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GRAPH QUESTION:

The quantitative difference between areas Q1bcQ2 and P1P2ba in the diagram measures

answer

marginal revenue

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Which of the following is characteristic of a pure monopolist's demand curve?

answer

It is the same as the market demand curve.

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Because the monopolist's demand curve is downsloping,

answer

price must be lowered to sell more output.

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The pure monopolist's demand curve is relatively elastic

answer

in the price range where marginal revenue is positive.

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A nondiscriminating profit-maximizing monopolist

answer

will never produce in the output range where demand is inelastic.

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For a pure monopolist, the relationship between total revenue and marginal revenue is such that

answer

marginal revenue is positive when total revenue is increasing, but marginal revenue becomes negative when total revenue is decreasing.

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For a pure nondiscriminating monopolist, marginal revenue is less than price because

answer

when a monopolist lowers price to sell more output, the lower price applies to all units sold.

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Assume a pure monopolist is currently operating at a price-quantity combination on the inelastic segment of its demand curve. If the monopolist is seeking maximum profits, it should

answer

charge a higher price

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A pure monopolist should never produce in the

answer

inelastic segment of its demand curve, because it can increase total revenue and reduce total cost by increasing price.

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Assuming no change in product demand, a pure monopolist

answer

must lower price to increase sales.

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If a monopolist were to produce in the inelastic segment of its demand curve,

answer

the firm would not be maximizing profits.

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If a pure monopolist is operating in a range of output where demand is elastic,

answer

marginal revenue will be positive but declining.

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Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. We thus know that

answer

total revenue is increasing.

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A pure monopolist is selling six units at a price of $12. If the marginal revenue of the seventh unit is $5, then the

answer

price of the seventh unit is $11.

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The vertical distance between the horizontal axis and any point on a nondiscriminating monopolist's demand curve measures

answer

product price and average revenue.

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The diagram indicates that the marginal revenue of the sixth unit of output is

answer

−$1.

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Which of the following is incorrect? Imperfectly competitive producers

answer

do not compete with one another.

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A nondiscriminating pure monopolist finds that it can sell its 50th unit of output for $50. We can surmise that the marginal

answer

revenue of the 50th unit is less than $50.

question

Answer the question on the basis of the accompanying table, which shows the demand schedule facing a nondiscriminating monopolist.

P Qd
$10 1
7 2
5 3
3 4
1 5

The monopolist will select its profit-maximizing level of output somewhere within the

answer

1-3 unit range of output.

question

Answer the question on the basis of the accompanying table, which shows the demand schedule facing a nondiscriminating monopolist.

P Qd
$10 1
7 2
5 3
3 4
1 5

The profit-maximizing monopolist will sell at a price

answer

that cannot be determined with the information provided.

question

Answer the question on the basis of the accompanying table, which shows the demand schedule facing a non discriminating monopolist

P Qd
$10 1
7 2
5 3
3 4
1 5

Assume that this monopolist faces zero production costs. The profit-maximizing monopolist will set a price of

answer

$5.

question

If a nondiscriminating pure monopolist decides to sell one more unit of output, the marginal revenue associated with that unit will be

answer

the price at which that unit is sold less the price reductions that apply to all other units of output.

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Suppose that a pure monopolist can sell 20 units of output at $10 per unit and 21 units at $9.75 per unit. The marginal revenue of the 21st unit of output is

answer

$4.75.

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The MR = MC rule

answer

applies both to pure monopoly and pure competition.

question

In the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal to

answer

marginal revenue.

question

An unregulated pure monopolist will maximize profits by producing that output at which

answer

MR = MC.

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Suppose that a pure monopolist can sell 5 units of output at $4 per unit and 6 units at $3.90 per unit. The monopolist will produce and sell the sixth unit if its marginal cost is

answer

$3.40 or less

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Suppose that a pure monopolist can sell 4 units of output at $2 per unit and 5 units at $1.75 per unit. The monopolist will produce and sell the fifth unit if its marginal cost is

answer

$.75 or less.

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A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and MR = $3. This firm is realizing

answer

an economic profit that could be increased by producing more output.

question

Total Output Price Marginal Revenue Average Total Cost Marginal Cost
1 $100 $100 $100.00 $30
2 90 80 63.00 26
3 80 60 52.67 32
4 70 40 49.50 40
5 60 20 49.60 50
6 50 0 50.00 52
7 40 -20 52.29 66
8 30 -40 55.75 80
9 20 -60 60.67 100
10 10 -80 67.60 130

Refer to the data for a non discriminating monopolist. This firm will maximize its profit by producing

answer

4 UNITS

question

answer

elastic portion of its demand curve

question

Total Output Price Marginal Revenue Average Total Cost Marginal Cost
1 $100 $100 $100.00 $30
2 90 80 63.00 26
3 80 60 52.67 32
4 70 40 49.50 40
5 60 20 49.60 50
6 50 0 50.00 52
7 40 -20 52.29 66
8 30 -40 55.75 80
9 20 -60 60.67 100
10 10 -80 67.60 130

Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's price will exceed its marginal cost by and its average total cost by .

answer

$30; $20.50

question

Total Output Price Marginal Revenue Average Total Cost Marginal Cost
1 $100 $100 $100.00 $30
2 90 80 63.00 26
3 80 60 52.67 32
4 70 40 49.50 40
5 60 20 49.60 50
6 50 0 50.00 52
7 40 -20 52.29 66
8 30 -40 55.75 80
9 20 -60 60.67 100
10 10 -80 67.60 130

Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's total costs will be

answer

$198

question

Total Output Price Marginal Revenue Average Total Cost Marginal Cost
1 $100 $100 $100.00 $30
2 90 80 63.00 26
3 80 60 52.67 32
4 70 40 49.50 40
5 60 20 49.60 50
6 50 0 50.00 52
7 40 -20 52.29 66
8 30 -40 55.75 80
9 20 -60 60.67 100
10 10 -80 67.60 130

Refer to the data. At its profit-maximizing output, this firm's total revenue will be

answer

$280.

question

Total Output Price Marginal Revenue Average Total Cost Marginal Cost
1 $100 $100 $100.00 $30
2 90 80 63.00 26
3 80 60 52.67 32
4 70 40 49.50 40
5 60 20 49.60 50
6 50 0 50.00 52
7 40 -20 52.29 66
8 30 -40 55.75 80
9 20 -60 60.67 100
10 10 -80 67.60 130

Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's total profit will be

answer

$82.

question

If a monopolist's marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by

answer

reducing output and raising price.

question

GRAPH QUESTION:

Refer to the diagram. To maximize profits or minimize losses, this firm should produce

answer

E units and charge price A.

question

Answer the question on the basis of the provided demand and cost data for a pure monopolist.

Demand Data Cost Data

Price Quantity Demanded Output Total Cost
$5.50 3 3 $5.00
5.00 4 4 6.00
4.50 5 5 6.50
3.85 6 6 7.50
3.35 7 7 9.00
2.90 8 8 11.00
2.50 9 9 14.00

The profit-maximizing price for the monopolist will be

answer

$4.50.

question

answer

5 units.

question

Answer the question on the basis of the provided demand and cost data for a pure monopolist.

Demand Data Cost Data
Price Quantity Demanded Output Total Cost
$5.50 3 3 $5.00
5.00 4 4 6.00
4.50 5 5 6.50
3.85 6 6 7.50
3.35 7 7 9.00
2.90 8 8 11.00
2.50 9 9 14.00

The profit-maximizing monopolist will realize a

answer

profit of $16

question

GRAPH QUESTION:

Refer to the diagram. At the profit-maximizing level of output, total revenue will be

answer

0AJE.

question

GRAPH QUESTION:

Refer to the diagram. At the profit-maximizing level of output, total cost will be

answer

0BHE.

question

GRAPH QUESTION:

Refer to the diagram. At the profit-maximizing level of output, the firm will realize

answer

an economic profit of ABHJ.

question

If profits are maximized (or losses minimized), which of the following conditions is common to both unregulated monopoly and pure competition?

answer

MR = MC

question

A pure monopolist

answer

will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.

question

If a pure monopolist is producing at that output where P = ATC, then

answer

its economic profits will be zero.

question

A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that price

answer

will vertically intersect demand where MR = MC

question

GRAPH QUESTION:

Refer to the diagram for a pure monopolist. Monopoly price will be

answer

question

GRAPH QUESTION:

Refer to the diagram for a pure monopolist. Monopoly output will be

answer

question

GRAPH QUESTION:

Refer to the diagram for a pure monopolist. Monopoly profit

answer

cannot be determined from the information given.

