question
Which of the following statements relating to a firm in an imperfectly competitive market and a firm in a perfectly competitive market is true?
a. Firms in both types of markets will likely advertise the merits of their products to increase sales.
b. Firms in both types of markets will increase price to increase total revenues when their demand is inelastic.
c. An imperfectly competitive firm must lower its price to increase sales, while a perfectly competitive firm can increase sales by increasing output at the current price.
d. Barriers to entry give both imperfectly competitive and perfectly competitive firms market power to raise price.
e. As their product becomes different from their competitors' product, both an imperfectly competitive firm and a perfectly competitive firm will face less elastic consumer demand.
a. Firms in both types of markets will likely advertise the merits of their products to increase sales.
b. Firms in both types of markets will increase price to increase total revenues when their demand is inelastic.
c. An imperfectly competitive firm must lower its price to increase sales, while a perfectly competitive firm can increase sales by increasing output at the current price.
d. Barriers to entry give both imperfectly competitive and perfectly competitive firms market power to raise price.
e. As their product becomes different from their competitors' product, both an imperfectly competitive firm and a perfectly competitive firm will face less elastic consumer demand.
answer
c
question
If Zeta, a single producer, had exclusive control of a key resource needed to produce good Z , a likely result would be which of the following?
a. Good Z would be produced in a perfectly competitive market.
b. Slight differences in output would lead to good Z being in a monopolistically competitive market.
c. There would be a barrier to entry, and Zeta would have a monopoly on good Z
d. Only a few firms would produce good Z , so there would be an oligopoly.
e. Zeta must have decreasing returns to scale and operate as a natural monopoly in producing good Z .
a. Good Z would be produced in a perfectly competitive market.
b. Slight differences in output would lead to good Z being in a monopolistically competitive market.
c. There would be a barrier to entry, and Zeta would have a monopoly on good Z
d. Only a few firms would produce good Z , so there would be an oligopoly.
e. Zeta must have decreasing returns to scale and operate as a natural monopoly in producing good Z .
answer
c
question
which of the following is a source of monopoly power?
a. scarcity
b. elastic of demand
c. barriers to entry
d. low profits
e. free markets
a. scarcity
b. elastic of demand
c. barriers to entry
d. low profits
e. free markets
answer
c
question
Which of the following statements is true for a monopolist at the profit-maximizing output level?
a. price exceeds marginal revenue
b. marginal cost exceeds price
c. demand is price inelastic
d. price equals marginal cost, which equals average total cost
e. the demand curve intersects the supply curve
a. price exceeds marginal revenue
b. marginal cost exceeds price
c. demand is price inelastic
d. price equals marginal cost, which equals average total cost
e. the demand curve intersects the supply curve
answer
a
question
If a perfectly competitive industry were monopolized without any changes in cost conditions, the price and quantity produced would change in which of the following?
answer
price:increase
quantity:decrease
quantity:decrease
question
What is the difference between imperfectly competitive and perfectly competitive firms?
answer
imperfect: price makers, downward sloping demand
perfect: price takers, demand is constant/ = to mr
perfect: price takers, demand is constant/ = to mr
question
What happens to average total cost in a natural monopoly?
answer
decreases, moves towards demand
question
How do you tell if a firm should shut down?
answer
price exceeds average variable cost
question
With a single-price monopoly that has the same market demand and cost curves, what will happen to output and price?
answer
output decreases, price increases
question
What can give a firm market power?
answer
economies of scale, mass produced with a lower atc
question
If a firm engages in perfect price discrimination, what does it charge customers?
answer
the highest price customers are willing to pay
question
What is a necessary condition for price discrimination?
answer
the firm must have market power, the firm must be able to recognize differences in demand
question
In monopolistic competition, what is the goal of advertising?
answer
increase demand and increase inelastic
question
Assume that a monopolistically competitive firm is currently maximizing profit with an output of 100 units and a price of $50. What would happen to marginal cost compared to marginal revenue if output was raised to 150 units?
