micro econ ch 8-10 - Custom Scholars
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micro econ ch 8-10

question
perfect competition
answer
market structure characterized by a large number of well-informed independent buyers and sellers who exchange identical products
question
homogeneous products
answer
undifferentiated products; products that are identical to, or indistinguishable from, one another
question
price taker
answer
a buyer or seller that is unable to affect the market price. faces a perfectly elastic demand curve
question
marginal revenue
answer
change in total revenue / change in quantity
question
perfectly competitive firms short run supply curve
answer
The firm's marginal cost curve above the minimum point on its average variable cost curve.
question
perfectly competitive industrys short run supply curve
answer
The supply curve derived from horizontal summation of the marginal cost curves of all firms in the industry above the minimum point of each firm's average variable cost curve.
question
perfectly competitive industrys long run supply curve
answer
The curve that shows the quantities supplied by the industry at different equilibrium prices after firms complete their entry and exit.
question
constant cost industry
answer
an industry in which expansion by the entry of new firms has no effect on the prices firms in the industry must pay for resources and thus no effect on production costs
question
decreasing cost industry
answer
An industry in which expansion through the entry of firms lowers the prices that firms in the industry must pay for resources and therefore decreases their production costs.
question
increasing cost industry
answer
an industry in which the expansion of industry output by the entry of new firms increases the individual firms atc (cost shifts upwards)
question
as shown in exhibit 15 suppose the firms price is OB. the firms total economic profit at this price is equal to the area of
answer
zero
question
the firm shown in exhibit 15 will
answer
all of the above
question
as shown in exhibit 15, if the price is OD, a perfectly competitive firm maximizes profit at which point on its marginal cost curve?
answer
I
MR=MC
question
as shown in exhibit 15, if the price is OB, the firms total cost of producing at its most profitable level of output is
answer
OYFB
question
as shown in exhibit 15, if the price is OD, the firms total revenue at its most profitable level of output is
answer
OZID
question
as shown in exhibit 15, suppose the firms price is OD. At this price the firm
answer
is earning positive economic profits
question
as shown in exhibit 15, if the price is OB, the firms total revenue at its most profitable level of output is
answer
OYFB
question
when there is a permanent increase in market demand in a constant cost industry, a firms short run average total cost curve will
answer
remain the same
question
perfect competition is defined as market structure in which
answer
ALL OF THESE
there are many small sellers.
the product is homogeneous.
it is very easy for firms to enter or exit the market.
question
under perfect competition which of the following are the same (equal) at all levels of output?
answer
price and marginal revenue
question
a portrait photographer produces output in packages of 100 photos each. if the output sold increases from 600 to 700 photos, total revenue increases from $1200 to $1400. what is the marginal revenue per photo?
answer
$2
question
In the short run, a perfectly competitive firm is producing at a price below average total cost. what is its economic profit?
answer
negative
question
in exhibit 16, if output is 200 units per week, economic profit for the firm is
answer
zero
question
in exhibit 16, economic profit for the firm is at a maximum when output per week equals
answer
250 units
question
the point of maximum profit for a business
answer
MR=MC
question
when there is a permanent increase in market demand in a decreasing cost industry, a firms short run average total cost curve will
answer
shift down
question
a perfectly competitive firms short run supply curve is the
answer
marginal cost curve above the average variable cost curve
question
when there is a permanent increase in market demand in an increasing cost industry, a firms short run average total cost curve will
answer
shift up
question
in a long run equilibrium the perfectly competitive firm sets its price equal to which of the following?
answer
all of the above
question
If there is a permanent increase in demand for the product of a perfectly competitive industry, the process of transition to a new long-run equilibrium will include
answer
both a and b
question
which best illustrates a perfectly competitive market?
