Applied Microeconomics Final

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Refer to the provided graph. If the firm is producing at Q1, the area 0ADQ1 represents

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total costs

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Marginal cost can be defined as the

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change in total cost resulting from one more unit of production.

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The short-run average total cost curve is U-shaped because

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of increasing and diminishing returns.

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Variable costs are

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costs that change with the level of production.

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The law of diminishing returns describes the

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relationship between resource inputs and product outputs in the short run.

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Refer to the diagram. If labor is the only variable input, the marginal product of labor is at a

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maximum at point a.

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The vertical distance between the total cost and the total variable cost curves differs by an amount that

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is constant as output changes.

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Refer to the diagram. The profit-maximizing level of output for this firm

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cannot be determined from the information given.

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Economic cost can best be defined as

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the income the firm must provide to resource suppliers to attract resources from alternative uses.

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As output increases, total variable cost

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increases at a decreasing rate and then at an increasing rate

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Economic profits are calculated by subtracting

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explicit and implicit costs from total revenue.

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Refer to the diagram. This firm's average fixed costs

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are the vertical distance between AVC and ATC.

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If the total variable cost of 9 units of output is $90 and the total variable cost of 10 units of output is $120, then

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the average variable cost of 9 units is $10.

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Because the marginal product of a variable resource at first increases and then decreases as the output of the firm is increased,

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total cost at first increases at a decreasing rate and then increases at an increasing rate.

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When total product is increasing at an increasing rate, marginal product is

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positive and increasing

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The law of diminishing returns results in

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a total product curve that eventually increases at a decreasing rate.

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Implicit and explicit costs are different in that

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the former refer to nonexpenditure costs and the latter to monetary payments.

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Refer to the provided graph. If the firm is producing at Q1, the area BADE represents

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total fixed costs.

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Refer to the diagram. Economies of scale

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develop over the 0Q1 range of output.

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If marginal cost is

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rising, then average total cost could be either falling or rising

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Marginal product is

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the change in total output attributable to the employment of one more worker.

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The vertical distance between a firm's ATC and AVC curves represents

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AFC, which decreases as output increases.

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The law of diminishing returns indicates that

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as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

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A natural monopoly is characterized by

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A natural monopoly is characterized by

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Normal profit is

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the return to the entrepreneur when economic profits are zero.

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Refer to the diagram. If labor is the only variable input, the average product of labor is at a

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maximum at point b.

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Over the range of output where the slope of the short-run total cost curve becomes steeper,

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marginal cost is increasing.

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A purely competitive firm's short-run supply curve is

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upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

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Refer to the accompanying graph for a purely competitive firm. When the firm is in equilibrium in the short run, its average fixed cost is

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DE.

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The short-run supply curve of a purely competitive producer is based primarily on its

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MC curve.

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The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in that industry is ______.

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downsloping; perfectly elastic

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Refer to the accompanying graph for a purely competitive firm operating at a loss in the short run. Which area in the graph represents the portion of total costs that the firm can recoup by continuing to produce rather than shutting down?

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0 beg

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A competitive firm will maximize profits at that output at which

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total revenue exceeds total cost by the greatest amount.

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Curve (1) in the diagram is a purely competitive firm's

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total economic profit curve.

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The accompanying table shows cost data for a firm that is selling in a purely competitive market. The firm will produce its output only if the price is at least equal to what minimum level?

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Refer to the accompanying graph for a purely competitive firm operating at a loss in the short run. Which of the following changes in its market would allow the firm to earn positive profits again?

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an increase in the market demand

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Marginal revenue is the

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change in total revenue associated with the sale of one more unit of output.

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A firm should continue to operate even at a loss in the short run if

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it can cover its variable costs and some of its fixed costs.

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In pure competition, price is determined where the industry

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demand and supply curves intersect.

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Refer to the diagram, which pertains to a purely competitive firm. Curve A represents

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total revenue only.

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Refer to the accompanying graph. If the market price for the product falls, then which of the curves would shift?

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In the provided diagram, at the profit-maximizing output, total profit is

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efbc.

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If a purely competitive firm shuts down in the short run,

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it will realize a loss equal to its total fixed costs.

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Refer to the diagram, which pertains to a purely competitive firm. Curve C represents

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average revenue and marginal revenue.

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Price is constant to the individual firm selling in a purely competitive market because

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each seller supplies a negligible fraction of total supply.

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The table shows the total costs for a purely competitive firm. If the product sells for $1,200 a unit, the firm's profit-maximizing output is

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The marginal revenue curve of a purely competitive firm

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is horizontal at the market price.

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Economists use the term imperfect competition to describe

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those markets that are not purely competitive.

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If a firm is a price taker, then the demand curve for the firm's product is

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perfectly elastic.

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Curve (2) in the diagram is a purely competitive firm's

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marginal revenue curve.

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If the market demand for the product increases, in the short run a purely competitive firm

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will earn higher profits or experience smaller losses as a result of the change in the market.

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Firms seek to maximize

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total profit.

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A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating

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marginal revenue and marginal cost.