question

In the short run, a monopolist's economic profits

answer

may be positive or negative depending on market demand and cost conditions.

question

Under which of the following situations would a monopolist increase profits by lowering price (and increasing output)?

answer

if it discovered that it was producing where MC < MR

question

GRAPH QUESTION:

If the industry depicted in the graph is purely monopolistic, the profit-maximizing price and quantity will be

answer

P3 and Q3.

question

GRAPH QUESTION:

If the industry depicted in the graph comprises only one seller, the profit-maximizing price and quantity will be

answer

P3 and Q3.

question

When a pure monopolist is producing its profit-maximizing output, price will

answer

equal neither MC nor MR.

question

GRAPH QUESTION:

Assume a pure monopolist is charging price P and selling output Q, as shown on the diagram. On the basis of this information, we can say that

answer

if marginal costs were somehow zero, the firm would be maximizing its profits.

question

The supply curve for a monopolist is

answer

nonexistent

question

The supply curve of a pure monopolist

answer

does not exist because prices are not "given" to a monopolist.

question

If the variable costs of a profit-maximizing pure monopolist decline, the firm should

answer

produce more output and charge a lower price.

question

To maximize profit, a pure monopolist must

answer

maximize the difference between total revenue and total cost.

question

GRAPH QUESTION:

Refer to the diagrams. Firm A is a

answer

pure competitor, and Firm B is a pure monopoly.

question

GRAPH QUESTION:

Refer to the diagrams. The demand for Firm A's product is

answer

perfectly elastic over all ranges of output.

question

GRAPH QUESTION:

Refer to the diagrams. The demand for Firm B's product is

answer

elastic for prices above $4 and inelastic for prices below $4.

question

GRAPH QUESTION:

Refer to the diagrams. If $4 is Firm B's profit-maximizing price, its

answer

MC must be zero.

question

Economic profit in the long run is

answer

possible for a pure monopoly but not for a pure competitor.

question

Which of the following statements is correct?

answer

In seeking the profit-maximizing output, the pure monopolist underallocates resources to its production.

question

Confronted with the same unit cost data, a monopolistic producer will charge

answer

a higher price and produce a smaller output than a competitive firm.

question

An important economic problem associated with pure monopoly is that, at the profit-maximizing outputs, resources are

answer

underallocated because price exceeds marginal cost.

question

A single-price monopoly is economically inefficient because, at the profit-maximizing output,

answer

society values additional units of the monopolized product more highly than it does the

question

If a pure monopolist is producing more output than the MR = MC output,

answer

it will be in the interest of the firm, but not necessarily of society, to reduce output.

question

At its profit-maximizing output, a pure nondiscriminating monopolist achieves

answer

neither productive efficiency nor allocative efficiency.

question

The profit-maximizing output of a pure monopoly is not socially optimal, because in equilibrium

answer

price exceeds marginal cost.

question

A single-price pure monopoly is economically inefficient

answer

because it produces short of minimum average total cost and price is greater than marginal cost.

question

Comparing a pure monopoly and a purely competitive firm with identical costs, we would find in long-run equilibrium that the pure monopolist's

answer

price and average total cost would be higher, but output would be lower.

question

GRAPH QUESTION:

Refer to the diagrams. Diagram (A) represents

answer

equilibrium price and quantity in a purely competitive industry.

question

GRAPH QUESTION:

Refer to the diagrams. In diagram (B) the profit-maximizing quantity is

answer

g, and the profit-maximizing price is d.

question

GRAPH QUESTION:

Refer to the diagrams. With the industry structures represented by diagram

answer

(A), there will be only a normal profit in the long run, while in (B) an economic profit can persist.

question

GRAPH QUESTION:

Refer to the diagrams. With the industry structures represented by diagram

answer

(B), output will be less than in diagram (A).

question

GRAPH QUESTION:

Refer to the diagrams. The price will be and the quantity will be with the industry structure represented by diagram (B) compared to the one represented in (A).

answer

higher; lower

question

The higher prices charged by monopolists

answer

are like a private tax that redistributes income from consumers to monopoly sellers.

question

The gains to monopolists from exercising market power

answer

are less than the losses to consumers in monopoly markets, resulting in a net loss to society.

question

X-inefficiency refers to a situation in which a firm

answer

fails to achieve the minimum average total costs attainable at each level of output.

question

Which of the following is not a possible source of natural monopoly?

answer

rent-seeking behavior

question

There is some evidence to suggest that X-inefficiency is

answer

more likely to occur in monopolistic firms than in competitive firms.

question

In which one of the following market models is X-inefficiency most likely to be the greatest?

answer

pure monopoly

question

In which one of the following market models is X-inefficiency least likely to be present?

answer

pure competition

question

Price discrimination refers to

answer

the selling of a given product to different customers at different prices that do not reflect cost differences.

question

Which of the following conditions is not required for price discrimination?

answer

Buyers with different elasticities must be physically separate from each other.

question

The practice of price discrimination is associated with pure monopoly because

answer

monopolists have considerable ability to control output and price.

question

Which of the following is not a precondition for price discrimination?

answer

The commodity involved must be a durable good.

question

A price discriminating pure monopolist will attempt to charge each buyer (or group of buyers)

answer

the maximum price each would be willing to pay

question

Other things equal, in which of the following cases would economic profit be the greatest?

answer

an unregulated monopolist that is able to engage in price discrimination

question

If a pure monopolist can price discriminate by separating buyers into two or more groups,

answer

the firm will face multiple marginal revenue curves.

question

If a monopolist engages in price discrimination, it will

answer

charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic.

question

Price discrimination is

answer

only illegal if used to lessen or eliminate competition

question

GRAPH QUESTION:

The graphs represent the demand for use of a local golf course for which there is no significant competition. (It has a local monopoly.) P denotes the price of a round of golf, and Q is the quantity of rounds "sold" each day. If the left graph represents the demand during weekdays and the right graph the weekend demand, this profit-maximizing golf course should

answer

charge $7 for each round on weekdays and $10 during the weekend.

question

Output Total Cost Product Price
0 $250 $500
1 260 300
2 290 150
3 350 200
4 480 150
5 700 100

Based on the accompanying table, how many units would the given profit-maximizing non discriminating pure monopolist produce?

answer

question

Output Total Cost Product Price
0 $250 $500
1 260 300
2 290 150
3 350 200
4 480 150
5 700 100

According to the accompanying table, this nondiscriminating pure monopolist should set its price at

answer

$200

question

Output Total Cost Product Price
0 $250 $500
1 260 300
2 290 150
3 350 200
4 480 150
5 700 100

At its profit-maximizing output, the nondiscriminating pure monopolist whose information is in the accompanying table

answer

earns an economic profit of $250.

question

Output Total Cost Product Price
0 $250 $500
1 260 300
2 290 150
3 350 200
4 480 150
5 700 100

If the profit-maximizing pure monopolist whose information is in the accompanying table is able to price discriminate, charging each customer the price associated with each given level of output, how many units will the firm produce?

answer

question

answer

$420.

question

answer

1,200 rounds

question

answer

$4,200

question

GRAPH QUESTION:

Assume the figure applies to a pure monopolist and that MC is the same for both graphs. If this firm is able to price discriminate between children and adults, it should charge prices of

answer

P1 to children and P2 to adults.

question

GRAPH QUESTION:

Assume the figure applies to a pure monopolist and that MC is the same for both graphs. If this firm is able to price discriminate between children and adults, its profit-maximizing level of output will be

answer

Q1C + Q2

question

Assume the figure applies to a pure monopolist and that MC is the same for both graphs. If this firm is able to price discriminate between children and adults, its economic profit will be

answer

[(P1 − MC) × Q1C] + [(P2 − MC) × Q2].

question

Other things equal, a price-discriminating monopolist will

answer

produce a larger output than a nondiscriminating monopolist.

question

GRAPH QUESTION:

Refer to the diagram for a pure monopolist. If the monopolist is unregulated, it will maximize profits by charging

answer

price P3 and producing output Q3

question

GRAPH QUESTION:

Refer to the diagram for a pure monopolist. Suppose a regulatory commission is created to determine a legal price for the monopoly. If the commission seeks to provide the monopolist with a "fair return," it will set price at

answer

question

GRAPH QUESTION:

Refer to the diagram for a pure monopolist. If a regulatory commission seeks to achieve the socially optimal allocation of resources to this line of production, it will set a price of

answer

question

GRAPH QUESTION:

Refer to the diagram for a pure monopolist. If a regulatory commission sets the price to achieve the socially optimal allocation of resources, it will have to

answer

subsidize the monopolist or the monopolist will go bankrupt in the long run.

