Exam 4 : Intro to Microeconomics - Custom Scholars
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Exam 4 : Intro to Microeconomics

question
Which of the following is NOT a characteristic of a competitive market?
answer
Entry is limited
question
Why does a firm in a competitive industry charge the market price?

(A) If a firm charges less than the market price, it loses potential revenue
(B) If a firm charges more than the market price, it loses all of its customers to other firms
(C) The firm can sell as many units of output as it wants to at market price
(D) All of the above
answer
All of the above
question
Firms that operate in perfectly competitive markets try to
answer
Maximize profits
question
For a firm in a perfectly competitive market, the price of the good is always
answer
Equal to marginal revenue
question
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
answer
A one-unit increase in output will increase the firms profit
question
When profit-maximizing firms in competitive markets are earning profits,
answer
New firms will enter the market
question
Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should
answer
Continue to operate in the short run but shut down in the long run
question
The short-run supply curve for a firm in a perfectly competitive market is
answer
The portion of its marginal cost curve that lies above its average variable cost
question
In a competitive market with identical firms
answer
Free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.
question
The entry of new firms into a competitive market will
answer
Increase market supply and decrease market price
question
Timmy's Trophies operates in a perfectly competitive market. If trophies sell for $20 each and average total cost per trophy is $15 at the profit-maximizing output level, then in the long run
answer
More firms will enter the market
question
When firms in a perfectly competitive market face the same costs, in the long run they must be operating
answer
At their efficient scale
question
If firms are competitive and profit maximizing, the price of a good equals the
answer
Marginal cost of production
question
A monopoly
answer
Can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits
question
The fundamental source of monopoly power is
answer
Barriers to entry
question
Which of the following would be most likely to have monopoly power?
answer
A local electrical cooperative
question
Which of the following is NOT an example of a barrier to entry?
answer
An entrepreneur opens a popular new restaurant
question
A benefit to society of the patent and copyright laws is that those laws
answer
Encourage creative activity
question
When a natural monopoly exists, it is
answer
Never cost effective for two or more private firms to produce the product
question
When a firm has a natural monopoly, the firm's
answer
Average total cost curve is downward sloping
question
In order to sell more of its product, a monopolist must
answer
Lower its price
question
Because a monopolist must lower its price in order to sell another unit of output,
answer
Marginal revenue is less than price
question
The deadweight loss associated with a monopoly occurs because the monopolist
answer
Produces an output level less than the socially optimal level
question
When a monopolist is able to sell its product at different prices it is engaging in
answer
Price discrimination
question
Price discrimination requires the firm to
answer
Separate customers according to their willingness to pay
question
A monopolists profits with price discrimination will be
answer
Higher than if the firm charged just one price because the firm will capture more customer surplus
question
Which of the following is an example of a monopolistically competitive industry?
answer
Movies
question
Which of the following is NOT a characteristic of monopolistic competition ?
answer
Firms are price takers
question
Monopolistic competition differs from perfect competition because in monopolistically competitive markets
answer
Each of the sellers offers a somewhat different product
question
In monopolistic competition as well as in monopoly:
answer
Price exceeds marginal revenue for each firm
question
A firm in a monopolistically competitive market faces a
answer
Downward sloping demand curve because the firms product is different from those offered by other firms
question
In the long run, a firm in a perfectly competitive market operates
answer
At its efficient scale and a monopolistically competitive firm operates with excess capacity
question
Which of the following markets impose deadweight losses in society?

