Applied Microeconomics Final - Custom Scholars
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# Applied Microeconomics Final

question
Refer to the provided graph. If the firm is producing at Q1, the area 0ADQ1 represents
total costs
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Marginal cost can be defined as the
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
of increasing and diminishing returns.
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Variable costs are
costs that change with the level of production.
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The law of diminishing returns describes the
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
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
is constant as output changes.
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Refer to the diagram. The profit-maximizing level of output for this firm
cannot be determined from the information given.
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Economic cost can best be defined as
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
increases at a decreasing rate and then at an increasing rate
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Economic profits are calculated by subtracting
explicit and implicit costs from total revenue.
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Refer to the diagram. This firm's average fixed costs
are the vertical distance between AVC and ATC.
question
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
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,
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
positive and increasing
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The law of diminishing returns results in
a total product curve that eventually increases at a decreasing rate.
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Implicit and explicit costs are different in that
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
total fixed costs.
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Refer to the diagram. Economies of scale
develop over the 0Q1 range of output.
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If marginal cost is
rising, then average total cost could be either falling or rising
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Marginal product is
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
AFC, which decreases as output increases.
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The law of diminishing returns indicates that
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
A natural monopoly is characterized by
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Normal profit is
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Refer to the diagram. If labor is the only variable input, the average product of labor is at a
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,
marginal cost is increasing.
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A purely competitive firm's short-run supply curve is
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
DE.
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The short-run supply curve of a purely competitive producer is based primarily on its
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 ______.
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?
0 beg
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A competitive firm will maximize profits at that output at which
total revenue exceeds total cost by the greatest amount.
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Curve (1) in the diagram is a purely competitive firm's
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?
\$4
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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?
an increase in the market demand
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Marginal revenue is the
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
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
demand and supply curves intersect.
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Refer to the diagram, which pertains to a purely competitive firm. Curve A represents
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?
D
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In the provided diagram, at the profit-maximizing output, total profit is
efbc.
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If a purely competitive firm shuts down in the short run,
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
average revenue and marginal revenue.
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Price is constant to the individual firm selling in a purely competitive market because
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
4.
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The marginal revenue curve of a purely competitive firm
is horizontal at the market price.
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Economists use the term imperfect competition to describe
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
perfectly elastic.
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Curve (2) in the diagram is a purely competitive firm's
marginal revenue curve.
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If the market demand for the product increases, in the short run a purely competitive firm
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
total profit.
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A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating
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
\$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
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
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
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?
B
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If at the MC = MR output, AVC exceeds price,
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?
P4
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The demand curve faced by a purely competitive firm
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
zero units at an economic loss of \$100.
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A perfectly elastic demand curve implies that the firm
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?
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
3.
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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
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
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
EH.
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In the provided diagram, the profit-maximizing output
is n.
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Because the monopolist's demand curve is downsloping,
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)
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
less elastic in market X than in market Y.
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Network effects and simultaneous consumption tend to foster the development of
monopoly power.
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"Price makers" refers to firms that
face a downward-sloping demand curve.
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The supply curve of a pure monopolist
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
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
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?
-\$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
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,
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
q2
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Price discrimination refers to
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
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
will vertically intersect demand where MR = MC.
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Refer to the diagram for a pure monopolist. Monopoly price will be
c.
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The supply curve for a monopolist is
nonexistent.
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Refer to the diagram for a pure monopolist. Monopoly output will be
f.
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X-inefficiency is said to occur when a monopolist's
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?
\$420
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Refer to the graph for a profit-maximizing monopolist. The firm will produce a quantity equal to the distance:
0V
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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
inelastic.
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Refer to the diagram for a nondiscriminating monopolist. The profit-seeking monopolist will
never produce an output larger than q2.
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Price discrimination is more common in service industries because
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
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
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?
\$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
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
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
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
positive profits.
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Which is true of a price-discriminating pure monopolist?
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
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
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
above P2.
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A purely monopolistic firm
faces a downsloping demand curve.
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The quantitative difference between areas Q1bcQ2 and P1P2ba in the diagram measures
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
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?
\$10
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In the accompanying diagram, if price is reduced from P1 to P2, total revenue will
increase by C −A.
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Refer to the diagram for a pure monopolist. Monopoly profit
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,
marginal revenue will be positive but declining.
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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 many units will the firm produce?
4
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For a pure nondiscriminating monopolist, marginal revenue is less than price because
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
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
marginal revenue.