question

A dilemma of regulation is that

answer

the regulated price that achieves allocative efficiency is also likely to result in losses.

question

If a regulatory commission wants to provide a natural monopoly with a fair return, it should establish a price that is equal to

answer

average total cost

question

If a regulatory commission wants to establish a socially optimal price for a natural monopoly, it should select a price

answer

at which the marginal cost curve intersects the demand curve

question

If a regulatory commission imposes upon a nondiscriminating natural monopoly a price that is equal to marginal cost and below average total cost at the resulting output, then

answer

the firm must be subsidized or it will go bankrupt

question

Refer to the diagram for a natural monopolist. If a regulatory commission were to set a maximum price of P3, the monopolist would

answer

maximize profits

question

GRAPH QUESTION:

Refer to the diagram for a natural monopolist. If a regulatory commission set a maximum price of P2, the monopolist would

answer

produce output Q3 and realize a normal profit

question

GRAPH QUESTION:

Refer to the diagram for a natural monopolist. If a regulatory commission set a maximum price of P1, the monopolist would produce output

answer

Q4 and realize a loss.

question

(Consider This) Children are charged less than adults for admission to professional baseball games but are charged the same prices as adults at the concession stands. This pricing system occurs because

answer

the seller can prevent children from buying game tickets for adults but cannot prevent children from buying concession items for adults.

question

(Consider This) Children are charged less than adults for admission to professional baseball games but are charged the same prices as adults at the concession stands. Which of the following conditions of price discrimination explains why this occurs?

answer

The items can be bought by people in the low-price group and transferred to members of the high-price group.

question

(Last Word) "Big Data"

answer

is used by firms to price discriminate through personalized pricing.

question

(Last Word): Alex owns a luxury automobile and regularly purchases high-end fashion items online. Kara drives an old sedan and does most online shopping on eBay and Amazon. Suppose both Alex and Kara search the same online retailer for a nice watch to give on Fatherâ€™s Day. Based on Big Data and personalized pricing, we would expect

answer

Alex to see a higher price than Kara for the same watch.

question

A pure monopolist will maximize profits by producing at that output where price and marginal cost are equal.

answer

FALSE

question

(Last Word): The ability of personalized pricing by online retailers to price discriminate

answer

is limited by buyers' willingness and ability to easily search out lower prices at other online sites.

question

In the short run a pure monopolist will maximize profits by producing at that level of output where the difference between price and average total cost is at a maximum.

answer

FALSE

question

In the short run a pure monopolist will charge the highest price the market will bear for its product.

answer

FALSE

question

Pure monopolists always earn economic profits.

answer

FALSE

question

If the XYZ Company can sell 4 units per week at $10 per unit and 5 units per week at $9 per unit, the marginal revenue of the fifth unit is $5.

answer

TRUE

question

Because of their large-scale level of production, pure monopolists overallocate resources to their industry by producing beyond the P = MC output

answer

FALSE

question

Because of the ability to influence price, a pure monopolist can increase price and increase volume of sales simultaneously.

answer

FALSE

question

GRAPH QUESTION:

In the accompanying diagrams, both firms are selling their products in purely competitive markets.

answer

FALSE

question

GRAPH QUESTION:

In the accompanying diagram, the demand for Firm B's product is elastic at all prices in excess of $4.

answer

TRUE

question

GRAPH QUESTION:

In the accompanying diagram, Firm B's average revenue curve coincides with its marginal revenue curve.

answer

FALSE

question

Natural monopoly may result where products produce substantial network effects and can be simultaneously consumed by a large number of consumers.

answer

TRUE

question

Extensive network effects may drive a market toward natural monopoly because consumers tend to choose a common, standard product that everyone else is using.

answer

TRUE

question

Price discrimination occurs whenever a firm sells a good for two different prices.

answer

FALSE

question

Price discrimination will result in consumers with more elastic demand purchasing more of the good than when a single price is charged to all consumers in the market.

answer

TRUE

question

Successful price discrimination requires that buyers charged the different prices be physically separated.

answer

FALSE

question

Price discrimination is illegal in the United States under all circumstances due to antitrust regulations.

answer

FALSE

1 of 418

question

Economists would describe the U.S. automobile industry as

answer

an oligopoly.

question

In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies?

answer

oligopoly

question

Which of the following industries most closely approximates pure competition?

answer

agriculture

question

Economists use the term imperfect competition to describe

answer

those markets that are not purely competitive.

question

In which of the following industry structures is the entry of new firms the most difficult?

answer

pure monopoly

question

An industry comprising 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example of

answer

monopolistic competition.

question

An industry comprising four firms, each with about 25 percent of the total market for a product, is an example of

answer

oligopoly

question

An industry comprising a very large number of sellers producing a standardized product is known as

answer

pure competition.

question

An industry comprising a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is called

answer

oligopoly

question

Which of the following statements applies to a purely competitive producer?

answer

It will not advertise its product.

question

A purely competitive seller is

answer

a "price taker."

question

Which of the following is not a characteristic of pure competition?

answer

pricing strategies by firms

question

Which of the following is not a basic characteristic of pure competition?

answer

considerable nonprice competition

question

The demand schedule or curve confronted by the individual, purely competitive firm is

answer

perfectly elastic

question

Which of the following is characteristic of a purely competitive seller's demand curve?

answer

Price and marginal revenue are equal at all levels of output.

question

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, total revenue graphs as

answer

straight, upsloping line.

question

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, marginal revenue graphs as a

answer

straight line, parallel to the horizontal axis

question

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm,

answer

the demand and marginal revenue curves will coincide.

question

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue

answer

will also be $5.

question

Price is constant to the individual firm selling in a purely competitive market because

answer

each seller supplies a negligible fraction of total supply.

question

For a purely competitive seller, price equals

answer

all of these.

question

For a purely competitive firm, total revenue

answer

has all of these characteristics.

question

The marginal revenue curve of a purely competitive firm

answer

is horizontal at the market price

question

The demand curve in a purely competitive industry is, while the demand curve to a single firm in that industry is .

answer

downsloping; perfectly elastic

question

A perfectly elastic demand curve implies that the firm

answer

can sell as much output as it chooses at the existing price

question

The fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies that

answer

product price is constant at all levels of output.

question

Which of the following statements is correct?

answer

The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping.

question

Chart Question:
Refer to the diagram, which pertains to a purely competitive firm. Curve A represents

answer

total revenue only.

question

Chart Question:
Refer to the diagram, which pertains to a purely competitive firm. Curve C represents

answer

average revenue and marginal revenue.

question

Marginal revenue is the

answer

change in total revenue associated with the sale of one more unit of output.

question

Firms seek to maximize

answer

total profit.

question

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating

answer

marginal revenue and marginal cost.

question

In the short run, a purely competitive firm that seeks to maximize profit will produce

answer

where total revenue exceeds total cost by the maximum amount.

question

Chart Question:
Refer to the short-run data in the accompanying graph. The profit-maximizing output for this firm is

answer

320 units.

question

Chart Question:
Refer to the short-run data in the accompanying graph. Which of the following is correct?

answer

Any level of output between 100 and 440 units will yield an economic profit.

question

A competitive firm will maximize profits at that output at which

answer

total revenue exceeds total cost by the greatest amount.

question

Chart question:
Curve (1) in the diagram is a purely competitive firm's

answer

total economic profit curve.

question

Chart Question:
Curve (2) in the diagram is a purely competitive firm's

answer

marginal revenue curve.

question

Chart Question:
Curve (3) in the diagram is a purely competitive firm's

answer

total revenue curve.

question

Chart Question:
Curve (4) in the diagram is a purely competitive firm's

answer

total cost curve

question

Chart Question:
Refer to the diagram. Other things equal, an increase of product price would be shown as

answer

an increase in the steepness of curve (3), an upward shift in curve (2), and an upward shift in curve (1).

question

Chart Question:
The firm represented by the diagram would maximize its profit where

answer

the vertical distance between curves (3) and (4) is the greatest.

question

A firm reaches a break-even point (normal profit position) where

answer

total revenue and total cost are equal.

question

The MR = MC rule applies

answer

to firms in all types of industries.

question

When a firm is maximizing profit, it will necessarily be

answer

maximizing the difference between total revenue and total cost.

question

The MR = MC rule can be restated for a purely competitive seller as P = MC because

answer

each additional unit of output adds exactly its price to total revenue

question

In the short run, the individual competitive firm's supply curve is that segment of the

answer

marginal cost curve lying above the average variable cost curve.