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The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the product price is $290, the per-unit economic profit at the profit-maximizing output is

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$119

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Suppose that at 500 units of output, marginal revenue is equal to marginal cost. The firm is selling its output at $5 per unit, and average total cost at 500 units of output is $6. On the basis of this information, we

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cannot determine whether the firm should produce or shut down in the short run.

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In a graph for a firm in pure competition with the quantity of output measured on the horizontal axis, the total revenue curve is

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upward-sloping.

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If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue

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will also be $5.

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Refer to the provided graph for a purely competitive firm in the short run. Profits would be maximized if the firm produces which level of output?

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If at the MC = MR output, AVC exceeds price,

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some firms should shut down in the short run.

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The accompanying graph shows short-run cost curves for a competitive firm. At what price would the firm break even?

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The demand curve faced by a purely competitive firm

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is the same as its marginal revenue curve.

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The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $12, the competitive firm should produce

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zero units at an economic loss of $100.

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A perfectly elastic demand curve implies that the firm

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can sell as much output as it chooses at the existing price.

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Refer to the accompanying graph for a purely competitive firm operating at a loss in the short run. Which area in the graph represents the amount of economic loss for the firm?

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bcde

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The table shows the total costs for a purely competitive firm. If the product sells for $600 a unit, the firm's short run profit-maximizing (or loss-minimizing) output is

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The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $32, the competitive firm should produce

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8 units at an economic profit of $16.

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The lowest point on a purely competitive firm's short-run supply curve corresponds to

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the minimum point on its AVC curve.

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Refer to the accompanying graph for a purely competitive firm. When the firm is in equilibrium in the short run, the amount of economic profit per unit is

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EH.

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In the provided diagram, the profit-maximizing output

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is n.

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Because the monopolist's demand curve is downsloping,

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price must be lowered to sell more output.

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A price discriminating pure monopolist will attempt to charge each buyer (or group of buyers)

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the maximum price each would be willing to pay.

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If a price-discriminating monopolist sells the same product in two markets but charges a higher price in market X and a lower price in market Y, the pricing difference indicates that demand is

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less elastic in market X than in market Y.

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Network effects and simultaneous consumption tend to foster the development of

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monopoly power.

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"Price makers" refers to firms that

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face a downward-sloping demand curve.

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The supply curve of a pure monopolist

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does not exist because prices are not "given" to a monopolist.

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A pure monopolist is selling six units at a price of $12. If the marginal revenue of the seventh unit is $5, then the

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price of the seventh unit is $11.

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Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. We thus know that

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total revenue is increasing.

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The table shows the demand schedule facing Nina, a monopolist selling baskets. What is the change in total revenue if she raises the price from $10 to $12?

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-$120

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Refer to the long-run cost diagram for a firm. If the firm produces output Q2 at an average cost of ATC2, then the firm is

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incurring X-inefficiency but is producing that output at which all existing economies of scale might be realized.

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If a monopolist were to produce in the inelastic segment of its demand curve,

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the firm would not be maximizing profits.

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Refer to the diagram for a nondiscriminating monopolist. Marginal revenue will be zero at output

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Price discrimination refers to

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the selling of a given product to different customers at different prices that do not reflect cost differences.

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The region of demand in which the monopolist will choose a price-output combination will be

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elastic because, as price declines and output increases, total revenue will increase.

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A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that price

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will vertically intersect demand where MR = MC.

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Refer to the diagram for a pure monopolist. Monopoly price will be

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The supply curve for a monopolist is

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nonexistent.

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Refer to the diagram for a pure monopolist. Monopoly output will be

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X-inefficiency is said to occur when a monopolist's

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average cost is greater than the minimum possible average cost.

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If the profit-maximizing pure monopolist whose information is in the accompanying table is able to price discriminate, charging each customer the price associated with each given level of output, how much profit will the firm earn?

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$420

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Refer to the graph for a profit-maximizing monopolist. The firm will produce a quantity equal to the distance:

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Refer to the graph, which shows a total revenue curve for a monopolist. If total revenue declines as output expands, demand is

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inelastic.

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Refer to the diagram for a nondiscriminating monopolist. The profit-seeking monopolist will

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never produce an output larger than q2.

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Price discrimination is more common in service industries because

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low-price buyers will find it virtually impossible to resell the products of such industries to high-price buyers.

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The demand curve faced by a pure monopolist

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is less elastic than that faced by a single purely competitive firm.

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A pure monopoly firm will never charge a price in the inelastic range of its demand curve because lowering price to get into this region will

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decrease total revenue, increase total cost, and decrease profit.

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The table shows the demand schedule facing Nina, a monopolist selling baskets. What is the change in total revenue if she lowers the price from $20 to $18?

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$30

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Refer to the graph, which shows a total revenue curve for a monopolist. The profit-maximizing firm will produce in that output level where total revenue is

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rising.

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Refer to the graph, which shows a total revenue curve for a monopolist. If total revenue falls as output expands, marginal revenue is

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negative.