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A significant difference between a monopolistically competitive firm and a purely competitive firm is that the
latter's demand curve is perfectly elastic.
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Excess capacity implies
productive inefficiency
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Refer to the diagram for a monopolistically competitive firm. Long-run equilibrium price will be
A
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Product differentiation in monopolistic competition involves a trade-off between
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
\$16
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The variety of products and features that consumers may choose from in monopolistically competitive industries
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
160.
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Monopolistically competitive industries are inefficient because
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
earning a normal profit, but not an economic profit.
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Monopolistic competitive firms are productively inefficient because production occurs where
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
above marginal cost.
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A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from
product differentiation.
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The larger the number of firms and the smaller the degree of product differentiation, the
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
consumers have increased product variety.
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The demand curve of a monopolistically competitive producer is
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
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
profit of \$480.
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In the long run, the economic profits for a monopolistically competitive firm will be
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
D
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At long-run equilibrium in monopolistic competition, there is
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
decreasing.
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If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will
shift to the right.
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The price elasticity of a monopolistically competitive firm's demand curve varies
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
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
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
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
economic profit tends toward zero for both.
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Excess capacity refers to the
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
excess capacity.
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In the short run, the price charged by a monopolistically competitive firm attempting to maximize profits
may be either equal to ATC, less than ATC, or more than ATC.
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Compared to pure competition, monopolistic competition
Compared to pure competition, monopolistic competition
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In the long-run equilibrium of a monopolistically competitive industry,
P > minimum ATC.
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The more elastic a monopolistic competitor's long-run demand curve, the
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
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
price is greater than MC.
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The monopolistically competitive seller's demand curve will become more elastic the
larger the number of competitors.
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Monopolistic competition is characterized by excess capacity because
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
be self-canceling and contribute to economic inefficiency.
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If there are significant economies of scale in an industry, then
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
a few dominant firms and substantial entry barriers.
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Advertising can enhance economic efficiency when it
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
game theory.
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Mutual interdependence means that each oligopolistic firm
must consider the reactions of its rivals when it determines its price policy.
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A high concentration ratio indicates that
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,
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
there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price.
question
Concentration ratios
may understate the degree of competition because they ignore imported products.
question
Oligopolistic firms engage in collusion to
earn greater profits
question
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)
MR2abMR1.
question
Collusion among oligopolistic firms
Becomes more difficult if the firms all have different cost and demand curves
question
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?
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
provides useful information to reduce search cost for consumers.
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Differentiated oligopoly exists where a small number of firms are
producing goods that differ in terms of quality and design.
question
The kinked-demand curve of an oligopolist is based on the assumption that
competitors will follow a price cut but ignore a price increase.
question
The kinked-demand curve model of oligopoly is useful in explaining
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
decrease total revenue by either increasing or decreasing price.
question
Advertising can impede economic efficiency when it
question
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 ____.
fall; fall
question
Concentration ratios measure the
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
1,800.
question
The effects of advertising on a firm's profits and efficiency
may be positive or negative.
question
Advertising can impede economic efficiency when it
increases entry barriers.
question
Homogeneous oligopoly exists where a small number of firms are
producing virtually identical products.
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A defining characteristic of an oligopolistic market is that there are
few sellers.
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An industry having a four-firm concentration ratio of 85 percent
is an oligopoly.
question
Advertising can enhance economic efficiency when it
increases consumer awareness of substitute products.
question
Clear-cut mutual interdependence with respect to the price-output policies exists in
oligopoly.
question
If competing oligopolists completely ignore oligopolist X's price changes, then X's
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
of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models.
question
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)
D2ED1.
question
In an oligopolistic market,
products may be standardized or differentiated.
question
Game theory is best suited to analyze the pricing behavior of
oligopolists.
question
The mutual interdependence that characterizes oligopoly arises because
each firm in an oligopoly depends on its own pricing strategy and that of its rivals.
question
Game theory
is the analysis of how people (or firms) behave in strategic situations.
question
The kinked-demand model of oligopoly assumes that
rivals will ignore price increases but will match price cuts.
question
The likelihood of a cartel being successful is greater when
cost and demand curves of various participants are very similar.
question
The kinked-demand curve model of oligopoly
embodies the possibility that changes in unit costs will have no effect on equilibrium price and output.
question
A low concentration ratio means that
Each firm accounts for a small market share of the industry
question
The term oligopoly indicates
a few firms producing either a differentiated or a homogeneous product.
question
Total fixed cost (TFC)
does not change as total output increases or decreases.
question
Refer to the diagram. Diseconomies of scale
begin at output Q3.
question
When total product is increasing at a decreasing rate, marginal product is
positive and decreasing.
question
Refer to the graph. A decrease in fixed costs is shown by
the shift of the short-run average total cost curve from ATC2 to ATC1.