question

Which of the following is not a valid generalization concerning the relationship between price and costs for a purely competitive seller in the short run?

answer

Price must be at least equal to average total cost.

question

answer

is realizing an economic profit of $40.

question

A purely competitive firm's short-run supply curve is

answer

upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

question

Suppose you find that the price of your product is less than minimum AVC. You should

answer

close down because, by producing, your losses will exceed your total fixed costs.

question

If a purely competitive firm shuts down in the short run,

answer

it will realize a loss equal to its total fixed costs.

question

A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its

answer

total variable costs.

question

Output Marginal Revenue Marginal Cost
0 -- --
1 $16 $10
2 16 9
3 16 13
4 16 17
5 16 21

The data in the accompanying table indicates that this firm is selling its output in a(n)

answer

purely competitive market.

question

answer

question

Output Marginal Revenue Marginal Cost
0 -- --
1 $16 $10
2 16 9
3 16 13
4 16 17
5 16 21

Refer to the data in the accompanying table. At the profit-maximizing output, the firm's total revenue is

answer

$48

question

Output Marginal Revenue Marginal Cost
0 -- --
1 $16 $10
2 16 9
3 16 13
4 16 17
5 16 21

Refer to the data in the accompanying table. Assuming total fixed costs equal to zero, the firm's

answer

economic profit is $16

question

In the short run, a purely competitive firm will always make an economic profit if

answer

P > ATC.

question

answer

cannot determine whether the firm should produce or shut down in the short run.

question

If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing

answer

price and average variable cost.

question

A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should

answer

produce because the resulting loss is less than its TFC.

question

The lowest point on a purely competitive firm's short-run supply curve corresponds to

answer

the minimum point on its AVC curve.

question

Chart Question:

Refer to the diagram for a purely competitive producer. The lowest price at which the firm should produce (as opposed to shutting down) is

answer

question

Chart Question:

Refer to the diagram for a purely competitive producer. The firm will produce at a loss at all prices

answer

between P2 and P3

question

Chart Question:

Refer to the diagram for a purely competitive producer. If product price is P3,

answer

economic profits will be zero

question

Chart Question:

Refer to the diagram for a purely competitive producer. The firm's short-run supply curve is

answer

the bcd segment and above on the MC curve.

question

The short-run supply curve of a purely competitive producer is based primarily on its

answer

MC curve.

question

On a per-unit basis, economic profit can be determined as the difference between

answer

product price and average total cost

question

In the short run, a purely competitive seller will shut down if

answer

price is less than average variable cost at all outputs.

question

Chart Question:

According to the accompanying diagram, to maximize profit or minimize losses, this firm will produce

answer

E units at price A.

question

Chart Question:

Refer to the accompanying diagram. At the profit-maximizing output, total revenue will be

answer

0AHE.

question

Chart Question:

According to the accompanying diagram, at the profit-maximizing output, total fixed cost is equal to

answer

BCFG.

question

Chart Question:

According to the accompanying diagram, at the profit-maximizing output, total variable cost is equal to

answer

0CFE.

question

Chart Question:

According to the accompanying diagram, at the profit-maximizing output, the firm will realize

answer

an economic profit of ABGH.

question

If a purely competitive firm is producing at some output level less than the profit-maximizing output, then

answer

marginal revenue exceeds marginal cost.

question

answer

zero units at a loss of $100.

question

answer

8 units at an economic profit of $16

question

answer

produce 7 units at a loss of $14.00.

question

Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost
1 $100.00 $17.00 $117.00 $17
2 50.00 16.00 66.00 15
3 33.33 15.00 48.33 13
4 25.00 14.25 39.25 12
5 20.00 14.00 34.00 13
6 16.67 14.00 30.67 14
7 14.29 15.71 30.00 26
8 12.50 17.50 30.00 30
9 11.11 19.44 30.55 35
10 10.00 21.60 31.60 41
11 9.09 24.00 33.09 48
12 8.33 26.67 35.00 56

The accompanying table gives cost data for a firm that is selling in a purely competitive market. Which of the following tables gives the firm's short- run supply schedule?

answer

Price Qs
$50 11
42 10
36 9
32 8
20 6
13 0

question

Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost
1 $100.00 $17.00 $117.00 $17
2 50.00 16.00 66.00 15
3 33.33 15.00 48.33 13
4 25.00 14.25 39.25 12
5 20.00 14.00 34.00 13
6 16.67 14.00 30.67 14
7 14.29 15.71 30.00 26
8 12.50 17.50 30.00 30
9 11.11 19.44 30.55 35
10 10.00 21.60 31.60 41
11 9.09 24.00 33.09 48
12 8.33 26.67 35.00 56

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If there were 1,000 identical firms in this industry and total, or market, demand is as shown in the second table, equilibrium price will be

Price Quantity Demanded
$50 3,000
42 6,000
36 9,000
32 11,000
20 14,000
13 19,500

answer

$36

question

If at the MC = MR output, AVC exceeds price,

answer

some firms should shut down in the short run

question

Chart Question:

In the provided diagram, the profit-maximizing output

answer

is n

question

Chart Question:

In the provided diagram, at the profit-maximizing output, total profit is

answer

efbc

question

Chart Question:

In the provided diagram, the short-run supply curve for this firm is the

answer

segment of the MC curve lying to the right of output level h.

question

Chart Question:

According to the information in the provided diagram, this firm is selling its product in a(n)

answer

purely competitive market.

question

In the short run, a purely competitive seller will shut down if product price

answer

is less than AVC.The short-run supply curve for a purely competitive industry can be found by

question

The short-run supply curve for a purely competitive industry can be found by

answer

summing horizontally the segments of the MC curves lying above the AVC curve for all firms.

question

answer

add this flight, because marginal revenue exceeds marginal costs and total revenue exceeds total variable cost.

question

answer

continue to produce in the short run at lower prices than would American firms.

question

Assume for a competitive firm that MC = AVC at $12, MC = ATC at $20, and MC = MR at $16. This firm will

answer

minimize its losses by producing in the short run.

question

The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing it is known as the

answer

profit-maximizing rule.

question

If a purely competitive firm is producing at the P = MC output and realizing an economic profit, at that output

answer

marginal revenue exceeds ATC.

question

If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should

answer

not change its output.

question

Chart Question:

At P2 in the accompanying diagram, this firm will

answer

produce 44 units and earn only a normal profit.

question

Chart Question:

At P1 in the accompanying diagram, this firm will produce

answer

47 units and realize an economic profit

question

Chart Question:

At P4 in the accompanying diagram, this firm will

answer

shut down in the short run

question

Chart Question:

At P3 in the accompanying diagram, this firm will

answer

produce 40 units and incur a loss.

question

answer

produce zero units of output.

question

If a purely competitive firm is maximizing economic profit,

answer

it may or may not be maximizing per-unit profit

question

answer

produce 6 units and realize a $100 economic profit.

question

answer

produce 5 units and realize a $15 economic profit.

question

answer

shutdown and incur a $50 dollar loss

question

Assume a purely competitive firm is selling 200 units of output at $3 each. At this output, its total fixed cost is $100 and its total variable cost is
$350. This firm

answer

is making a profit, but not necessarily the maximum profit.

question

Chart Question:

Refer to the accompanying diagram. This firm will earn only a normal profit if product price is

answer

question

Chart Question:

Refer to the accompanying diagram. The firm will realize an economic profit if price is

answer

question

Chart Question:

Refer to the accompanying diagram. The firm will produce at a loss if price is

answer

question

Chart Question:

Refer to the accompanying diagram. The firm will shut down at any price less than

answer

question

Chart Question:

Refer to the accompanying diagram. The firm's supply curve is the segment of the

answer

MC curve above its intersection with the AVC curve.

question

answer

the law of diminishing returns.

question

answer

. $150; $300

question

answer

$60;$210

question

answer

$150, zero, and $150, respectively

question

answer

9 units at an economic profit of $281.97.

question

answer

8 units at an economic profit of $130.72

question

answer

6 units at a loss of $90.

question

answer

4 units at a loss of $138.

question

answer

0 units at a loss of $150.

question

A purely competitive seller should produce (rather than shut down) in the short run

answer

if total revenue exceeds total cost or if total cost exceeds total revenue by some amount less than total fixed cost.

question

answer

the short run

question

answer

$10, $60, and $70, respectively.

question

answer

$80

question

answer

4 units of output

question

answer

realize a $30 economic profit.

question

In the short run, a purely competitive firm will earn a normal profit when

answer

P = ATC.

