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1) Perfect Competition
At present output levels, a firm in a perfectly competitive industry is in the following position: output = 1000 units, market price = $3, total cost = $6000, fixed cost = $2000, marginal cost = $3. To achieve optimum output, the firm should:
A. reduce output but keep producing.
B. increase its selling price.
C. leave output unchanged.
D. reduce output to zero.
E. increase output but keep its price constant.
At present output levels, a firm in a perfectly competitive industry is in the following position: output = 1000 units, market price = $3, total cost = $6000, fixed cost = $2000, marginal cost = $3. To achieve optimum output, the firm should:
A. reduce output but keep producing.
B. increase its selling price.
C. leave output unchanged.
D. reduce output to zero.
E. increase output but keep its price constant.
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D. Reduce output to zero
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True or false: A perfect competition demand curve is perfectly elastic
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False
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A competitive firm's demand curve is determined by...
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Market demand and market supply.
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At present output levels, a perfectly competitive firm is in the following position: output = 4000 units, market price = $1, fixed costs = $2000, total variable costs = $1000, marginal cost = $1.10. This firm is:
A. making a positive economic profit.
B. making a zero economic profit.
C. losing money, although it could make a profit by decreasing its output.
D. producing the output where AVC = MC.
E. not maximizing its profit but could do so by increasing its output.
A. making a positive economic profit.
B. making a zero economic profit.
C. losing money, although it could make a profit by decreasing its output.
D. producing the output where AVC = MC.
E. not maximizing its profit but could do so by increasing its output.
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A. Making a positive economic profit
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A profit maximizing firm will always increase output as long as
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MR > MC - Marginal Revenue > Marginal Cost
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A profit maximizing firm will always decrease output whenever
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MC > MR - Marginal Cost > Marginal Revenue
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All profit maximizing firms will produce where
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MR = MC
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In the long-run for a competitive industry...
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All factors of production are variable so that firms are free to enter or leave the market.
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When typical firms in a perfectly competitive industry are making economic profits, then all of the following will take place
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A. new firms will enter the industry.
B. the industry supply curve will shift to the right.
C. the firm demand curves will shift down.
D. the typical firm in the industry will begin to experience a reduction in profits.
B. the industry supply curve will shift to the right.
C. the firm demand curves will shift down.
D. the typical firm in the industry will begin to experience a reduction in profits.
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If an industry is characterized by perfect competition as well as increasing costs then...
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Some of the resources used in production have supply curves that are upward sloping.
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In the long-run, competition in competitive markets...
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Forces all surviving firms to adopt the most efficient technology.
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That portion of a perfectly competitive firm's marginal cost curve lying above its AVC curve has all of the following characteristics...
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A. it is upward sloping.
B. it intersects the firm's ATC curve at minimum ATC.
C. its intersection with the firm's MR curve determines the firm's profit maximizing output level.
D. it is the firm's supply curve.
B. it intersects the firm's ATC curve at minimum ATC.
C. its intersection with the firm's MR curve determines the firm's profit maximizing output level.
D. it is the firm's supply curve.
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When in long-run equilibrium, perfectly competitive firms...
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Must employ the most efficient (least costly) production technology or be driven out of the business by competition.
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The short-run shutdown point for the perfectly competitive firm occurs...
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When the demand curve facing the firm is tangent to its average variable cost curve.
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2) Monopoly
If the monopolist operated in the inelastic range of its demand curve...
If the monopolist operated in the inelastic range of its demand curve...
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Marginal revenue would be negative.
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At the profit-maximizing output for a monopolist, price:
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Exceeds marginal cost.
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A monopoly firm will produce at minimum ATC...
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If MR happens to equal MC where ATC is at a minimum.
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That portion of a monopolist's marginal cost curve lying above its AVC curve has all of the following characteristics except...
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It is the firm's supply curve.
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As compared to other firms that may have monopoly power, a natural monopoly...
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Has marginal and average costs that decline continuously over the entire range of industry or market demand.
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When a monopoly firm is operating in a range of output where total revenue is rising as output rises, then marginal revenue...
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Is falling but is greater than zero.
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3) Monopoly vs. Perfect Comp
An indication of the technological inefficiency of the monopolist, when compared to the perfect competitor, is that...
An indication of the technological inefficiency of the monopolist, when compared to the perfect competitor, is that...
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In the long-run, a monopolist is not forced to produce at the minimum point of the average total cost curve.
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The differences between a monopoly firm and a perfectly competitive firm include all of the following except...
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Marginal cost is upward sloping for a monopoly firm and horizontal for a perfectly competitive firm.