1 of 198
question
Refer to the provided graph. If the firm is producing at Q1, the area 0ADQ1 represents
total costs
question
Marginal cost can be defined as the
change in total cost resulting from one more unit of production.
question
The short-run average total cost curve is U-shaped because
of increasing and diminishing returns.
question
Variable costs are
costs that change with the level of production.
question
The law of diminishing returns describes the
relationship between resource inputs and product outputs in the short run.
question
Refer to the diagram. If labor is the only variable input, the marginal product of labor is at a
maximum at point a.
question
The vertical distance between the total cost and the total variable cost curves differs by an amount that
is constant as output changes.
question
Refer to the diagram. The profit-maximizing level of output for this firm
cannot be determined from the information given.
question
Economic cost can best be defined as
the income the firm must provide to resource suppliers to attract resources from alternative uses.
question
As output increases, total variable cost
increases at a decreasing rate and then at an increasing rate
question
Economic profits are calculated by subtracting
explicit and implicit costs from total revenue.
question
Refer to the diagram. This firm's average fixed costs
are the vertical distance between AVC and ATC.
question
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
the average variable cost of 9 units is \$10.
question
Because the marginal product of a variable resource at first increases and then decreases as the output of the firm is increased,
total cost at first increases at a decreasing rate and then increases at an increasing rate.
question
When total product is increasing at an increasing rate, marginal product is
positive and increasing
question
The law of diminishing returns results in
a total product curve that eventually increases at a decreasing rate.
question
Implicit and explicit costs are different in that
the former refer to nonexpenditure costs and the latter to monetary payments.
question
Refer to the provided graph. If the firm is producing at Q1, the area BADE represents
total fixed costs.
question
Refer to the diagram. Economies of scale
develop over the 0Q1 range of output.
question
If marginal cost is
rising, then average total cost could be either falling or rising
question
Marginal product is
the change in total output attributable to the employment of one more worker.
question
The vertical distance between a firm's ATC and AVC curves represents
AFC, which decreases as output increases.
question
The law of diminishing returns indicates that
as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.
question
A natural monopoly is characterized by
A natural monopoly is characterized by
question
Normal profit is
question
Refer to the diagram. If labor is the only variable input, the average product of labor is at a
maximum at point b.
question
Over the range of output where the slope of the short-run total cost curve becomes steeper,
marginal cost is increasing.
question
A purely competitive firm's short-run supply curve is
upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.
question
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
DE.
question
The short-run supply curve of a purely competitive producer is based primarily on its
MC curve.
question
The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in that industry is ______.
downsloping; perfectly elastic
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 portion of total costs that the firm can recoup by continuing to produce rather than shutting down?
0 beg
question
A competitive firm will maximize profits at that output at which
total revenue exceeds total cost by the greatest amount.
question
Curve (1) in the diagram is a purely competitive firm's
total economic profit curve.
question
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?
\$4
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?
an increase in the market demand
question
Marginal revenue is the
change in total revenue associated with the sale of one more unit of output.
question
A firm should continue to operate even at a loss in the short run if
it can cover its variable costs and some of its fixed costs.
question
In pure competition, price is determined where the industry
demand and supply curves intersect.
question
Refer to the diagram, which pertains to a purely competitive firm. Curve A represents
total revenue only.
question
Refer to the accompanying graph. If the market price for the product falls, then which of the curves would shift?
D
question
In the provided diagram, at the profit-maximizing output, total profit is
efbc.
question
If a purely competitive firm shuts down in the short run,
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
average revenue and marginal revenue.
question
Price is constant to the individual firm selling in a purely competitive market because
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
4.
question
The marginal revenue curve of a purely competitive firm
is horizontal at the market price.
question
Economists use the term imperfect competition to describe
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
perfectly elastic.
question
Curve (2) in the diagram is a purely competitive firm's
marginal revenue curve.
question
If the market demand for the product increases, in the short run a purely competitive firm
will earn higher profits or experience smaller losses as a result of the change in the market.
question
Firms seek to maximize
total profit.
question
A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating
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
\$119
question
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
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
upward-sloping.
question
If a firm in a purely competitive industry is confronted with an equilibrium price of \$5, its marginal revenue
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?