( a )Perfect competition
( b ) Monopolistic competition
( c )Monopoly
answer
B and C
question
In which of the following product makers are we likely to observe the largest amount of advertising?
answer
Markets with highly differentiated products
question
The primary claim of defenders of advertising is that it
answer
Enhances the information available to consumers
question
Evidence from the market for eyeglasses suggests that advertising leads to
answer
Lower prices for consumers
question
According to one theory advertising sends a signal to consumers about the quality of the product being offered. An implication of this theory is that:
answer
The content of the advertisement is irrelevant
question
Firms in a monopolistically competitive market:
answer
Cannot earn economic profits in the long run
question
A firm can earn economic profits in the short run:
answer
When the market is perfectly competitive, monopolistically competitive, or monopolistic.
question
A firm changes a price that exceeds marginal cost:
answer
When the market is a monopoly or monopolistically competitive
question
Which of the following is a characteristic of a competitive market?
answer
Buyers and sellers are price takers
question
When firms are said to be price takers, it implies that if a firm raises its price,
answer
Buyers will go elsewhere
question
For a firm operating in a competitive industry, which of the following statements is not correct?
answer
Total revenue is constant
question
At the profit maximizing level of output
answer
Marginal revenue equals marginal cost
question
Profit maximizing firms in a competitive market produce an output level where
answer
Marginal cost equals marginal revenue
question
If a firm operating in a competitive industry shuts down in the short run, it can avoid paying
answer
Variable costs
question
When determining whether to shut down in the short run, a competitive firm should ignore
answer
Variable costs and short costs
question
The exit of existing firms from a competitive market will
answer
Decrease market supply and increase market price
question
In the long run, each firm in a competitive industry earns
answer
Zero economic profits
question
The long run market supply curve in a competitive market will
answer
Typically be more elastic than the short run supply curve
question
A fundamental source of monopoly market power arises from
answer
Barriers to entry
question
Which of the following is a characteristic of a natural monopoly
answer
Average total cost declines over large regions of output
question
In a market characterized by monopoly, the market demand curve is
answer
Downward sloping
question
What is the shape of the monopolists marginal revenue curve?
answer
A downward sloping line that lies below the demand curve
question
What do economists call the business practice of selling the same good at difference prices to different customers ?
answer
Price discrimination
question
Many movie theaters allow discount tickets to be sold to senior citizens because:
answer
The theaters are profit maximizers
question
Which of the following markets is NOT likely characterized by a monopolistically competitive market?\

Piano Lessons
Corn
Cookies
Clothing
answer
Corn
question
In both perfect competition and monopolistic competition each firm:
answer
Has many competitors
question
A monopolistically competitive firms choice of output level is virtually identical to the choice made by
answer
A monopolist
question
When a monopolistically competitive firm is in long-run equilibrium:

Marginal revenue is equal to marginal cost
Price is equal to average total cost
Demand is equal to average total cost
All of the above is correct
answer
All of the above is correct
1 of 60
question
Which of the following is NOT a characteristic of a competitive market?
answer
Entry is limited
question
Why does a firm in a competitive industry charge the market price?

(A) If a firm charges less than the market price, it loses potential revenue
(B) If a firm charges more than the market price, it loses all of its customers to other firms
(C) The firm can sell as many units of output as it wants to at market price
(D) All of the above
answer
All of the above
question
Firms that operate in perfectly competitive markets try to
answer
Maximize profits
question
For a firm in a perfectly competitive market, the price of the good is always
answer
Equal to marginal revenue
question
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
answer
A one-unit increase in output will increase the firms profit
question
When profit-maximizing firms in competitive markets are earning profits,
answer
New firms will enter the market
question
Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should
answer
Continue to operate in the short run but shut down in the long run
question
The short-run supply curve for a firm in a perfectly competitive market is
answer
The portion of its marginal cost curve that lies above its average variable cost
question
In a competitive market with identical firms
answer
Free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.
question
The entry of new firms into a competitive market will
answer
Increase market supply and decrease market price
question
Timmy's Trophies operates in a perfectly competitive market. If trophies sell for $20 each and average total cost per trophy is $15 at the profit-maximizing output level, then in the long run
answer
More firms will enter the market
question
When firms in a perfectly competitive market face the same costs, in the long run they must be operating
answer
At their efficient scale
question
If firms are competitive and profit maximizing, the price of a good equals the
answer
Marginal cost of production
question
A monopoly
answer
Can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits
question
The fundamental source of monopoly power is
answer
Barriers to entry
question
Which of the following would be most likely to have monopoly power?
answer
A local electrical cooperative
question
Which of the following is NOT an example of a barrier to entry?
answer
An entrepreneur opens a popular new restaurant
question
A benefit to society of the patent and copyright laws is that those laws
answer
Encourage creative activity
question
When a natural monopoly exists, it is
answer
Never cost effective for two or more private firms to produce the product
question
When a firm has a natural monopoly, the firm's
answer
Average total cost curve is downward sloping
question
In order to sell more of its product, a monopolist must
answer
Lower its price
question
Because a monopolist must lower its price in order to sell another unit of output,
answer
Marginal revenue is less than price
question
The deadweight loss associated with a monopoly occurs because the monopolist
answer
Produces an output level less than the socially optimal level
question
When a monopolist is able to sell its product at different prices it is engaging in
answer
Price discrimination
question
Price discrimination requires the firm to
answer
Separate customers according to their willingness to pay
question
A monopolists profits with price discrimination will be
answer
Higher than if the firm charged just one price because the firm will capture more customer surplus
question
Which of the following is an example of a monopolistically competitive industry?
answer
Movies
question
Which of the following is NOT a characteristic of monopolistic competition ?
answer
Firms are price takers
question
Monopolistic competition differs from perfect competition because in monopolistically competitive markets
answer
Each of the sellers offers a somewhat different product
question
In monopolistic competition as well as in monopoly:
answer
Price exceeds marginal revenue for each firm
question
A firm in a monopolistically competitive market faces a
answer
Downward sloping demand curve because the firms product is different from those offered by other firms
question
In the long run, a firm in a perfectly competitive market operates
answer
At its efficient scale and a monopolistically competitive firm operates with excess capacity
question
Which of the following markets impose deadweight losses in society?