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Unlike a firm in pure competition, a monopoly is able to...
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Reap economic profits in the long-run as long as sufficient barriers to entry exist, legal or illegal.
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Price discrimination is more efficient than single-price monopoly pricing if it results in:
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An increase in net benefit for society.
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Monopoly or Perfect Comp?
___________ always have more incentive to innovate
___________ always have more incentive to innovate
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Perfect Comp
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Price discrimination...
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A. tends to decrease the allocative inefficiency of a monopolist.
B. will provide more total revenue to the firm than the profit-maximizing price the monopolist would set in the absence of such discrimination.
C. generally results in greater output than under a single price monopoly.
D. when it is perfect, causes the monopolist to produce where marginal social cost is just equal to marginal social benefit.
B. will provide more total revenue to the firm than the profit-maximizing price the monopolist would set in the absence of such discrimination.
C. generally results in greater output than under a single price monopoly.
D. when it is perfect, causes the monopolist to produce where marginal social cost is just equal to marginal social benefit.
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The socially optimal (the allocatively efficient) level of output occurs where...
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Price equals marginal cost.
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4) Oligopoly
In the long run, the profit-maximizing, monopolistically competitive firm fails to produce a level of output where...
In the long run, the profit-maximizing, monopolistically competitive firm fails to produce a level of output where...
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Economic profits are realized.
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Suppose your father, who is a potato farmer in Idaho, has decided that he grows the "best, damn potatoes in the world." In other words, he is claiming that his potatoes are different than potatoes grown by other farmers. If his claim is true (and he can convince consumers of this), then...
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C. he faces a downward sloping demand curve and his quantity decisions will have an effect on market price for his potatoes.
D. while he may make a profit in the short-run, in the long-run competition will still force his profits to zero.
D. while he may make a profit in the short-run, in the long-run competition will still force his profits to zero.
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The demand curve that confronts a monopolistically competitive firms is...
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Less elastic than the demand curve facing a perfectly competitive firm.
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In a monopolistically competitive industry, a firm in long-run equilibrium will be operating where price is...
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Greater than MC but equal to ATC.
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The important difference between the characteristics of perfectly competitive and monopolistically competitive markets is that firms in monopolies...
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Sell similar but not identical products.
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All of the following are methods that firms in an oligopolistic industry may use to create entry barriers except...
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Substantial "natural" economies of scale in production.
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A member of a cartel would be most likely to increase its profits by...
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Cheating on cartel output restrictions by under cutting the prices of other cartel members (assuming that it did not get caught cheating).
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When economists state that prices are sticky with respect to oligopolistic industries, they mean that...
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Prices are less responsive to changes in demand in oligopolies than in perfectly competitive markets.
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Which of the following is not a characteristic of an oligopolistic market structure?
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Zero economic profits in the long-run.
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Existing firms in an oligopolistic industry can deter the entry of new firms by...
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Setting lower prices and producing more than that which maximizes short-run profits, if economies of scale and capital costs are significant.
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Legal barriers to entry do not include...
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A. outright government prohibition of entry.
B. protection of inventions or creative works by patent and copyright law.
C. licensing and bonding restrictions.
D. substantial economies of scale in production.
B. protection of inventions or creative works by patent and copyright law.
C. licensing and bonding restrictions.
D. substantial economies of scale in production.
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Monopolists are allocatively inefficient because
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The monopolists price is greater than marginal cost
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1) A perfectly competitive firm will shutdown in the long run whenever price is less than average cost
2) A monopoly firm will shutdown in the short run when price is less than ATC
2) A monopoly firm will shutdown in the short run when price is less than ATC
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1 is true while 2 is false. This is because a monopoly firm can produce with profits less than zero.
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When market demand increases in the short run for a perfectly competitive market...
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Market price will rise
Firm output will rise
Market output will rise
Firm output will rise
Market output will rise
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Nash Equilibrium is...
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How both parties will play the game (to their advantage)
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Cooperative solution is...
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The box which has the highest or best outcome/profit
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Cooperative surplus is...
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The difference between the Nash EQ and the cooperative surplus
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A monopolists marginal revenue is...
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Less than the price it charges when the monopolist cannot price discriminate
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Monopolistically competitive firms...
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Produce where MR = MC
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True or False???
First best outcomes are not always achievable?
First best outcomes are not always achievable?
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True
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In comparison to a monopoly industry, a perfectly competitive industry is generally...
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More efficient, but has less market power
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In which market structure are firms mutually interdependent?
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Oligopoly
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