question
The defining characteristic of a natural monopoly is
answer
economies of scale over the relevant range of output
question
Suppose a firm has a monopoly on the sale of widgets and faces a downward-sloping demand curve. When selling the 100th widget, the firm will always receive
answer
less marginal revenue on the 100th widget than it received on the 99th widget.
question
For a monopolist, marginal revenue is
answer
negative when the price effect is greater than the output effect.
question
Which of the following statements is correct?
answer
If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase
profit by selling more units at a lower price per unit.
profit by selling more units at a lower price per unit.
question
A perfectly competitive firm in long-run equilibrium has been selling its output for $20 per unit and has been maximizing its profit. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, which of the following statements is correct?
answer
The firm's quantity of output is higher than it was previously, The firm's average total cost is higher than it was previously, The firm's marginal revenue is higher than it was previously.
question
Assume a perfectly competitive firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. To maximize its profit, the firm should
answer
increase its output.
question
A perfectly competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will
answer
fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry.
Price will then rise to reach the new long-run equilibrium.
Price will then rise to reach the new long-run equilibrium.
question
If all existing firms and all potential firms have the same cost curves, there are no inputs in limited quantities, and the market is characterized by free entry and exit, then the long-run market supply curve
answer
is horizontal and equal to the minimum of long-
run average cost total for each firm.
run average cost total for each firm.
question
Suppose a perfectly competitive market is comprised of
firms that face identical cost curves. The firms experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur?
(i) New firms will enter the market.
(ii) In the short run, price will rise; in the long run, price will rise further.
(iii) In the long run, all firms will be producing at their efficient output level
firms that face identical cost curves. The firms experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur?
(i) New firms will enter the market.
(ii) In the short run, price will rise; in the long run, price will rise further.
(iii) In the long run, all firms will be producing at their efficient output level
answer
(i) and (iii) only
question
Each firm in a monopolistically competitive firm faces a downward
-sloping demand curve because
-sloping demand curve because
answer
the firm's product is different from those offered by other firms in the market.
question
A monopolistically competitive firm chooses its
answer
price and quantity just as a monopoly does.
question
In the short run, a firm operating in a monopolistically competitive market
answer
can earn zero economic profits.
question
Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?
answer
P > ATC, P = ATC, P < ATC
question
A firm operating in a monopolistically competitive market can earn economic profits in
answer
the short run but not in the long run.
question
Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures does a profit
-maximizing firm charge a price that exceeds marginal cost?
-maximizing firm charge a price that exceeds marginal cost?
answer
monopoly and monopolistic competition only
question
In the long run, a monopolistically competitive firm produces a quantity that is
answer
less than the efficient level
question
As firms exit a monopolistically competitive market, profits of remaining firms
answer
rise, and product diversity in the market decreases.
question
If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best describe the change existing firms would face as the market adjusts to the long-run equilibrium?
answer
a decrease in demand for each firm
question
In monopolistically competitive markets, free entry and exit suggests that
answer
all firms earn zero economic profits in the long run.
question
Which of the following statements is correct?
a. In the long run, both perfectly competitive firms and monopolistically competitive firms operate with excess capacity.
b. A firm operates with excess capacity when, in the long run, its level of output is below the output level where average costs are the lowest
c. For any market, the efficient level of output is the quantity at which the average-total-cost curve is tangent to the demand curve.
d. All of the above are correct.
a. In the long run, both perfectly competitive firms and monopolistically competitive firms operate with excess capacity.
b. A firm operates with excess capacity when, in the long run, its level of output is below the output level where average costs are the lowest
c. For any market, the efficient level of output is the quantity at which the average-total-cost curve is tangent to the demand curve.
d. All of the above are correct.
answer
B
question
In which of the following product markets are we likely to observe the largest amount of advertising?
a. markets with highly differentiated products
b. perfectly competitive markets
c. markets in which industrial products are sold
d. markets in which there is very little difference between different firms' products
a. markets with highly differentiated products
b. perfectly competitive markets
c. markets in which industrial products are sold
d. markets in which there is very little difference between different firms' products
answer
A
question
Critics of markets that are characterized by firms that sell brand name products argue that brand names encourage consumers to pay more for branded products that
answer
are indistinguishable from generic products
by providing misleading information
by providing misleading information
question
Cecilia's Café operates in a monopolistically competitive
market. Cecilia's is currently producing where its average total cost is minimized. In the long run we would expect Cecilia's output to
market. Cecilia's is currently producing where its average total cost is minimized. In the long run we would expect Cecilia's output to
answer
decrease and average total cost to increase
question
Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures must
a profit-maximizing firm experience zero economic profit?
a. perfect competition only
b. perfect competition and monopolistic competition only
c. perfect competition, monopolistic competition, and monopoly
d. The answer cannot be determined without knowing whether the market is in the long run or short run.
a profit-maximizing firm experience zero economic profit?
a. perfect competition only
b. perfect competition and monopolistic competition only
c. perfect competition, monopolistic competition, and monopoly
d. The answer cannot be determined without knowing whether the market is in the long run or short run.
answer
D
question
Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?
a. P > MR and P = MC
b. ATC = P and MR = MC
c. P < MC and P = ATC
d. P > ATC and P > MR
a. P > MR and P = MC
b. ATC = P and MR = MC
c. P < MC and P = ATC
d. P > ATC and P > MR
answer
B
question
In general, game theory is the study of
answer
how people behave in strategic situations.
question
In studying oligopolistic markets, economists assume that
answer
each oligopolist cares only about its own profit.
question
When an oligopoly market reaches a Nash equilibrium,
answer
a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.
question
The prisoners' dilemma provides insights into the
answer
difficulty of maintaining cooperation.
question
In the prisoners' dilemma game, self-interest leads a
answer
each prisoner to confess, to a breakdown of any agreement that the prisoners might have made before being questioned, to an outcome that is not particularly good for either prisoner.
question
A dominant strategy is one that
answer
is best for the player, regardless of what strategies other players follow.
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