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Refer to the long-run cost diagram for a firm. If the firm produces output Q2 at an average cost of ATC3, then the firm is

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producing that output with the most efficient combination of inputs and is realizing all existing economies of scale.

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Refer to the graph for a profit-maximizing monopolist. At equilibrium, the firm will be earning

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positive profits.

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Which is true of a price-discriminating pure monopolist?

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Profit will be higher than in the nondiscriminating case.

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The vertical distance between the horizontal axis and any point on a nondiscriminating monopolist's demand curve measures

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product price and average revenue.

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Electric companies generally practice price discrimination and charge higher prices for electricity used for illumination and lower prices for electricity used for heat. These lower prices for electric heating result primarily from

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the existence of good heating substitutes.

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Refer to the graphs of D and MR for a monopolist. We know that to maximize profits the firm will set a price

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above P2.

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A purely monopolistic firm

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faces a downsloping demand curve.

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The quantitative difference between areas Q1bcQ2 and P1P2ba in the diagram measures

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marginal revenue.

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In the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal to

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marginal revenue.

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The table shows the demand schedule facing Nina, a monopolist selling baskets. If Nina had no production costs, what price would she charge to maximize profits?

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$10

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In the accompanying diagram, if price is reduced from P1 to P2, total revenue will

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increase by C −A.

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Refer to the diagram for a pure monopolist. Monopoly profit

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cannot be determined from the information given.

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If a pure monopolist is operating in a range of output where demand is elastic,

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marginal revenue will be positive but declining.

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For a pure nondiscriminating monopolist, marginal revenue is less than price because

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when a monopolist lowers price to sell more output, the lower price applies to all units sold.

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In the inelastic portion of a monopolist's demand curve, an increase in price will

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reduce output quantity, increase total revenue, and decrease total cost.

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In the accompanying diagram, the quantitative difference between areas A and C for reducing the price from P1 to P2 measures

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marginal revenue.

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A significant difference between a monopolistically competitive firm and a purely competitive firm is that the

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latter's demand curve is perfectly elastic.

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Excess capacity implies

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productive inefficiency

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Refer to the diagram for a monopolistically competitive firm. Long-run equilibrium price will be

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Product differentiation in monopolistic competition involves a trade-off between

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consumer choice and productive efficiency.

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Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be

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$16

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The variety of products and features that consumers may choose from in monopolistically competitive industries

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at least partially offsets the economic inefficiencies of this market structure.

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Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be

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160.

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Monopolistically competitive industries are inefficient because

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they are overpopulated with firms whose plants are underutilized.

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In the long run, a representative firm in a monopolistically competitive industry will end up

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earning a normal profit, but not an economic profit.

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Monopolistic competitive firms are productively inefficient because production occurs where

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average total cost is not at its lowest.

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In the long run, a profit-maximizing monopolistically competitive firm sets it price

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above marginal cost.

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A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from

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product differentiation.

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The larger the number of firms and the smaller the degree of product differentiation, the

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more elastic is the monopolistically competitive firm's demand curve.

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The economic inefficiencies of monopolistic competition may be offset by the fact that

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consumers have increased product variety.

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The demand curve of a monopolistically competitive producer is

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more elastic than that of a pure monopolist, but less elastic than that of a pure competitor.

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A significant benefit of monopolistic competition compared with pure competition is

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greater product variety.

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Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm will realize an economic

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profit of $480.

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In the long run, the economic profits for a monopolistically competitive firm will be

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the same as the profits for a purely competitive firm.

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Refer to the diagram for a monopolistically competitive firm. Long-run equilibrium output will be

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At long-run equilibrium in monopolistic competition, there is

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neither allocative nor productive efficiency.

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The long-run equilibrium position of the monopolistically competitive firm occurs at a point where average costs are

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decreasing.

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If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will

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shift to the right.

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The price elasticity of a monopolistically competitive firm's demand curve varies

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directly with the number of competitors but inversely with the degree of product differentiation.

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An important similarity between a monopolistically competitive firm and a pure monopolist is that both

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face demand curves that are less than perfectly elastic.

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In the short run, a profit-maximizing monopolistically competitive firm sets it price

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above marginal cost.

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A monopolistically competitive firm is operating at a short-run level of output where price is $21, average total cost is $15, marginal cost is $13, and marginal revenue is $13. In the short run this firm should

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not change the level of output.

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An important similarity between a monopolistically competitive firm and a purely competitive firm is that

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economic profit tends toward zero for both.

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Excess capacity refers to the

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amount by which actual production falls short of the minimum ATC output.

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In the long run, the representative firm in monopolistic competition tends to have

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excess capacity.

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In the short run, the price charged by a monopolistically competitive firm attempting to maximize profits

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may be either equal to ATC, less than ATC, or more than ATC.

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Compared to pure competition, monopolistic competition

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Compared to pure competition, monopolistic competition

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In the long-run equilibrium of a monopolistically competitive industry,

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P > minimum ATC.

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The more elastic a monopolistic competitor's long-run demand curve, the

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lower its average total cost at its profit-maximizing level of output.

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In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry will produce the quantity of output where

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ATC = P, MR = MC < P.