answer
agriculture/ famers markets
question
short-run shutdown condition
answer
-a situation in which a firm's total revenues are less than its variable costs and the firm is better off shutting down immediately and losing only its fixed costs (if MC>MR, shut down totally)
question
Monopoly
answer
A market in which there are many buyers but only one seller. unique product. impossible entry
question
natural monopoly
answer
an industry in which one firm can achieve economies of scale over the entire range of market supply
question
network good
answer
a good whose value increases as the expected number of units sold increases
question
price maker
answer
A firm with some power to set the price because the demand curve for its output slopes downward; a firm with market power
question
price discrimination
answer
the practice of a seller charging different prices for the same product that are not justified by cost differences
question
arbitrage
answer
the practice of earning a profit by buying a good at a low price and reselling the good at a higher price
question
the monopolist faces
answer
the entire market demand curve
question
to maximize its profit, a monopoly should choose a price where demand is
answer
elastic
question
when marginal revenue is zero for a monopolist facing a downward sloping straight line demand curve, the price elasticity of demand is
answer
equal to 1
question
Both a perfectly competitive firm and a monopolist
answer
maximize profit by setting marginal cost equal to marginal revenue
question
suppose a monopolists demand curve lies below its average variable cost curve. the firm will
answer
shut down
question
which of the following statements best describes the price, output, and profit conditions of monopoly?
answer
In the long-run, positive economic profit will be earned.
question
which of the following is true for the monopolist?
answer
all the above
question
Although a monopoly can charge any price it wishes, it chooses
answer
the price that maximizes profit
question
as shown in exhibit 11, the profit maximizing price for the monopolist is
answer
OP4
question
as shown in exhibit 11, if the monopolist produces the profit maximizing output, total revenue is the rectangular area
answer
Q2 P4
question
as shown in exhibit 11, the monopolists total cost is which of the following areas?
answer
none
question
the profit maximizing output for the monopolist in exhibit 11 is
answer
Q2
question
consider the monopolists profit maximizing output in exhibit 11. at this level of output, consumers will want the monopolist to
answer
use more resources to produce additional output
question
as shown in exhibit 11, the monopolists profit maximizing price quantity point is
answer
D
question
suppose a monopolist charges a price corresponding to the intersection of marginal cost and marginal revenue. if the price is between its average variable cost and average total cost the firm will
answer
stay in operation in the short run, but shut down un the long run if demand remains the same
question
The act of buying a commodity in one market at a lower price and selling it in another market at a higher price is known as
answer
arbitrage
question
One necessary condition for effective price discrimination is
answer
difference in the price elasticity of demand among buyers
question
An example of price discrimination is the price charged for:
answer
theater tickets that offer lower prices for children
question
suppose a monopolist and a perfectly competitive firm have the same cost curves. the monopolistic firm would
answer
charge a higher price than the perfectly competitive firm
question
suppose there are two markets for football games: (1) rich alumni as fully committed to their alma mater as the lower income students and (2) students. based on this information, which market will have the lower elasticity and thus the higher price if the university can price discriminate?
answer
the alumni market
question
monopolistic competition
answer
A market structure characterized by many small sellers, a differentiated product, and easy market entry.
question
product differentiation
answer
a process of creating differences between similar goods and services
question
nonprice competition
answer
The situation in which a firm competes using advertising, packaging, product development, better quality, and better service, rather than lower prices.
question
Oligopoly
answer
A market structure characterized by a few large sellers, either identical or differentiated product, and difficult market entry.
question
mutual interdependence
answer
A condition in which an action by one firm may cause a reaction from other firms.
question
kinked demand curve
answer
A demand curve facing an oligopolist that assumes rivals will match a price decrease, but ignore a price increase.
question
price leadership
answer
a pricing strategy in which one firm first sets its price and other firms in the industry follow with the same or very similar prices
question
cartel
answer
a group of firms acting in unison
question
game theory
answer
A model of the strategic moves and countermoves of rivals.
question
clothing stores in cities are an illustration of
answer
monopolistic competition
question
Firms in a monopolistically competitive industry produce
answer
differentiated products
question
monopolistic competitive firms in the long run earn
answer
zero pure economic profits
question
The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will
answer
produce at the level in which price equals long-run average cost
question
which of the following statements best describes the price, output, and profit conditions of monopolistic competition?
answer
Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero.
question
entry of new firms will occur in a monopolistic competitive industry until
answer
economic profit equals zero
question
as presented in exhibit 10, what is the short run profit maximizing output for the monopolistic competitive firm?