answer
mc is greater
question
A monopolistically competitive firm is currently producing the profit-maximizing level of output. If the price of a variable input increases, what happens to average total cost and marginal cost curves?
answer
atc shifts up, mc shifts up
question
Why do firms in monopolistic competition do not attain allocative efficiency at the long-run equilibrium output?
answer
price is greater than mc
question
Why are monopolistically competitive product markets inefficient?
answer
price is greater than mc
question
What must be true if a profit-maximizing monopolistically competitive firm continues to operate in the short run while incurring a loss?
answer
price is greater than avc
question
When both firms have a dominant strategy will there be a Nash equilibrium?
answer
yes
question
There are four firms in an oligopolistic industry. The four firms agree to collude and act like a monopoly. If one of the firms violates the agreement and charges a lower price or sells a larger quantity than what was agreed to, what will happen in the short run for the profit of
that firm and the industry?
that firm and the industry?
answer
the one firm will increase, industry will decrease
question
In a market with two firms and one firm has a dominant strategy, what will that firm do?
answer
maintain strategy
question
If the monopolist engages in perfect price discrimination, which of the following will happen?
answer
Consumer surplus and deadweight loss will be zero because all the surplus will be transferred to producer surplus.
question
One difference between monopolistic competition and oligopoly is that firms in monopolistic competition are assumed to
answer
act independently in setting price and output
question
Why are imperfectly competitive markets inefficient?
answer
price is greater than mc
question
Which of the following is true in imperfectly competitive markets?
A: Firms produce standardized or identical products.
B: Firms enjoy economies of scale in production.
C: Firms produce output at constant marginal cost.
D: Firms must lower their product prices to sell additional units.
E: New firms can easily enter or exit the market.
A: Firms produce standardized or identical products.
B: Firms enjoy economies of scale in production.
C: Firms produce output at constant marginal cost.
D: Firms must lower their product prices to sell additional units.
E: New firms can easily enter or exit the market.
answer
D: Firms must lower their product prices to sell additional units.
question
Which of the following is true of a natural monopoly?
A: The average total cost is constant throughout the entire effective demand.
B: Marginal cost decreases throughout the entire effective demand.
C: The average total cost initially decreases and then increases throughout the entire effective demand.
D: The marginal cost initially increases and then decreases throughout the entire effective demand.
E: The average total cost decreases throughout the entire effective demand.
A: The average total cost is constant throughout the entire effective demand.
B: Marginal cost decreases throughout the entire effective demand.
C: The average total cost initially decreases and then increases throughout the entire effective demand.
D: The marginal cost initially increases and then decreases throughout the entire effective demand.
E: The average total cost decreases throughout the entire effective demand.
answer
E: The average total cost decreases throughout the entire effective demand.
question
A firm with market power engages in price discrimination in order to
answer
increase profits
question
allocatively efficient quantity of output
answer
where demand intersects with mc
question
A monopolistically competitive firm's demand curve will be least elastic if
A: there are a large number of rival firms producing very similar products
B: there are a large number of rival firms producing more differentiated products
C: there are a small number of rival firms producing very similar products
D: there are a small number of rival firms producing more differentiated products
E: a monopolistically competitive firm's demand curve is perfectly elastic
A: there are a large number of rival firms producing very similar products
B: there are a large number of rival firms producing more differentiated products
C: there are a small number of rival firms producing very similar products
D: there are a small number of rival firms producing more differentiated products
E: a monopolistically competitive firm's demand curve is perfectly elastic
answer
D: there are a small number of rival firms producing more differentiated products
question
Monopolistically competitive markets are characterized by
answer
large number of firms
question
In monopolistic competition, a goal of advertising is to
answer
shift a firm's demand curve to the left
question
When two firms interact in an oligopolistic market, which of the following statements is true?
answer
If both firms have dominant strategies, then there is a Nash equilibrium.
question
Assume a monopoly has an increase in fixed costs and decides to stay in business. What will happen to that monopoly's deadweight loss and economic profit?
answer
Deadweight loss will remain the same and economic profit will decrease
question
A monopolist's demand curve is necessarily
answer
the same as the market demand curve
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