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In monopolistic competition there is an underallocation of resources at the profit-maximizing level of output, which means that

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price is greater than MC.

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The monopolistically competitive seller's demand curve will become more elastic the

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larger the number of competitors.

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Monopolistic competition is characterized by excess capacity because

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firms produce at an output level less than the least-cost output.

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A potential negative effect of advertising for society is that it can

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be self-canceling and contribute to economic inefficiency.

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If there are significant economies of scale in an industry, then

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a firm that is large may be able to produce at a lower unit cost than can a small firm.

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Oligopolistic industries are characterized by

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a few dominant firms and substantial entry barriers.

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Advertising can enhance economic efficiency when it

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expands sales such that firms achieve substantial economies of scale.

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The study of how people (or firms) behave in strategic situations is called

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game theory.

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Mutual interdependence means that each oligopolistic firm

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must consider the reactions of its rivals when it determines its price policy.

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A high concentration ratio indicates that

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few firms produce most of the output in an industry.

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If the four-firm concentration ratio for industry X is 60,

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the four largest firms account for 60 percent of total sales.

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The kinked-demand curve model helps to explain price rigidity because

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there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price.

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Concentration ratios

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may understate the degree of competition because they ignore imported products.

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Oligopolistic firms engage in collusion to

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earn greater profits

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Refer to the diagram for a non-collusive oligopolist. We assume that the firm is initially in equilibrium at point E, where the equilibrium price and quantity are P and Q. If the firm's rivals will ignore any price increase but match any price reduction, the firm's marginal revenue curve will be (moving from left to right)

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MR2abMR1.

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Collusion among oligopolistic firms

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Becomes more difficult if the firms all have different cost and demand curves

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Refer to the diagram for a non-collusive oligopolist. Suppose that the firm is initially in equilibrium at point E, where the equilibrium price and quantity are P and Q. Which of the following statements is correct?

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Demand curve D1 assumes that rivals will match any price change initiated by this oligopolist.

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A positive effect of advertising for society is that it

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provides useful information to reduce search cost for consumers.

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Differentiated oligopoly exists where a small number of firms are

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producing goods that differ in terms of quality and design.

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The kinked-demand curve of an oligopolist is based on the assumption that

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competitors will follow a price cut but ignore a price increase.

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The kinked-demand curve model of oligopoly is useful in explaining

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why oligopolistic prices might change infrequently.

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If an oligopoly is faced with a kinked-demand curve that is relatively elastic above and relatively inelastic below the going price, then it will

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decrease total revenue by either increasing or decreasing price.

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Advertising can impede economic efficiency when it

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leads to greater monopoly power.

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If enforcement of antitrust laws caused the two largest firms in this table to be divided in half, with each half having equal market share, the industry's four-firm concentration ratio would ____ and its Herfindahl index would ____.

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fall; fall

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Concentration ratios measure the

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percentage of total industry sales accounted for by the largest firms in the industry.

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The Herfindahl index for the industry described in this table is

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1,800.

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The effects of advertising on a firm's profits and efficiency

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may be positive or negative.

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Advertising can impede economic efficiency when it

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increases entry barriers.

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Homogeneous oligopoly exists where a small number of firms are

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producing virtually identical products.

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A defining characteristic of an oligopolistic market is that there are

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few sellers.

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An industry having a four-firm concentration ratio of 85 percent

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is an oligopoly.

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Advertising can enhance economic efficiency when it

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increases consumer awareness of substitute products.

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Clear-cut mutual interdependence with respect to the price-output policies exists in

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oligopoly.

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If competing oligopolists completely ignore oligopolist X's price changes, then X's

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demand curve will be more elastic than if the other oligopolists matched X's price changes.

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Oligopoly is more difficult to analyze than other market models because

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of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models.

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Refer to the diagram for a non-collusive oligopolist. Suppose that the firm is initially in equilibrium at point E, where the equilibrium price and quantity are P and Q. If the firm's rivals will ignore any price increase but match any price reduction, then the firm's demand curve will be (moving from left to right)

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D2ED1.

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In an oligopolistic market,

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products may be standardized or differentiated.

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Game theory is best suited to analyze the pricing behavior of

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oligopolists.

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The mutual interdependence that characterizes oligopoly arises because

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each firm in an oligopoly depends on its own pricing strategy and that of its rivals.

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Game theory

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is the analysis of how people (or firms) behave in strategic situations.

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The kinked-demand model of oligopoly assumes that

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rivals will ignore price increases but will match price cuts.

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The likelihood of a cartel being successful is greater when

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cost and demand curves of various participants are very similar.

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The kinked-demand curve model of oligopoly

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embodies the possibility that changes in unit costs will have no effect on equilibrium price and output.

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A low concentration ratio means that

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Each firm accounts for a small market share of the industry

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The term oligopoly indicates

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a few firms producing either a differentiated or a homogeneous product.

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Total fixed cost (TFC)

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does not change as total output increases or decreases.

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Refer to the diagram. Diseconomies of scale

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begin at output Q3.