B
question
If at the MC = MR output, AVC exceeds price,
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?
P4
question
The demand curve faced by a purely competitive firm
is the same as its marginal revenue curve.
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 \$12, the competitive firm should produce
zero units at an economic loss of \$100.
question
A perfectly elastic demand curve implies that the firm
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?
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
3.
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
8 units at an economic profit of \$16.
question
The lowest point on a purely competitive firm's short-run supply curve corresponds to
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
EH.
question
In the provided diagram, the profit-maximizing output
is n.
question
Because the monopolist's demand curve is downsloping,
price must be lowered to sell more output.
question
A price discriminating pure monopolist will attempt to charge each buyer (or group of buyers)
the maximum price each would be willing to pay.
question
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
less elastic in market X than in market Y.
question
Network effects and simultaneous consumption tend to foster the development of
monopoly power.
question
"Price makers" refers to firms that
face a downward-sloping demand curve.
question
The supply curve of a pure monopolist
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
price of the seventh unit is \$11.
question
Suppose a pure monopolist is charging a price of \$12 and the associated marginal revenue is \$9. We thus know that
total revenue is increasing.
question
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?
-\$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
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,
the firm would not be maximizing profits.
question
Refer to the diagram for a nondiscriminating monopolist. Marginal revenue will be zero at output
q2
question
Price discrimination refers to
the selling of a given product to different customers at different prices that do not reflect cost differences.
question
The region of demand in which the monopolist will choose a price-output combination will be
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
will vertically intersect demand where MR = MC.
question
Refer to the diagram for a pure monopolist. Monopoly price will be
c.
question
The supply curve for a monopolist is
nonexistent.
question
Refer to the diagram for a pure monopolist. Monopoly output will be
f.
question
X-inefficiency is said to occur when a monopolist's
average cost is greater than the minimum possible average cost.
question
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?
\$420
question
Refer to the graph for a profit-maximizing monopolist. The firm will produce a quantity equal to the distance:
0V
question
Refer to the graph, which shows a total revenue curve for a monopolist. If total revenue declines as output expands, demand is
inelastic.
question
Refer to the diagram for a nondiscriminating monopolist. The profit-seeking monopolist will
never produce an output larger than q2.
question
Price discrimination is more common in service industries because
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
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
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?
\$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
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
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
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
positive profits.
question
Which is true of a price-discriminating pure monopolist?
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
product price and average revenue.
question
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
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
above P2.
question
A purely monopolistic firm
faces a downsloping demand curve.
question
The quantitative difference between areas Q1bcQ2 and P1P2ba in the diagram measures
marginal revenue.
question
In the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal to
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?
\$10
question
In the accompanying diagram, if price is reduced from P1 to P2, total revenue will
increase by C −A.
question
Refer to the diagram for a pure monopolist. Monopoly profit
cannot be determined from the information given.
question
If a pure monopolist is operating in a range of output where demand is elastic,
marginal revenue will be positive but declining.
question
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 many units will the firm produce?
4
question
For a pure nondiscriminating monopolist, marginal revenue is less than price because
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
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
marginal revenue.
question
A significant difference between a monopolistically competitive firm and a purely competitive firm is that the
latter's demand curve is perfectly elastic.
question
Excess capacity implies
productive inefficiency
question
Refer to the diagram for a monopolistically competitive firm. Long-run equilibrium price will be
A
question
Product differentiation in monopolistic competition involves a trade-off between
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
\$16
question
The variety of products and features that consumers may choose from in monopolistically competitive industries
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
160.
question
Monopolistically competitive industries are inefficient because
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
earning a normal profit, but not an economic profit.
question
Monopolistic competitive firms are productively inefficient because production occurs where
average total cost is not at its lowest.
question
In the long run, a profit-maximizing monopolistically competitive firm sets it price
above marginal cost.
question
A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from
product differentiation.
question
The larger the number of firms and the smaller the degree of product differentiation, the
more elastic is the monopolistically competitive firm's demand curve.
question
The economic inefficiencies of monopolistic competition may be offset by the fact that
consumers have increased product variety.
question
The demand curve of a monopolistically competitive producer is
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
greater product variety.
question
Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm will realize an economic
profit of \$480.
question
In the long run, the economic profits for a monopolistically competitive firm will be
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
D
question
At long-run equilibrium in monopolistic competition, there is
neither allocative nor productive efficiency.
question
The long-run equilibrium position of the monopolistically competitive firm occurs at a point where average costs are
decreasing.