( a )Perfect competition
( b ) Monopolistic competition
( c )Monopoly
answer
B and C
question
In which of the following product makers are we likely to observe the largest amount of advertising?
answer
Markets with highly differentiated products
question
The primary claim of defenders of advertising is that it
answer
Enhances the information available to consumers
question
Evidence from the market for eyeglasses suggests that advertising leads to
answer
Lower prices for consumers
question
According to one theory advertising sends a signal to consumers about the quality of the product being offered. An implication of this theory is that:
answer
The content of the advertisement is irrelevant
question
Firms in a monopolistically competitive market:
answer
Cannot earn economic profits in the long run
question
A firm can earn economic profits in the short run:
answer
When the market is perfectly competitive, monopolistically competitive, or monopolistic.
question
A firm changes a price that exceeds marginal cost:
answer
When the market is a monopoly or monopolistically competitive
question
Which of the following is a characteristic of a competitive market?
answer
Buyers and sellers are price takers
question
When firms are said to be price takers, it implies that if a firm raises its price,
answer
Buyers will go elsewhere
question
For a firm operating in a competitive industry, which of the following statements is not correct?
answer
Total revenue is constant
question
At the profit maximizing level of output
answer
Marginal revenue equals marginal cost
question
Profit maximizing firms in a competitive market produce an output level where
answer
Marginal cost equals marginal revenue
question
If a firm operating in a competitive industry shuts down in the short run, it can avoid paying
answer
Variable costs
question
When determining whether to shut down in the short run, a competitive firm should ignore
answer
Variable costs and short costs
question
The exit of existing firms from a competitive market will
answer
Decrease market supply and increase market price
question
In the long run, each firm in a competitive industry earns
answer
Zero economic profits
question
The long run market supply curve in a competitive market will
answer
Typically be more elastic than the short run supply curve
question
A fundamental source of monopoly market power arises from
answer
Barriers to entry
question
Which of the following is a characteristic of a natural monopoly
answer
Average total cost declines over large regions of output
question
In a market characterized by monopoly, the market demand curve is
answer
Downward sloping
question
What is the shape of the monopolists marginal revenue curve?
answer
A downward sloping line that lies below the demand curve
question
What do economists call the business practice of selling the same good at difference prices to different customers ?
answer
Price discrimination
question
Many movie theaters allow discount tickets to be sold to senior citizens because:
answer
The theaters are profit maximizers
question
Which of the following markets is NOT likely characterized by a monopolistically competitive market?\

Piano Lessons
Corn
Cookies
Clothing
answer
Corn
question
In both perfect competition and monopolistic competition each firm:
answer
Has many competitors
question
A monopolistically competitive firms choice of output level is virtually identical to the choice made by
answer
A monopolist
question
When a monopolistically competitive firm is in long-run equilibrium:

Marginal revenue is equal to marginal cost
Price is equal to average total cost
Demand is equal to average total cost
All of the above is correct
answer
All of the above is correct

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