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When total product is increasing at a decreasing rate, marginal product is

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positive and decreasing.

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Refer to the graph. A decrease in fixed costs is shown by

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the shift of the short-run average total cost curve from ATC2 to ATC1.

1 of 198

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Refer to the provided graph. If the firm is producing at Q1, the area 0ADQ1 represents

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total costs

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Marginal cost can be defined as the

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change in total cost resulting from one more unit of production.

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The short-run average total cost curve is U-shaped because

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of increasing and diminishing returns.

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Variable costs are

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costs that change with the level of production.

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The law of diminishing returns describes the

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relationship between resource inputs and product outputs in the short run.

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Refer to the diagram. If labor is the only variable input, the marginal product of labor is at a

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maximum at point a.

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The vertical distance between the total cost and the total variable cost curves differs by an amount that

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is constant as output changes.

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Refer to the diagram. The profit-maximizing level of output for this firm

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cannot be determined from the information given.

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Economic cost can best be defined as

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the income the firm must provide to resource suppliers to attract resources from alternative uses.

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As output increases, total variable cost

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increases at a decreasing rate and then at an increasing rate

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Economic profits are calculated by subtracting

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explicit and implicit costs from total revenue.

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Refer to the diagram. This firm's average fixed costs

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are the vertical distance between AVC and ATC.

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If the total variable cost of 9 units of output is $90 and the total variable cost of 10 units of output is $120, then

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the average variable cost of 9 units is $10.

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Because the marginal product of a variable resource at first increases and then decreases as the output of the firm is increased,

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total cost at first increases at a decreasing rate and then increases at an increasing rate.

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When total product is increasing at an increasing rate, marginal product is

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positive and increasing

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The law of diminishing returns results in

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a total product curve that eventually increases at a decreasing rate.

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Implicit and explicit costs are different in that

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the former refer to nonexpenditure costs and the latter to monetary payments.

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Refer to the provided graph. If the firm is producing at Q1, the area BADE represents

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total fixed costs.

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Refer to the diagram. Economies of scale

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develop over the 0Q1 range of output.

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If marginal cost is

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rising, then average total cost could be either falling or rising

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Marginal product is

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the change in total output attributable to the employment of one more worker.

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The vertical distance between a firm's ATC and AVC curves represents

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AFC, which decreases as output increases.

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The law of diminishing returns indicates that

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as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

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A natural monopoly is characterized by

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A natural monopoly is characterized by

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Normal profit is

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the return to the entrepreneur when economic profits are zero.

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Refer to the diagram. If labor is the only variable input, the average product of labor is at a

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maximum at point b.

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Over the range of output where the slope of the short-run total cost curve becomes steeper,

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marginal cost is increasing.

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A purely competitive firm's short-run supply curve is

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upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

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Refer to the accompanying graph for a purely competitive firm. When the firm is in equilibrium in the short run, its average fixed cost is

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DE.

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The short-run supply curve of a purely competitive producer is based primarily on its

answer

MC curve.

question

The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in that industry is ______.

answer

downsloping; perfectly elastic

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answer

0 beg

question

A competitive firm will maximize profits at that output at which

answer

total revenue exceeds total cost by the greatest amount.

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Curve (1) in the diagram is a purely competitive firm's

answer

total economic profit curve.

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The accompanying table shows cost data for a firm that is selling in a purely competitive market. The firm will produce its output only if the price is at least equal to what minimum level?

answer

question

Refer to the accompanying graph for a purely competitive firm operating at a loss in the short run. Which of the following changes in its market would allow the firm to earn positive profits again?

answer

an increase in the market demand

question

Marginal revenue is the

answer

change in total revenue associated with the sale of one more unit of output.

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A firm should continue to operate even at a loss in the short run if

answer

it can cover its variable costs and some of its fixed costs.

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In pure competition, price is determined where the industry

answer

demand and supply curves intersect.

question

Refer to the diagram, which pertains to a purely competitive firm. Curve A represents

answer

total revenue only.

question

Refer to the accompanying graph. If the market price for the product falls, then which of the curves would shift?

answer

question

In the provided diagram, at the profit-maximizing output, total profit is

answer

efbc.

question

If a purely competitive firm shuts down in the short run,

answer

it will realize a loss equal to its total fixed costs.

question

Refer to the diagram, which pertains to a purely competitive firm. Curve C represents

answer

average revenue and marginal revenue.

question

Price is constant to the individual firm selling in a purely competitive market because

answer

each seller supplies a negligible fraction of total supply.

question

The table shows the total costs for a purely competitive firm. If the product sells for $1,200 a unit, the firm's profit-maximizing output is

answer

question

The marginal revenue curve of a purely competitive firm

answer

is horizontal at the market price.

question

Economists use the term imperfect competition to describe

answer

those markets that are not purely competitive.

question

If a firm is a price taker, then the demand curve for the firm's product is

answer

perfectly elastic.

question

Curve (2) in the diagram is a purely competitive firm's

answer

marginal revenue curve.