question

answer

question

Quantity Demanded Price Quantity Supplied
400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000

The accompanying table applies to a purely competitive industry composed of 100 identical firms. At the equilibrium price, each of the 100 firms in this industry will produce

answer

6,000 units of output.

question

Quantity Demanded Price Quantity Supplied
400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000

The accompanying table applies to a purely competitive industry composed of 100 identical firms. For each of the 100 firms in this industry, marginal revenue and total revenue will be

answer

$3 and $18,000, respectively.

question

Quantity Demanded Price Quantity Supplied
400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000

The accompanying table applies to a purely competitive industry composed of 100 identical firms. If each of the 100 firms in the industry is maximizing its profit, each must have a marginal cost

answer

question

Quantity Demanded Price Quantity Supplied
400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000

The accompanying table applies to a purely competitive industry composed of 100 identical firms. If each of the 100 firms in the industry is maximizing its profit and earning only a normal profit, each must have a total cost of

answer

$18,000

question

Quantity Demanded Price Quantity Supplied
400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000

The accompanying table applies to a purely competitive industry composed of 100 identical firms. If each of the 100 firms in the industry is maximizing its profit and earning only a normal profit, each must have an average total cost of

answer

question

(Consider This) An unprofitable motel will stay open in the short run if

answer

price (average nightly room rate) exceeds average variable cost.

question

(Consider This) An otherwise unprofitable motel located on a largely abandoned roadway might be able to stay open for several years by

answer

reducing or eliminating its annual maintenance expenses

question

(Last Word) Fixed costs for a firm are analogous to

answer

starting out in a hole that represents economic losses if the firm produces nothing

question

(Last Word) Oil wells and seasonal resorts will often shut down temporarily because

answer

prices for their output temporarily fall below their average variable costs of production.

question

(Last Word) Temporary shutdowns of firms are most widespread when

answer

the economy experiences recession.

question

Oligopoly firms may produce either standardized or differentiated products.

answer

TRUE

question

The term imperfect competition refers to every market structure besides pure competition.

answer

TRUE

question

Firms in a monopolistically competitive industry have no reason to engage in nonprice competition because their products are uniquely different from other sellers in the market

answer

FALSE

question

Although individual purely competitive firms can influence the price of their product, these firms as a group cannot influence market price.

answer

FALSE

question

In a purely competitive industry, competition centers more on advertising and sales promotion than on price.

answer

FALSE

question

Price and marginal revenue are identical for an individual purely competitive seller.

answer

TRUE

question

The demand curve for a purely competitive industry is perfectly elastic, but the demand curves faced by individual firms in such an industry are downsloping.

answer

FALSE

question

Marginal revenue is the addition to total revenue resulting from the sale of one more unit of output.

answer

TRUE

question

In maximizing profit, a firm will always produce that output where total revenues are at a maximum.

answer

FALSE

question

In the short run, a competitive firm will always choose to shut down if product price is less than the lowest attainable average total cost.

answer

FALSE

question

A competitive firm will produce in the short run so long as its price exceeds its average fixed cost.

answer

FALSE

question

Chart Question:

The firm described in the accompanying graph will maximize profits by producing output D.

answer

FALSE

question

Chart Question:

In the accompanying diagram, at the profit-maximizing output, total revenue will be 0GLD.

answer

FALSE

question

Chart Question:

In the accompanying diagram, at output C, production will result in an economic profit.

answer

TRUE

question

Chart Question:

In the accompanying diagram, at any price below R, the firm will shut down in the short run.

answer

TRUE

question

Chart Question:

In the accompanying graph, if demand fell to the level of FNJ, there would be no output at which the firm could realize an economic profit.

answer

FALSE

question

Chart Question:

In the accompanying diagram, if the firm produced D units of output at price G, it would earn a normal profit.

answer

TRUE

question

The short-run supply curve slopes upward because producers must be compensated for rising marginal costs.

answer

TRUE

question

Which of the following distinguishes the short run from the long run in pure competition?

answer

Firms can enter and exit the market in the long run but not in the short run.

question

The primary force encouraging the entry of new firms into a purely competitive industry is

answer

economic profits earned by firms already in the industry.

question

In a purely competitive industry,

answer

there may be economic profits in the short run but not in the long run.

question

Balin's Burger Barn operates in a perfectly competitive market. Balin's is currently earning economic profits of $20,000 per year. Based on this information, we can conclude that

answer

Balin's is operating in the short run, but not the long run.

question

Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm

answer

should continue producing in the short run but leave the industry in the long run if the situation persists.

question

Karlee's Kreations sells handbags in a purely competitive market. Karlee's is currently breaking even. Based on this information, we can conclude that Karlee's Kreations

answer

may be operating in either short-run or long-run equilibrium.

question

Which of the following is true concerning purely competitive industries?

answer

In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.

question

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then

answer

new firms will enter this market.

question

Long-run adjustments in purely competitive markets primarily take the form of

answer

entry or exit of firms in the market.

question

Long-run competitive equilibrium

answer

results in zero economic profits.

question

answer

potential new firms will be encouraged by Betty's success to enter the market.

question

We would expect an industry to expand if firms in that industry are

answer

earning economic profits.

question

Which of the following statements is correct?

answer

Economic profits induce firms to enter an industry; losses encourage firms to leave.

question

answer

and industry output will be less than the initial price and output

question

answer

the same as the initial equilibrium price, but the new industry output will be greater than the original output.

question

Which of the following statements is correct?

answer

The long-run supply curve for a purely competitive increasing-cost industry will be upsloping.

question

A constant-cost industry is one in which

answer

if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth.

question

Which of the following will not hold true for a competitive firm in long-run equilibrium?

answer

P equals AFC.

question

answer

higher, and total output will be larger than originally.

question

Assume a purely competitive, increasing-cost industry is in long-run equilibrium. If a decline in demand occurs, firms will

answer

leave the industry and price and output will both decline.

question

When a purely competitive firm is in long-run equilibrium,

answer

price equals marginal cost.

question

A purely competitive firm

answer

cannot earn economic profit in the long run

question

A constant-cost industry is one in which

answer

resource prices remain unchanged as output is increased.

question

An increasing-cost industry is associated with

answer

an upsloping long-run supply curve

question

GRAPH QUESTION:

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. Which of the following is correct?

answer

The diagrams portray short-run equilibrium but not long-run equilibrium.

question

GRAPH QUESTION:

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. In the long run we should expect

answer

firms to leave the industry, market supply to fall, and product price to rise.

question

answer

a technological improvement in production methods.

question

Assume a purely competitive firm is maximizing profit at some output at which long-run average total cost is at a minimum. Then

answer

there is no tendency for the firm's industry to expand or contract.

question

An increasing-cost industry is the result of

answer

higher resource prices that occur as the industry expands.

question

A purely competitive firm is precluded from making economic profits in the long run because

answer

of unimpeded entry to the industry.

question

If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to

answer

increase, output to increase, price to decrease, and profits to decrease.

question

Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium. We can

answer

not compare the original and the new prices without knowing what cost conditions exist in the industry.

question

Under what conditions would an increase in demand lead to a lower long-run equilibrium price?

answer

The firms in the market are part of a decreasing-cost industry.

question

In a decreasing-cost industry,

answer

lower demand leads to higher long-run equilibrium prices.

question

A decreasing-cost industry is one in which

answer

input prices fall or technology improves as the industry expands.

question

When LCD televisions first came on the market, they sold for at least $1,000, and some for much more. Now many units can be purchased for under $400. These facts imply that

answer

the LCD television industry is a decreasing-cost industry.

question

Suppose that an industry's long-run supply curve is downsloping. This suggests that

answer

it is a decreasing-cost industry.

question

Suppose an increase in product demand occurs in a decreasing-cost industry. As a result

answer

the new long-run equilibrium price will be lower than the original long-run equilibrium price.

question

answer

an increase in output, but not in the price, of the product.

question

Suppose losses cause industry X to contract and, as a result, the prices of relevant inputs decline. Industry X is

answer

an increasing-cost industry.

question

GRAPH QUESTION:

The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's total revenue

answer

is $400. Remember price x quantity

question

GRAPH QUESTION:

The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's total cost

answer

is $400.

question

GRAPH QUESTION:

The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's economic profit

answer

is zero.

question

If the long-run supply curve of a purely competitive industry slopes upward, this implies that the prices of relevant resources

answer

rise as the industry expands.

question

GRAPH QUESTION:

Line (1) in the diagram reflects the long-run supply curve for

answer

an increasing-cost industry.

question

GRAPH QUESTION:

Line (2) in the accompanying diagram reflects the long-run supply curve for

answer

a constant-cost industry.

question

GRAPH QUESTION:

Line (1) in the diagram reflects a situation where resource prices

answer

increase as industry output expands.

question

GRAPH QUESTION:

Line (2) in the diagram reflects a situation where resource prices

answer

remain constant as industry output expands.

question

Allocative efficiency is achieved when the production of a good occurs where

answer

P = MC.

question

A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is

answer

producing less output than allocative efficiency requires.

question

Resources are efficiently allocated when production occurs where

answer

price is equal to marginal cost.

question

The term productive efficiency refers to

answer

the production of a good at the lowest average total cost

question

If the price of product Y is $25 and its marginal cost is $18

answer

resources are being underallocated to Y.

question

If the price of bottled water is $2 and the marginal cost of producing it is $2.50

answer

resources are being overallocated to bottled water.

question

The term allocative efficiency refers to

answer

the production of the product mix most desired by consumers.

question

Under pure competition, in the long run

answer

both allocative efficiency and productive efficiency are achieved.

question

If for a firm P = minimum ATC = MC, then

answer

both allocative efficiency and productive efficiency are being achieved.

question

GRAPH QUESTION:

The diagram portrays

answer

the equilibrium position of a competitive firm in the long run.

question

GRAPH QUESTION:

If the competitive firm depicted in this diagram produces output Q, it will

answer

earn a normal profit.

question

GRAPH QUESTION:

Refer to the diagram. By producing at output level Q,

answer

both productive and allocative efficiency are achieved.

question

GRAPH QUESTION:

In the diagram, at output level Q1,

answer

neither productive nor allocative efficiency is achieved.

question

GRAPH QUESTION:

At output level Q1, in this diagram,

answer

resources are underallocated to this product and productive efficiency is not realized.

question

GRAPH QUESTION:

Refer to the diagram. At output level Q2,

answer

resources are overallocated to this product and productive efficiency is not realized.

question

Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit. With no spillovers, this information means that

answer

price is greater than marginal cost.

question

If production is occurring where marginal cost exceeds price, the purely competitive firm will

answer

fail to maximize profit and resources will be overallocated to the product.

question

If a purely competitive firm is producing where price exceeds marginal cost, then

answer

the firm will fail to maximize profit and resources will be underallocated to the product.

question

Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

answer

P = MC = minimum ATC.

question

Allocative efficiency occurs whenever

answer

it is impossible to produce a net benefit for society by changing the combination of goods and services produced.

question

In long-run equilibrium, purely competitive markets

answer

maximize the sum of consumer surplus and producer surplus.

question

Which of the following would not be expected to occur in a purely competitive market in long-run equilibrium?

answer

Consumer and producer surplus will be minimized.

question

Which of the following outcomes is consistent with a purely competitive market in long-run equilibrium?

answer

Combined consumer and producer surplus will be maximized.

question

Entrepreneurs in purely competitive industries

answer

innovate to lower operating costs and generate short-run economic profits.

question

Innovations that lower production costs or create new products

answer

often generate short-run economic profits that do not last into the long run

question

The process by which new firms and new products replace existing dominant firms and products is called

answer

creative destruction.

question

Creative destruction is

answer

the process by which new firms and new products replace existing dominant firms and products.

question

The theory of creative destruction was advanced many years ago by

answer

Joseph Schumpeter

question

Creative destruction is least beneficial to

answer

workers in the "destroyed" industries.

question

Which of the following is an example of creative destruction?

answer

Automobile production causes the wagon industry to shut down.

question

answer

travel agencies

question

(Consider This) The average life expectancy of a U.S. business is approximately

answer

10.2 years

question

(Consider This) Approximately what percentage of start-up firms in the United States go bankrupt within the first two years?

answer

question

(Consider This) Which of the following statements is true about U.S. firms?

answer

Over half are bankrupt within the first five years after starting up.

question

(Last Word) Patents are most likely to infringe on innovation

answer

for products that incorporate many different technologies into a single product.

question

(Last Word) "Patent trolls"

answer

buy up patents in order to collect royalties and sue other companies.

question

(Last Word) Eliminating patents would tend to

answer

encourage innovation in products made up of many different technologies but discourage innovation of easy-to-copy products requiring large R&D costs to create.

question

After all long-run adjustments have been completed, a firm in a competitive industry will produce that level of output where average total cost is at a minimum.

answer

TRUE

question

The long-run supply curve for a decreasing-cost industry is downsloping.

answer

TRUE

question

Long-run supply curves for a purely competitive industry can never be downsloping.

answer

FALSE

question

Marginal cost is a measure of the alternative goods that society forgoes in using resources to produce an additional unit of some specific product.

answer

TRUE

question

Because the equilibrium position of a purely competitive seller entails an equality of price and marginal costs, competition produces an efficient allocation of economic resources.

answer

TRUE

question

Allocative efficiency is achieved by equalizing consumer surplus and producer surplus.

answer

FALSE

question

answer

TRUE

question

answer

FALSE

question

GRAPH QUESTION:

If the firm shown in this graph is producing at the profit-maximizing level of output in the short run, then it is achieving productive and allocative efficiency.

answer

FALSE

question

When entrepreneurs in competitive industries successfully innovate to lower production costs, it usually results in long-run economic profits for the firm.

answer

FALSE

question

The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.

answer

TRUE

question

Pure monopoly refers to

answer

a single firm producing a product for which there are no close substitutes.

question

Which of the following is correct?

answer

A purely competitive firm is a "price taker," while a monopolist is a "price maker."

question

A purely monopolistic firm

answer

faces a downsloping demand curve.

question

Pure monopolists may obtain economic profits in the long run because

answer

of barriers to entry.

question

Which of the following best approximates a pure monopoly?

answer

the only grocery store in a small isolated town

question

Which of the following is a characteristic of pure monopoly?

answer

barriers to entry

question

Which of the following is not a barrier to entry?

answer

X-inefficiency

question

Barriers to entering an industry

answer

are the basis for monopoly.

question

A natural monopoly occurs when

answer

long-run average costs decline continuously through the range of demand

question

long-run average costs decline continuously through the range of demand

answer

natural monopoly.

question

What do economies of scale, the ownership of essential raw materials, and patents have in common?

answer

They are all barriers to entry.

question

The nondiscriminating pure monopolist's demand curve

answer

is the industry demand curve.

question

The nondiscriminating monopolist's demand curve

answer

is less elastic than a purely competitive firm's demand curve.

question

If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue

answer

will be less than $35.

question

For an imperfectly competitive firm,

answer

the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.

question

When a firm is on the inelastic segment of its demand curve, it can

answer

increase profits by increasing price.

question

GRAPH QUESTION:

In the accompanying diagram, if price is reduced from P1 to P2, total revenue will

answer

increase by C − A.

question

GRAPH QUESTION:

In the accompanying diagram, the quantitative difference between areas A and C for reducing the price from P1 to P2 measures

answer

marginal revenue

question

answer

$1,000.

question

Price Quantity Demanded
$7 1
6 2
5 3
4 4
3 5
The marginal revenue obtained from selling the third unit of output is

answer

question

Price Quantity Demanded
$7 1
6 2
5 3
4 4
3 5

The marginal revenue obtained from selling the fourth unit of output is

answer

question

Price Quantity Demanded
$7 1
6 2
5 3
4 4
3 5

At the point where 3 units are being sold, the coefficient of price elasticity of demand

answer

is greater than unity (one).

question

With respect to the pure monopolist's demand curve, it can be said that

answer

price exceeds marginal revenue at all outputs greater than 1.

question

GRAPH QUESTION:

The firm described in the accompanying diagram is selling in

answer

an imperfectly competitive market.

question

GRAPH QUESTION:

In the accompanying diagram, demand is relatively elastic

answer

in the P2P4 price range

question

GRAPH QUESTION:

In the accompanying diagram, demand is relatively inelastic

answer

at any price below P2

question

GRAPH QUESTION:

Refer to the diagram. If this somehow was a costless product (that is, the total cost of any level of output was zero), the firm would maximize profits by

answer

producing Q2 units and charging a price of P2.

question

The demand curve faced by a pure monopolist

answer

is less elastic than that faced by a single purely competitive firm.

question

The marginal revenue curve for a monopolist

answer

becomes negative when output increases beyond some particular level.

question

GRAPH QUESTION:

If the firm in the diagram lowers price from P1 to P2, it will

answer

lose P1P2ba in revenue from the price cut but increase revenue by Q1bcQ2 from the increase in sales.

question

GRAPH QUESTION:

The quantitative difference between areas Q1bcQ2 and P1P2ba in the diagram measures

answer

marginal revenue

question

Which of the following is characteristic of a pure monopolist's demand curve?

answer

It is the same as the market demand curve.

question

Because the monopolist's demand curve is downsloping,

answer

price must be lowered to sell more output.

question

The pure monopolist's demand curve is relatively elastic

answer

in the price range where marginal revenue is positive.

question

A nondiscriminating profit-maximizing monopolist

answer

will never produce in the output range where demand is inelastic.

question

For a pure monopolist, the relationship between total revenue and marginal revenue is such that

answer

marginal revenue is positive when total revenue is increasing, but marginal revenue becomes negative when total revenue is decreasing.

question

For a pure nondiscriminating monopolist, marginal revenue is less than price because

answer

when a monopolist lowers price to sell more output, the lower price applies to all units sold.

question

Assume a pure monopolist is currently operating at a price-quantity combination on the inelastic segment of its demand curve. If the monopolist is seeking maximum profits, it should

answer

charge a higher price

question

A pure monopolist should never produce in the

answer

inelastic segment of its demand curve, because it can increase total revenue and reduce total cost by increasing price.

question

Assuming no change in product demand, a pure monopolist

answer

must lower price to increase sales.

question

If a monopolist were to produce in the inelastic segment of its demand curve,

answer

the firm would not be maximizing profits.

question

If a pure monopolist is operating in a range of output where demand is elastic,

answer

marginal revenue will be positive but declining.

question

Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. We thus know that

answer

total revenue is increasing.

question

A pure monopolist is selling six units at a price of $12. If the marginal revenue of the seventh unit is $5, then the

answer

price of the seventh unit is $11.

question

The vertical distance between the horizontal axis and any point on a nondiscriminating monopolist's demand curve measures

answer

product price and average revenue.

question

The diagram indicates that the marginal revenue of the sixth unit of output is

answer

−$1.

question

Which of the following is incorrect? Imperfectly competitive producers

answer

do not compete with one another.

question

A nondiscriminating pure monopolist finds that it can sell its 50th unit of output for $50. We can surmise that the marginal

answer

revenue of the 50th unit is less than $50.

question

answer

1-3 unit range of output.

question

answer

that cannot be determined with the information provided.

question

answer

$5.

question

If a nondiscriminating pure monopolist decides to sell one more unit of output, the marginal revenue associated with that unit will be

answer

the price at which that unit is sold less the price reductions that apply to all other units of output.

question

Suppose that a pure monopolist can sell 20 units of output at $10 per unit and 21 units at $9.75 per unit. The marginal revenue of the 21st unit of output is

answer

$4.75.

question

The MR = MC rule

answer

applies both to pure monopoly and pure competition.

question

In the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal to

answer

marginal revenue.

question

An unregulated pure monopolist will maximize profits by producing that output at which

answer

MR = MC.

question

Suppose that a pure monopolist can sell 5 units of output at $4 per unit and 6 units at $3.90 per unit. The monopolist will produce and sell the sixth unit if its marginal cost is

answer

$3.40 or less

question

Suppose that a pure monopolist can sell 4 units of output at $2 per unit and 5 units at $1.75 per unit. The monopolist will produce and sell the fifth unit if its marginal cost is

answer

$.75 or less.

question

A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and MR = $3. This firm is realizing

answer

an economic profit that could be increased by producing more output.

question

answer

4 UNITS

question

answer

elastic portion of its demand curve

question

Total Output Price Marginal Revenue Average Total Cost Marginal Cost
1 $100 $100 $100.00 $30
2 90 80 63.00 26
3 80 60 52.67 32
4 70 40 49.50 40
5 60 20 49.60 50
6 50 0 50.00 52
7 40 -20 52.29 66
8 30 -40 55.75 80
9 20 -60 60.67 100
10 10 -80 67.60 130

Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's price will exceed its marginal cost by and its average total cost by .

answer

$30; $20.50

question

Total Output Price Marginal Revenue Average Total Cost Marginal Cost
1 $100 $100 $100.00 $30
2 90 80 63.00 26
3 80 60 52.67 32
4 70 40 49.50 40
5 60 20 49.60 50
6 50 0 50.00 52
7 40 -20 52.29 66
8 30 -40 55.75 80
9 20 -60 60.67 100
10 10 -80 67.60 130

Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's total costs will be

answer

$198

question

Total Output Price Marginal Revenue Average Total Cost Marginal Cost
1 $100 $100 $100.00 $30
2 90 80 63.00 26
3 80 60 52.67 32
4 70 40 49.50 40
5 60 20 49.60 50
6 50 0 50.00 52
7 40 -20 52.29 66
8 30 -40 55.75 80
9 20 -60 60.67 100
10 10 -80 67.60 130

Refer to the data. At its profit-maximizing output, this firm's total revenue will be

answer

$280.

question

Total Output Price Marginal Revenue Average Total Cost Marginal Cost
1 $100 $100 $100.00 $30
2 90 80 63.00 26
3 80 60 52.67 32
4 70 40 49.50 40
5 60 20 49.60 50
6 50 0 50.00 52
7 40 -20 52.29 66
8 30 -40 55.75 80
9 20 -60 60.67 100
10 10 -80 67.60 130

Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's total profit will be

answer

$82.

question

If a monopolist's marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by

answer

reducing output and raising price.

question

GRAPH QUESTION:

Refer to the diagram. To maximize profits or minimize losses, this firm should produce

answer

E units and charge price A.

question

answer

$4.50.

question

answer

5 units.

question

Answer the question on the basis of the provided demand and cost data for a pure monopolist.

Demand Data Cost Data
Price Quantity Demanded Output Total Cost
$5.50 3 3 $5.00
5.00 4 4 6.00
4.50 5 5 6.50
3.85 6 6 7.50
3.35 7 7 9.00
2.90 8 8 11.00
2.50 9 9 14.00

The profit-maximizing monopolist will realize a

answer

profit of $16

question

GRAPH QUESTION:

Refer to the diagram. At the profit-maximizing level of output, total revenue will be

answer

0AJE.

question

GRAPH QUESTION:

Refer to the diagram. At the profit-maximizing level of output, total cost will be

answer

0BHE.

question

GRAPH QUESTION:

Refer to the diagram. At the profit-maximizing level of output, the firm will realize

answer

an economic profit of ABHJ.

question

If profits are maximized (or losses minimized), which of the following conditions is common to both unregulated monopoly and pure competition?

answer

MR = MC

question

A pure monopolist

answer

will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.

question

If a pure monopolist is producing at that output where P = ATC, then

answer

its economic profits will be zero.

question

A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that price

answer

will vertically intersect demand where MR = MC

question

GRAPH QUESTION:

Refer to the diagram for a pure monopolist. Monopoly price will be

answer

question

GRAPH QUESTION:

Refer to the diagram for a pure monopolist. Monopoly output will be

answer

question

GRAPH QUESTION:

Refer to the diagram for a pure monopolist. Monopoly profit

answer

cannot be determined from the information given.

question

In the short run, a monopolist's economic profits

answer

may be positive or negative depending on market demand and cost conditions.

question

Under which of the following situations would a monopolist increase profits by lowering price (and increasing output)?

answer

if it discovered that it was producing where MC < MR

question

GRAPH QUESTION:

If the industry depicted in the graph is purely monopolistic, the profit-maximizing price and quantity will be

answer

P3 and Q3.

question

GRAPH QUESTION:

If the industry depicted in the graph comprises only one seller, the profit-maximizing price and quantity will be

answer

P3 and Q3.

question

When a pure monopolist is producing its profit-maximizing output, price will

answer

equal neither MC nor MR.

question

GRAPH QUESTION:

Assume a pure monopolist is charging price P and selling output Q, as shown on the diagram. On the basis of this information, we can say that

answer

if marginal costs were somehow zero, the firm would be maximizing its profits.

question

The supply curve for a monopolist is

answer

nonexistent

question

The supply curve of a pure monopolist

answer

does not exist because prices are not "given" to a monopolist.

question

If the variable costs of a profit-maximizing pure monopolist decline, the firm should

answer

produce more output and charge a lower price.

question

To maximize profit, a pure monopolist must

answer

maximize the difference between total revenue and total cost.

question

GRAPH QUESTION:

Refer to the diagrams. Firm A is a

answer

pure competitor, and Firm B is a pure monopoly.

question

GRAPH QUESTION:

Refer to the diagrams. The demand for Firm A's product is

answer

perfectly elastic over all ranges of output.

question

GRAPH QUESTION:

Refer to the diagrams. The demand for Firm B's product is

answer

elastic for prices above $4 and inelastic for prices below $4.

question

GRAPH QUESTION:

Refer to the diagrams. If $4 is Firm B's profit-maximizing price, its

answer

MC must be zero.

question

Economic profit in the long run is

answer

possible for a pure monopoly but not for a pure competitor.

question

Which of the following statements is correct?

answer

In seeking the profit-maximizing output, the pure monopolist underallocates resources to its production.

question

Confronted with the same unit cost data, a monopolistic producer will charge

answer

a higher price and produce a smaller output than a competitive firm.

question

An important economic problem associated with pure monopoly is that, at the profit-maximizing outputs, resources are

answer

underallocated because price exceeds marginal cost.

question

A single-price monopoly is economically inefficient because, at the profit-maximizing output,

answer

society values additional units of the monopolized product more highly than it does the

question

If a pure monopolist is producing more output than the MR = MC output,

answer

it will be in the interest of the firm, but not necessarily of society, to reduce output.

question

At its profit-maximizing output, a pure nondiscriminating monopolist achieves

answer

neither productive efficiency nor allocative efficiency.

question

The profit-maximizing output of a pure monopoly is not socially optimal, because in equilibrium

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price exceeds marginal cost.

