Econ. Exam 2

question

The assumptions of perfect competition imply that:

answer

firms in the market accept the market price as given.

question

If a Florida strawberry wholesaler operates in a perfectly competitive market, that wholesaler will have a
________ share of the market, and consumers will consider her strawberries to be ________. Therefore, ________ advertising will take place in this market.

answer

small; standardized; little if any

question

The market for breakfast cereal contains hundreds of similar products, such as Froot Loops, Corn Flakes,
and Rice Krispies, that are considered to be different products by different buyers. This situation violates the
perfect competition assumption of:

answer

a standardized product.

question

The difference between total revenue and total cost is:

answer

economic profit or loss.

question

If a perfectly competitive gardening shop sells 30 evergreen bushes at a price of $10 per bush, its marginal
revenue is:

answer

$10.

question

If the regulation of a monopoly results in a price equal to marginal cost but the price is below average total cost:

answer

the firm will require subsidization or it will go out of business

question

One government policy for dealing with a natural monopoly is to

answer

impose a price ceiling to reduce economic profit.

question

The owners of the gas stations in a town are trying to set up a cartel that will raise the price of gasoline. Which of the following will increase the chances that the cartel will fail because of cheating by the owners?

answer

The gas stations vary in terms of the services that they provide.

question

When firms openly agree on price and output and they jointly make other decisions aimed at achieving monopoly profits, those firms are practicing:

answer

overt collusion

question

If the only two firms in an industry agree to fix the price at a given level, this is an example of:

answer

collusion.

question

In perfect competition, the firm produces the output such that ________, and in monopoly, the firm produces the output such that ________.

answer

P = MR = MC; P > MR = MC

question

Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can charge only $20,000 each. The quantity effect of selling the sixth motor home is:

answer

$20,000

question

The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm
produces 10,000 guidebooks for an average total cost of $38, marginal cost of $30, and average variable cost of
$30. Our firm should:

answer

produce more guidebooks, because the next guidebook produced increases profit by $5.

question

Situations in which the more users of a product there are, the more useful the product becomes are

answer

network effects

question

The land you own has the only known source of aloe needed to make anti-itch lotion. In this case, your monopoly results from:

answer

ownership of scarce inputs.

question

Most electric, gas, and water companies are examples of:

answer

natural monopolies.

question

A monopolist is likely to produce ________ and charge ________ than a comparable perfectly competitive firm.

answer

less; more

question

An industry with a firm that is the only producer of a good or service for which there are no close substitutes and for which entry by potential rivals is prohibitively difficult is:

answer

a monopoly

question

Firms in which of the following market structures have the most market power?

answer

monopoly

question

Which of the following statements about the differences between monopoly and perfect competition is incorrect?
A) A monopolist has market power, while a perfect competitor does not.
B) Unlike a perfectly competitive firm, a monopoly can make positive economic profits in the long run.
C) A monopoly will charge a higher price and produce a smaller quantity than a competitive market with the
same demand and cost structure.
D) Monopoly profits can continue in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

answer

D) Monopoly profits can continue in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

question

In the short run, a perfectly competitive firm produces output and earns an economic profit if:

answer

P > ATC.

question

Which of the following is true?
A) Profit per-unit is price minus average variable cost.
B) Total economic profit is per-unit profit times quantity.
C) If price is less than average total cost, the firm will shut down in the short run.
D) If price is less than marginal cost, the perfectly competitive firm should raise the price and increase output.

answer

F: Profit per-unit is price minus average variable cost.
T: Total economic profit is per-unit profit times quantity.
F: If price is less than average total cost, the firm will shut down in the short run.
F: If price is less than marginal cost, the perfectly competitive firm should raise the price and increase output.

question

If a perfectly competitive firm is producing a quantity at which marginal cost is greater than marginal
revenue, profit:

answer

can be increased by decreasing production.

question

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially
in long-run equilibrium. Subsequently, a decrease in population decreases the demand for haircuts. In the short
run, we expect that the market price will ________ and the output of a typical firm will ________.

answer

fall; fall

question

If it produces, a perfectly competitive firm will maximize profits when the:

answer

marginal revenue equals marginal cost.

question

Suppose that you build a high-speed, magnetically powered transportation system from New York to Los Angeles. High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing average cost for any conceivable level of demand. Your monopoly would result from:

answer

increasing returns to scale.

question

In perfectly competitive markets, if the price is ________, the firm will________.

answer

greater than average total cost; make an economic profit

question

Marginal revenue is a firm's:

answer

increase in total revenue when it sells an additional unit of output.

1 of 28

question

The assumptions of perfect competition imply that:

answer

firms in the market accept the market price as given.

question

answer

small; standardized; little if any

question

answer

a standardized product.

question

The difference between total revenue and total cost is:

answer

economic profit or loss.

question

If a perfectly competitive gardening shop sells 30 evergreen bushes at a price of $10 per bush, its marginal
revenue is:

answer

$10.

question

If the regulation of a monopoly results in a price equal to marginal cost but the price is below average total cost:

answer

the firm will require subsidization or it will go out of business

question

One government policy for dealing with a natural monopoly is to

answer

impose a price ceiling to reduce economic profit.

question

answer

The gas stations vary in terms of the services that they provide.

question

When firms openly agree on price and output and they jointly make other decisions aimed at achieving monopoly profits, those firms are practicing:

answer

overt collusion

question

If the only two firms in an industry agree to fix the price at a given level, this is an example of:

answer

collusion.

question

In perfect competition, the firm produces the output such that ________, and in monopoly, the firm produces the output such that ________.

answer

P = MR = MC; P > MR = MC

question

answer

$20,000

question

answer

produce more guidebooks, because the next guidebook produced increases profit by $5.

question

Situations in which the more users of a product there are, the more useful the product becomes are

answer

network effects

question

The land you own has the only known source of aloe needed to make anti-itch lotion. In this case, your monopoly results from:

answer

ownership of scarce inputs.

question

Most electric, gas, and water companies are examples of:

answer

natural monopolies.

question

A monopolist is likely to produce ________ and charge ________ than a comparable perfectly competitive firm.

answer

less; more

question

An industry with a firm that is the only producer of a good or service for which there are no close substitutes and for which entry by potential rivals is prohibitively difficult is:

answer

a monopoly

question

Firms in which of the following market structures have the most market power?

answer

monopoly

question

answer

D) Monopoly profits can continue in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

question

In the short run, a perfectly competitive firm produces output and earns an economic profit if:

answer

P > ATC.

question

answer

question

If a perfectly competitive firm is producing a quantity at which marginal cost is greater than marginal
revenue, profit:

answer

can be increased by decreasing production.

question

answer

fall; fall

question

If it produces, a perfectly competitive firm will maximize profits when the:

answer

marginal revenue equals marginal cost.

question

answer

increasing returns to scale.

question

In perfectly competitive markets, if the price is ________, the firm will________.

answer

greater than average total cost; make an economic profit

question

Marginal revenue is a firm's:

answer

increase in total revenue when it sells an additional unit of output.

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Econ. Exam 2

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