question

If the market demand for the product increases, in the short run a purely competitive firm

answer

will earn higher profits or experience smaller losses as a result of the change in the market.

question

Firms seek to maximize

answer

total profit.

question

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating

answer

marginal revenue and marginal cost.

question

The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the product price is $290, the per-unit economic profit at the profit-maximizing output is

answer

$119

question

answer

cannot determine whether the firm should produce or shut down in the short run.

question

In a graph for a firm in pure competition with the quantity of output measured on the horizontal axis, the total revenue curve is

answer

upward-sloping.

question

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue

answer

will also be $5.

question

Refer to the provided graph for a purely competitive firm in the short run. Profits would be maximized if the firm produces which level of output?

answer

question

If at the MC = MR output, AVC exceeds price,

answer

some firms should shut down in the short run.

question

The accompanying graph shows short-run cost curves for a competitive firm. At what price would the firm break even?

answer

question

The demand curve faced by a purely competitive firm

answer

is the same as its marginal revenue curve.

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The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $12, the competitive firm should produce

answer

zero units at an economic loss of $100.

question

A perfectly elastic demand curve implies that the firm

answer

can sell as much output as it chooses at the existing price.

question

Refer to the accompanying graph for a purely competitive firm operating at a loss in the short run. Which area in the graph represents the amount of economic loss for the firm?

answer

bcde

question

The table shows the total costs for a purely competitive firm. If the product sells for $600 a unit, the firm's short run profit-maximizing (or loss-minimizing) output is

answer

question

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $32, the competitive firm should produce

answer

8 units at an economic profit of $16.

question

The lowest point on a purely competitive firm's short-run supply curve corresponds to

answer

the minimum point on its AVC curve.

question

Refer to the accompanying graph for a purely competitive firm. When the firm is in equilibrium in the short run, the amount of economic profit per unit is

answer

EH.

question

In the provided diagram, the profit-maximizing output

answer

is n.

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Because the monopolist's demand curve is downsloping,

answer

price must be lowered to sell more output.

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A price discriminating pure monopolist will attempt to charge each buyer (or group of buyers)

answer

the maximum price each would be willing to pay.

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If a price-discriminating monopolist sells the same product in two markets but charges a higher price in market X and a lower price in market Y, the pricing difference indicates that demand is

answer

less elastic in market X than in market Y.

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Network effects and simultaneous consumption tend to foster the development of

answer

monopoly power.

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"Price makers" refers to firms that

answer

face a downward-sloping demand curve.

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The supply curve of a pure monopolist

answer

does not exist because prices are not "given" to a monopolist.

question

A pure monopolist is selling six units at a price of $12. If the marginal revenue of the seventh unit is $5, then the

answer

price of the seventh unit is $11.

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Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. We thus know that

answer

total revenue is increasing.

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The table shows the demand schedule facing Nina, a monopolist selling baskets. What is the change in total revenue if she raises the price from $10 to $12?

answer

-$120

question

Refer to the long-run cost diagram for a firm. If the firm produces output Q2 at an average cost of ATC2, then the firm is

answer

incurring X-inefficiency but is producing that output at which all existing economies of scale might be realized.

question

If a monopolist were to produce in the inelastic segment of its demand curve,

answer

the firm would not be maximizing profits.

question

Refer to the diagram for a nondiscriminating monopolist. Marginal revenue will be zero at output

answer

question

Price discrimination refers to

answer

the selling of a given product to different customers at different prices that do not reflect cost differences.

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The region of demand in which the monopolist will choose a price-output combination will be

answer

elastic because, as price declines and output increases, total revenue will increase.

question

A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that price

answer

will vertically intersect demand where MR = MC.

question

Refer to the diagram for a pure monopolist. Monopoly price will be

answer

question

The supply curve for a monopolist is

answer

nonexistent.

question

Refer to the diagram for a pure monopolist. Monopoly output will be

answer

question

X-inefficiency is said to occur when a monopolist's

answer

average cost is greater than the minimum possible average cost.

question

answer

$420

question

Refer to the graph for a profit-maximizing monopolist. The firm will produce a quantity equal to the distance:

answer

question

Refer to the graph, which shows a total revenue curve for a monopolist. If total revenue declines as output expands, demand is

answer

inelastic.

question

Refer to the diagram for a nondiscriminating monopolist. The profit-seeking monopolist will

answer

never produce an output larger than q2.

question

Price discrimination is more common in service industries because

answer

low-price buyers will find it virtually impossible to resell the products of such industries to high-price buyers.

question

The demand curve faced by a pure monopolist

answer

is less elastic than that faced by a single purely competitive firm.

question

A pure monopoly firm will never charge a price in the inelastic range of its demand curve because lowering price to get into this region will

answer

decrease total revenue, increase total cost, and decrease profit.

question

The table shows the demand schedule facing Nina, a monopolist selling baskets. What is the change in total revenue if she lowers the price from $20 to $18?

answer

$30

question

Refer to the graph, which shows a total revenue curve for a monopolist. The profit-maximizing firm will produce in that output level where total revenue is

answer

rising.

