question
Suppose that the DeBeers company faces very little competition from other firms in the wholesale diamond market. Why isn't the price of wholesale diamonds $10,000 per carat?
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because the company would sell so few diamonds that it would earn higher profits by selling at a lower price
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As a group, oligopolists earn the highest profit when they
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produce a total quantity of output that falls short of the Nash-equilibrium total quantity.
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Total profit for a firm is calculated as
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(price minus average cost) times quantity of output.
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If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
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a one-unit decrease in output will increase the firm's profit.
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A profit-maximizing monopolist will produce the level of output at which
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marginal revenue is equal to marginal cost.
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At the profit-maximizing level of output,
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marginal revenue equals marginal cost
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A monopoly firm is a price
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maker and has no supply curve
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If the monopoly firm perfectly price discriminates, then the deadweight loss amounts to
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zero
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Under majority rule, the order in which items are voted on is
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important, and this is a lesson of the Condorcet paradox.
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The ultimatum game reveals that
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people may have an innate sense of fairness that economic theory does not capture.
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Most markets are not monopolies in the real world because
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there are reasonable substitutes for most goods.
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Free entry and exit means that the number of firms in the market adjusts until
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economic profits are driven to zero.
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The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $145,000. Because of this information, in the short run, the Brookside Racquet Club should
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stay open because shutting down would be more expensive.
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The classic example of adverse selection is the
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market for used cars.
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Behavioral economics
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integrates psychological insights into economic models.
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Which of the following is not a characteristic of a perfectly competitive market?
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Individual firms are price setters.
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The competitive firm's short-run supply curve is its
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d. marginal cost curve, but only the portion above the minimum of average variable cost.
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In a natural monopoly,
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if the government requires marginal cost pricing, it will likely have to subsidize the firm.
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Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's
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total revenue
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A market might have an upward-sloping long-run supply curve if
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firms have different costs
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The fundamental source of monopoly power is
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barriers to entry
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After initial success, the OPEC cartel saw the price of oil and the revenues of its members decline due, in part, to
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OPEC members failing to produce their agreed-upon production levels.
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Which of the following is not an example of a systematic mistake that people make?
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Kate's manager asks her to work additional hours for which she will be paid her usual hourly wage. Kate weighs the value of her leisure time against the additional wages before responding to her manager.
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A profit-maximizing firm will shut down in the short run when
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price is less than average variable cost.
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Economists have found that some risky behaviors increase and preventative medicine use decreases when individuals in the U.S. turn 65 and qualify for Medicare (public health insurance). This phenomenon is most consistent with which of the following concepts?
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Moral hazard
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A similarity between monopoly and monopolistic competition is that in both market structures
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sellers are price makers rather than price takers.
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A monopolist maximizes profits by
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producing an output level where marginal revenue equals marginal cost
charging a price that is greater than marginal revenue.
charging a price that is greater than marginal revenue.
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A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?
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price exceeds marginal cost
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If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will
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exactly triple
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A sunk cost is one that
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was paid in the past and will not change regardless of the present decision.
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The higher the concentration ratio, the
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more control an individual firm has to set prices
less competitive the industry.
less competitive the industry.
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As a monopolist increases the quantity of output it sells, the price consumers are willing to pay for the good
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decreases
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As the number of firms in an oligopoly increases, the magnitude of the
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price effect decreases
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