question
If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will
shift to the right.
question
The price elasticity of a monopolistically competitive firm's demand curve varies
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
face demand curves that are less than perfectly elastic.
question
In the short run, a profit-maximizing monopolistically competitive firm sets it price
above marginal cost.
question
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
not change the level of output.
question
An important similarity between a monopolistically competitive firm and a purely competitive firm is that
economic profit tends toward zero for both.
question
Excess capacity refers to the
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
excess capacity.
question
In the short run, the price charged by a monopolistically competitive firm attempting to maximize profits
may be either equal to ATC, less than ATC, or more than ATC.
question
Compared to pure competition, monopolistic competition
Compared to pure competition, monopolistic competition
question
In the long-run equilibrium of a monopolistically competitive industry,
P > minimum ATC.
question
The more elastic a monopolistic competitor's long-run demand curve, the
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
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
price is greater than MC.
question
The monopolistically competitive seller's demand curve will become more elastic the
larger the number of competitors.
question
Monopolistic competition is characterized by excess capacity because
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
be self-canceling and contribute to economic inefficiency.
question
If there are significant economies of scale in an industry, then
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
a few dominant firms and substantial entry barriers.
question
Advertising can enhance economic efficiency when it
expands sales such that firms achieve substantial economies of scale.
question
The study of how people (or firms) behave in strategic situations is called
game theory.
question
Mutual interdependence means that each oligopolistic firm
must consider the reactions of its rivals when it determines its price policy.
question
A high concentration ratio indicates that
few firms produce most of the output in an industry.
question
If the four-firm concentration ratio for industry X is 60,
the four largest firms account for 60 percent of total sales.
question
The kinked-demand curve model helps to explain price rigidity because
there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price.
question
Concentration ratios
may understate the degree of competition because they ignore imported products.
question
Oligopolistic firms engage in collusion to
earn greater profits
question
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)
MR2abMR1.
question
Collusion among oligopolistic firms
Becomes more difficult if the firms all have different cost and demand curves
question
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?
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
provides useful information to reduce search cost for consumers.
question
Differentiated oligopoly exists where a small number of firms are
producing goods that differ in terms of quality and design.
question
The kinked-demand curve of an oligopolist is based on the assumption that
competitors will follow a price cut but ignore a price increase.
question
The kinked-demand curve model of oligopoly is useful in explaining
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
decrease total revenue by either increasing or decreasing price.
question
Advertising can impede economic efficiency when it
question
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 ____.
fall; fall
question
Concentration ratios measure the
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
1,800.
question
The effects of advertising on a firm's profits and efficiency
may be positive or negative.
question
Advertising can impede economic efficiency when it
increases entry barriers.
question
Homogeneous oligopoly exists where a small number of firms are
producing virtually identical products.
question
A defining characteristic of an oligopolistic market is that there are
few sellers.
question
An industry having a four-firm concentration ratio of 85 percent
is an oligopoly.
question
Advertising can enhance economic efficiency when it
increases consumer awareness of substitute products.
question
Clear-cut mutual interdependence with respect to the price-output policies exists in
oligopoly.
question
If competing oligopolists completely ignore oligopolist X's price changes, then X's
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
of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models.
question
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)
D2ED1.
question
In an oligopolistic market,
products may be standardized or differentiated.
question
Game theory is best suited to analyze the pricing behavior of
oligopolists.
question
The mutual interdependence that characterizes oligopoly arises because
each firm in an oligopoly depends on its own pricing strategy and that of its rivals.
question
Game theory
is the analysis of how people (or firms) behave in strategic situations.
question
The kinked-demand model of oligopoly assumes that
rivals will ignore price increases but will match price cuts.
question
The likelihood of a cartel being successful is greater when
cost and demand curves of various participants are very similar.
question
The kinked-demand curve model of oligopoly
embodies the possibility that changes in unit costs will have no effect on equilibrium price and output.
question
A low concentration ratio means that
Each firm accounts for a small market share of the industry
question
The term oligopoly indicates
a few firms producing either a differentiated or a homogeneous product.
question
Total fixed cost (TFC)
does not change as total output increases or decreases.
question
Refer to the diagram. Diseconomies of scale
begin at output Q3.
question
When total product is increasing at a decreasing rate, marginal product is
positive and decreasing.
question
Refer to the graph. A decrease in fixed costs is shown by
the shift of the short-run average total cost curve from ATC2 to ATC1.

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