question

Refer to the graph, which shows a total revenue curve for a monopolist. If total revenue falls as output expands, marginal revenue is

answer

negative.

question

Refer to the long-run cost diagram for a firm. If the firm produces output Q2 at an average cost of ATC3, then the firm is

answer

producing that output with the most efficient combination of inputs and is realizing all existing economies of scale.

question

Refer to the graph for a profit-maximizing monopolist. At equilibrium, the firm will be earning

answer

positive profits.

question

Which is true of a price-discriminating pure monopolist?

answer

Profit will be higher than in the nondiscriminating case.

question

The vertical distance between the horizontal axis and any point on a nondiscriminating monopolist's demand curve measures

answer

product price and average revenue.

question

answer

the existence of good heating substitutes.

question

Refer to the graphs of D and MR for a monopolist. We know that to maximize profits the firm will set a price

answer

above P2.

question

A purely monopolistic firm

answer

faces a downsloping demand curve.

question

The quantitative difference between areas Q1bcQ2 and P1P2ba in the diagram measures

answer

marginal revenue.

question

In the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal to

answer

marginal revenue.

question

The table shows the demand schedule facing Nina, a monopolist selling baskets. If Nina had no production costs, what price would she charge to maximize profits?

answer

$10

question

In the accompanying diagram, if price is reduced from P1 to P2, total revenue will

answer

increase by C −A.

question

Refer to the diagram for a pure monopolist. Monopoly profit

answer

cannot be determined from the information given.

question

If a pure monopolist is operating in a range of output where demand is elastic,

answer

marginal revenue will be positive but declining.

question

answer

question

For a pure nondiscriminating monopolist, marginal revenue is less than price because

answer

when a monopolist lowers price to sell more output, the lower price applies to all units sold.

question

In the inelastic portion of a monopolist's demand curve, an increase in price will

answer

reduce output quantity, increase total revenue, and decrease total cost.

question

In the accompanying diagram, the quantitative difference between areas A and C for reducing the price from P1 to P2 measures

answer

marginal revenue.

question

A significant difference between a monopolistically competitive firm and a purely competitive firm is that the

answer

latter's demand curve is perfectly elastic.

question

Excess capacity implies

answer

productive inefficiency

question

Refer to the diagram for a monopolistically competitive firm. Long-run equilibrium price will be

answer

question

Product differentiation in monopolistic competition involves a trade-off between

answer

consumer choice and productive efficiency.

question

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be

answer

$16

question

The variety of products and features that consumers may choose from in monopolistically competitive industries

answer

at least partially offsets the economic inefficiencies of this market structure.

question

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be

answer

160.

question

Monopolistically competitive industries are inefficient because

answer

they are overpopulated with firms whose plants are underutilized.

question

In the long run, a representative firm in a monopolistically competitive industry will end up

answer

earning a normal profit, but not an economic profit.

question

Monopolistic competitive firms are productively inefficient because production occurs where

answer

average total cost is not at its lowest.

question

In the long run, a profit-maximizing monopolistically competitive firm sets it price

answer

above marginal cost.

question

A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from

answer

product differentiation.

question

The larger the number of firms and the smaller the degree of product differentiation, the

answer

more elastic is the monopolistically competitive firm's demand curve.

question

The economic inefficiencies of monopolistic competition may be offset by the fact that

answer

consumers have increased product variety.

question

The demand curve of a monopolistically competitive producer is

answer

more elastic than that of a pure monopolist, but less elastic than that of a pure competitor.

question

A significant benefit of monopolistic competition compared with pure competition is

answer

greater product variety.

question

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm will realize an economic

answer

profit of $480.

question

In the long run, the economic profits for a monopolistically competitive firm will be

answer

the same as the profits for a purely competitive firm.

question

Refer to the diagram for a monopolistically competitive firm. Long-run equilibrium output will be

answer

question

At long-run equilibrium in monopolistic competition, there is

answer

neither allocative nor productive efficiency.

question

The long-run equilibrium position of the monopolistically competitive firm occurs at a point where average costs are

answer

decreasing.

question

If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will

answer

shift to the right.

question

The price elasticity of a monopolistically competitive firm's demand curve varies

answer

directly with the number of competitors but inversely with the degree of product differentiation.

question

An important similarity between a monopolistically competitive firm and a pure monopolist is that both

answer

face demand curves that are less than perfectly elastic.

question

In the short run, a profit-maximizing monopolistically competitive firm sets it price

answer

above marginal cost.

question

answer

not change the level of output.

question

An important similarity between a monopolistically competitive firm and a purely competitive firm is that

answer

economic profit tends toward zero for both.

question

Excess capacity refers to the

answer

amount by which actual production falls short of the minimum ATC output.

question

In the long run, the representative firm in monopolistic competition tends to have

answer

excess capacity.

question

In the short run, the price charged by a monopolistically competitive firm attempting to maximize profits

answer

may be either equal to ATC, less than ATC, or more than ATC.

question

Compared to pure competition, monopolistic competition

answer

Compared to pure competition, monopolistic competition

question

In the long-run equilibrium of a monopolistically competitive industry,

answer

P > minimum ATC.