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A single-price pure monopoly is economically inefficient

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because it produces short of minimum average total cost and price is greater than marginal cost.

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Comparing a pure monopoly and a purely competitive firm with identical costs, we would find in long-run equilibrium that the pure monopolist's

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price and average total cost would be higher, but output would be lower.

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GRAPH QUESTION:

Refer to the diagrams. Diagram (A) represents

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equilibrium price and quantity in a purely competitive industry.

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GRAPH QUESTION:

Refer to the diagrams. In diagram (B) the profit-maximizing quantity is

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g, and the profit-maximizing price is d.

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GRAPH QUESTION:

Refer to the diagrams. With the industry structures represented by diagram

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(A), there will be only a normal profit in the long run, while in (B) an economic profit can persist.

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GRAPH QUESTION:

Refer to the diagrams. With the industry structures represented by diagram

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(B), output will be less than in diagram (A).

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GRAPH QUESTION:

Refer to the diagrams. The price will be and the quantity will be with the industry structure represented by diagram (B) compared to the one represented in (A).

answer

higher; lower

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The higher prices charged by monopolists

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are like a private tax that redistributes income from consumers to monopoly sellers.

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The gains to monopolists from exercising market power

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are less than the losses to consumers in monopoly markets, resulting in a net loss to society.

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X-inefficiency refers to a situation in which a firm

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fails to achieve the minimum average total costs attainable at each level of output.

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Which of the following is not a possible source of natural monopoly?

answer

rent-seeking behavior

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There is some evidence to suggest that X-inefficiency is

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more likely to occur in monopolistic firms than in competitive firms.

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In which one of the following market models is X-inefficiency most likely to be the greatest?

answer

pure monopoly

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In which one of the following market models is X-inefficiency least likely to be present?

answer

pure competition

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Price discrimination refers to

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the selling of a given product to different customers at different prices that do not reflect cost differences.

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Which of the following conditions is not required for price discrimination?

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Buyers with different elasticities must be physically separate from each other.

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The practice of price discrimination is associated with pure monopoly because

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monopolists have considerable ability to control output and price.

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Which of the following is not a precondition for price discrimination?

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The commodity involved must be a durable good.

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A price discriminating pure monopolist will attempt to charge each buyer (or group of buyers)

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the maximum price each would be willing to pay

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Other things equal, in which of the following cases would economic profit be the greatest?

answer

an unregulated monopolist that is able to engage in price discrimination

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If a pure monopolist can price discriminate by separating buyers into two or more groups,

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the firm will face multiple marginal revenue curves.

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If a monopolist engages in price discrimination, it will

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charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic.

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Price discrimination is

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only illegal if used to lessen or eliminate competition

question

answer

charge $7 for each round on weekdays and $10 during the weekend.

question

answer

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Output Total Cost Product Price
0 $250 $500
1 260 300
2 290 150
3 350 200
4 480 150
5 700 100

According to the accompanying table, this nondiscriminating pure monopolist should set its price at

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$200

question

answer

earns an economic profit of $250.

question

answer

question

answer

$420.

question

answer

1,200 rounds

question

answer

$4,200

question

answer

P1 to children and P2 to adults.

question

answer

Q1C + Q2

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Assume the figure applies to a pure monopolist and that MC is the same for both graphs. If this firm is able to price discriminate between children and adults, its economic profit will be

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[(P1 − MC) × Q1C] + [(P2 − MC) × Q2].

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Other things equal, a price-discriminating monopolist will

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produce a larger output than a nondiscriminating monopolist.

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GRAPH QUESTION:

Refer to the diagram for a pure monopolist. If the monopolist is unregulated, it will maximize profits by charging

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price P3 and producing output Q3

question

answer

question

answer

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GRAPH QUESTION:

Refer to the diagram for a pure monopolist. If a regulatory commission sets the price to achieve the socially optimal allocation of resources, it will have to

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subsidize the monopolist or the monopolist will go bankrupt in the long run.

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A dilemma of regulation is that

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the regulated price that achieves allocative efficiency is also likely to result in losses.

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If a regulatory commission wants to provide a natural monopoly with a fair return, it should establish a price that is equal to

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average total cost

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If a regulatory commission wants to establish a socially optimal price for a natural monopoly, it should select a price

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at which the marginal cost curve intersects the demand curve

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If a regulatory commission imposes upon a nondiscriminating natural monopoly a price that is equal to marginal cost and below average total cost at the resulting output, then

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the firm must be subsidized or it will go bankrupt

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Refer to the diagram for a natural monopolist. If a regulatory commission were to set a maximum price of P3, the monopolist would

answer

maximize profits

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GRAPH QUESTION:

Refer to the diagram for a natural monopolist. If a regulatory commission set a maximum price of P2, the monopolist would

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produce output Q3 and realize a normal profit

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GRAPH QUESTION:

Refer to the diagram for a natural monopolist. If a regulatory commission set a maximum price of P1, the monopolist would produce output

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Q4 and realize a loss.

question

answer

the seller can prevent children from buying game tickets for adults but cannot prevent children from buying concession items for adults.

question

answer

The items can be bought by people in the low-price group and transferred to members of the high-price group.

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(Last Word) "Big Data"

answer

is used by firms to price discriminate through personalized pricing.

question

answer

Alex to see a higher price than Kara for the same watch.

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A pure monopolist will maximize profits by producing at that output where price and marginal cost are equal.

answer

FALSE

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(Last Word): The ability of personalized pricing by online retailers to price discriminate

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is limited by buyers' willingness and ability to easily search out lower prices at other online sites.

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In the short run a pure monopolist will maximize profits by producing at that level of output where the difference between price and average total cost is at a maximum.

answer

FALSE

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In the short run a pure monopolist will charge the highest price the market will bear for its product.

answer

FALSE

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Pure monopolists always earn economic profits.

answer

FALSE

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If the XYZ Company can sell 4 units per week at $10 per unit and 5 units per week at $9 per unit, the marginal revenue of the fifth unit is $5.

answer

TRUE

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Because of their large-scale level of production, pure monopolists overallocate resources to their industry by producing beyond the P = MC output

answer

FALSE

question

Because of the ability to influence price, a pure monopolist can increase price and increase volume of sales simultaneously.

answer

FALSE

question

GRAPH QUESTION:

In the accompanying diagrams, both firms are selling their products in purely competitive markets.

answer

FALSE

question

GRAPH QUESTION:

In the accompanying diagram, the demand for Firm B's product is elastic at all prices in excess of $4.

answer

TRUE

question

GRAPH QUESTION:

In the accompanying diagram, Firm B's average revenue curve coincides with its marginal revenue curve.

answer

FALSE

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Natural monopoly may result where products produce substantial network effects and can be simultaneously consumed by a large number of consumers.

answer

TRUE

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Extensive network effects may drive a market toward natural monopoly because consumers tend to choose a common, standard product that everyone else is using.

answer

TRUE

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Price discrimination occurs whenever a firm sells a good for two different prices.

answer

FALSE

question

Price discrimination will result in consumers with more elastic demand purchasing more of the good than when a single price is charged to all consumers in the market.

answer

TRUE

question

Successful price discrimination requires that buyers charged the different prices be physically separated.

answer

FALSE

question

Price discrimination is illegal in the United States under all circumstances due to antitrust regulations.

answer

FALSE

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