question
suppose you are a perfectly competitive cotton candy maker and you are charging $5 per bag and selling 1,000 bags a month. If you lower the price by a nickel, what do you predict will happen to sales
answer
They will not increase because you can sell as many units as you want at $5
(perfect competitive firms are price takers. that means they take the market price as given and cannot influence it up or down.)
(perfect competitive firms are price takers. that means they take the market price as given and cannot influence it up or down.)
question
Long run competitive markets are characterized by
answer
easy entry and exit of firms
normal profits
(Not by rising profits.)
normal profits
(Not by rising profits.)
question
The market supply curve is
answer
the sum of the marginal cost curves of all the firms in the market.
question
economic profits
answer
cause new firms to enter the market.
Economic profits are a signal that more output is needed in a particular industry. To achieve more output, need firms enter and existing firms expand output, shifting the supply curve to the right.
Economic profits are a signal that more output is needed in a particular industry. To achieve more output, need firms enter and existing firms expand output, shifting the supply curve to the right.
question
When an economic profit disappears in a perfect competitive industry..
answer
the entry of new firms ceases
question
technological innovations in an industry cause
answer
the marginal cost curve to shift to the right.
Technological innovations cause marginal cost curves to shift rightward, indicating that the cost of production has fallen.
Technological innovations cause marginal cost curves to shift rightward, indicating that the cost of production has fallen.
question
Competitive markets achieve allocative efficiency by
answer
producing goods and services that consumers want.
Allocative efficiency means that consumers get the mix of goods and services that they want. This is achieved when competitive industries make products to satisfy consumers.
Allocative efficiency means that consumers get the mix of goods and services that they want. This is achieved when competitive industries make products to satisfy consumers.
question
The exit of firms from a market....
answer
Reduces the equilibrium output in the market.
Exit of firms means that output is falling. This reduces output in the market and puts upward pressure on prices
Exit of firms means that output is falling. This reduces output in the market and puts upward pressure on prices
question
The constant quest for profits in competitive markets results in all of the following except
answer
economic profits in the long run
(does result with zero economic profits, g&s being produced that consumers demand and efficiency in production)
In the long run, perfectly competitive firms make no economic profits because all economic profits have been competed away. Nevertheless, firms stay in business because they make normal profits which is adequate for the entrepreneur.
(does result with zero economic profits, g&s being produced that consumers demand and efficiency in production)
In the long run, perfectly competitive firms make no economic profits because all economic profits have been competed away. Nevertheless, firms stay in business because they make normal profits which is adequate for the entrepreneur.
question
Which of the following is not a characteristic of a perfectly competitive long-run equilibrium
answer
Firms are producing on the downward sloping portions of their average total cost curves.
Some characteristics of a perfectly competitive long run are zero economic profits, price equalling marginal cost and price equals long run minimum average cost.
In the long run equilibrium, firms are producing at the minimum of their average total cost curve. This is called being technically efficient.
Some characteristics of a perfectly competitive long run are zero economic profits, price equalling marginal cost and price equals long run minimum average cost.
In the long run equilibrium, firms are producing at the minimum of their average total cost curve. This is called being technically efficient.
question
If a firm has market power
answer
It faces downward sloping demand curve.
Market power means a firm has some control over price. A downward sloping demand curve indicates that a firm has control over price and is a price maker.
Market power means a firm has some control over price. A downward sloping demand curve indicates that a firm has control over price and is a price maker.
question
A monopolist maximizes profit at an output level where
answer
marginal revenue is equal to marginal cost
For a monopolist, Marginal revenue slopes downward. For all firms, the MC curve slopes upward. These curves intersect at the output level that a monopolist desires to produce
For a monopolist, Marginal revenue slopes downward. For all firms, the MC curve slopes upward. These curves intersect at the output level that a monopolist desires to produce
question
Perfect competition differs from monopoly insofar as
answer
The perfectly competitive firm sells at the equilibrium set by the price market
Perfect competitive firms are price takers, where as monopoly firms are price makers
Perfect competitive firms are price takers, where as monopoly firms are price makers
question
An example of barrier to entry is
answer
Brand names.
Brand names are a source of product differentiation and strong brand names create barriers of entry for new firms.
Brand names are a source of product differentiation and strong brand names create barriers of entry for new firms.
question
Once of the benefits of monopoly is
answer
a monopolist can afford to spend more on research and development.
Monopolists, because of their market power can often maintain long-run economic profits. Some of these can be plowed back into research and development.
Monopolists, because of their market power can often maintain long-run economic profits. Some of these can be plowed back into research and development.
question
price discrimination occurs when
answer
a firm sets different prices for different consumers for the same product.
Price discrimination means that different prices are charged to different buyers. These price differences are due largely to different abilities to pay.
Price discrimination means that different prices are charged to different buyers. These price differences are due largely to different abilities to pay.
question
Which of the following is not true when it comes to a pure monopoly?
answer
that There are many substitutes for the monopolist's products.
A monopolist is the sole produces in a given market. Thus there are no readily available substitutes for the monopolist's product.
A monopolist is the sole produces in a given market. Thus there are no readily available substitutes for the monopolist's product.
question
A monopolists marginal revenue will
answer
fall as more units are sold.
The marginal revenue curve for a monopolist falls more steeply than the demand curve because to sell more, the monopolist must discount the price to all buyers
The marginal revenue curve for a monopolist falls more steeply than the demand curve because to sell more, the monopolist must discount the price to all buyers
question
For a natural monopoly to exist
answer
a firms long-run average cost must exhibit economies of scale.
If a firm exhibits long-run economies of scale, the firm will have a downward sloping long run ATC curve. This cost curve means that the more the output, the lower the average cost, which means a big firm can drive a smaller firm out of business.
If a firm exhibits long-run economies of scale, the firm will have a downward sloping long run ATC curve. This cost curve means that the more the output, the lower the average cost, which means a big firm can drive a smaller firm out of business.
question
Output under a monopoly
answer
Is less that what output would be if the industry were competitive.
monopoly firms reduce their output levels and raise prices over what occurs in perfect competition. This is because monopolists have control over price.
monopoly firms reduce their output levels and raise prices over what occurs in perfect competition. This is because monopolists have control over price.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