question

The more elastic a monopolistic competitor's long-run demand curve, the

answer

lower its average total cost at its profit-maximizing level of output.

question

In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry will produce the quantity of output where

answer

ATC = P, MR = MC < P.

question

In monopolistic competition there is an underallocation of resources at the profit-maximizing level of output, which means that

answer

price is greater than MC.

question

The monopolistically competitive seller's demand curve will become more elastic the

answer

larger the number of competitors.

question

Monopolistic competition is characterized by excess capacity because

answer

firms produce at an output level less than the least-cost output.

question

A potential negative effect of advertising for society is that it can

answer

be self-canceling and contribute to economic inefficiency.

question

If there are significant economies of scale in an industry, then

answer

a firm that is large may be able to produce at a lower unit cost than can a small firm.

question

Oligopolistic industries are characterized by

answer

a few dominant firms and substantial entry barriers.

question

Advertising can enhance economic efficiency when it

answer

expands sales such that firms achieve substantial economies of scale.

question

The study of how people (or firms) behave in strategic situations is called

answer

game theory.

question

Mutual interdependence means that each oligopolistic firm

answer

must consider the reactions of its rivals when it determines its price policy.

question

A high concentration ratio indicates that

answer

few firms produce most of the output in an industry.

question

If the four-firm concentration ratio for industry X is 60,

answer

the four largest firms account for 60 percent of total sales.

question

The kinked-demand curve model helps to explain price rigidity because

answer

there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price.

question

Concentration ratios

answer

may understate the degree of competition because they ignore imported products.

question

Oligopolistic firms engage in collusion to

answer

earn greater profits

question

answer

MR2abMR1.

question

Collusion among oligopolistic firms

answer

Becomes more difficult if the firms all have different cost and demand curves

question

answer

Demand curve D1 assumes that rivals will match any price change initiated by this oligopolist.

question

A positive effect of advertising for society is that it

answer

provides useful information to reduce search cost for consumers.

question

Differentiated oligopoly exists where a small number of firms are

answer

producing goods that differ in terms of quality and design.

question

The kinked-demand curve of an oligopolist is based on the assumption that

answer

competitors will follow a price cut but ignore a price increase.

question

The kinked-demand curve model of oligopoly is useful in explaining

answer

why oligopolistic prices might change infrequently.

question

If an oligopoly is faced with a kinked-demand curve that is relatively elastic above and relatively inelastic below the going price, then it will

answer

decrease total revenue by either increasing or decreasing price.

question

Advertising can impede economic efficiency when it

answer

leads to greater monopoly power.

question

answer

fall; fall

question

Concentration ratios measure the

answer

percentage of total industry sales accounted for by the largest firms in the industry.

question

The Herfindahl index for the industry described in this table is

answer

1,800.

question

The effects of advertising on a firm's profits and efficiency

answer

may be positive or negative.

question

Advertising can impede economic efficiency when it

answer

increases entry barriers.

question

Homogeneous oligopoly exists where a small number of firms are

answer

producing virtually identical products.

question

A defining characteristic of an oligopolistic market is that there are

answer

few sellers.

question

An industry having a four-firm concentration ratio of 85 percent

answer

is an oligopoly.

question

Advertising can enhance economic efficiency when it

answer

increases consumer awareness of substitute products.

question

Clear-cut mutual interdependence with respect to the price-output policies exists in

answer

oligopoly.

question

If competing oligopolists completely ignore oligopolist X's price changes, then X's

answer

demand curve will be more elastic than if the other oligopolists matched X's price changes.

question

Oligopoly is more difficult to analyze than other market models because

answer

of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models.

question

answer

D2ED1.

question

In an oligopolistic market,

answer

products may be standardized or differentiated.

question

Game theory is best suited to analyze the pricing behavior of

answer

oligopolists.

question

The mutual interdependence that characterizes oligopoly arises because

answer

each firm in an oligopoly depends on its own pricing strategy and that of its rivals.

question

Game theory

answer

is the analysis of how people (or firms) behave in strategic situations.

question

The kinked-demand model of oligopoly assumes that

answer

rivals will ignore price increases but will match price cuts.

question

The likelihood of a cartel being successful is greater when

answer

cost and demand curves of various participants are very similar.

question

The kinked-demand curve model of oligopoly

answer

embodies the possibility that changes in unit costs will have no effect on equilibrium price and output.

question

A low concentration ratio means that

answer

Each firm accounts for a small market share of the industry

question

The term oligopoly indicates

answer

a few firms producing either a differentiated or a homogeneous product.

question

Total fixed cost (TFC)

answer

does not change as total output increases or decreases.

question

Refer to the diagram. Diseconomies of scale

answer

begin at output Q3.

question

When total product is increasing at a decreasing rate, marginal product is

answer

positive and decreasing.

question

Refer to the graph. A decrease in fixed costs is shown by

answer

the shift of the short-run average total cost curve from ATC2 to ATC1.

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Applied Microeconomics Final

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