answer
400 units per day
question
as presented in exhibit 10, what is the short run profit per unit of output for the monopolistic competitive firm?
answer
$5
question
in which of the following market structures can firms be price makers?
answer
monopoly, monopolistic competition, and oligopoly
question
an oligopoly is a market structure in which
answer
there are a few major firms selling a differentiated or identical product.
question
mutual interdependence among firms in an oligopoly means that
answer
it is difficult to know how firms will react to decisions of rivals
question
a common characteristic of oligopolies is
answer
interdependence in pricing decisions
question
which of the following best describes a cartel?
answer
A group of cooperating oligopolists that jointly reduce output and raise price in imitation of a monopolist. When entry is very costly, these high prices can persist.
question
which of the following is true about an oligopoly equilibrium compared with equilibrium under similar circumstances but with perfect competition?
answer
output is smaller and price is higher than under perfect competition
question
which of the following market structures describes an industry in which a group of firms formally agrees to control prices and output of a product?
answer
cartel
question
assume costs are identical for the two firms in exhibit. if both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by
answer
widget company charging the high price and ajax company charging the high price
question
suppose costs are identical for the two firms. if both firms assume the other will compete and charge a lower price, equilibrium will be established by
answer
widget company charging the low price and ajax company charging the low price
question
suppose costs are identical for the two firms. each firm assumes without formal agreement that if it sets the high price, its rival will not charge a lower price. under these tit for tat conditions, equilibrium will be established by
answer
widget company charging the low price and ajax company charging the low price
question
As a result of a kinked demand curve, the price:
answer
settles at the kink
question
the kinked oligopoly demand curve is a result of the assumption by an oligopolist that
answer
price increases will not be matched, but price reductions will
question
examples of firms in a monopoly
answer
google, microsoft, AT&T
question
Oligopoly examples
answer
Ford Chevy & Dodge, Cell phone providers, Cable Television, Entertainment industry
question
monopolistic competition examples
answer
Pizza shops, grocery stores, restaurants, furniture
question
Profit calculation
answer
total revenue - total cost
question
profit reaches a maximum when
answer
the vertical difference between the total revenue and total cost curves is at a maximum
question
if the price is below the minimum point on the average variable cost curve
answer
firm shuts down
question
does a kansas wheat farmer operate in a perfectly competitive market structure?
answer
yes
question
a price maker firm faces
answer
a downward sloping demand curve
question
marginal revenue curve for a monopolist
answer
lies below the demand curve, and the total revenue curve reaches a maximum where marginal revenue equals zero
question
If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:
answer
earn an economic profit
question
if the price is less than atc but greater than avc
answer
the firm loses money but remains in operation in the short run
question
If price is less than marginal cost, a perfectly competitive firm
answer
shuts down to minimize losses in the short run
1 of 99
question
perfect competition
answer
market structure characterized by a large number of well-informed independent buyers and sellers who exchange identical products
question
homogeneous products
answer
undifferentiated products; products that are identical to, or indistinguishable from, one another
question
price taker
answer
a buyer or seller that is unable to affect the market price. faces a perfectly elastic demand curve
question
marginal revenue
answer
change in total revenue / change in quantity
question
perfectly competitive firms short run supply curve
answer
The firm's marginal cost curve above the minimum point on its average variable cost curve.
question
perfectly competitive industrys short run supply curve
answer
The supply curve derived from horizontal summation of the marginal cost curves of all firms in the industry above the minimum point of each firm's average variable cost curve.
question
perfectly competitive industrys long run supply curve
answer
The curve that shows the quantities supplied by the industry at different equilibrium prices after firms complete their entry and exit.
question
constant cost industry
answer
an industry in which expansion by the entry of new firms has no effect on the prices firms in the industry must pay for resources and thus no effect on production costs
question
decreasing cost industry
answer
An industry in which expansion through the entry of firms lowers the prices that firms in the industry must pay for resources and therefore decreases their production costs.
question
increasing cost industry
answer
an industry in which the expansion of industry output by the entry of new firms increases the individual firms atc (cost shifts upwards)
question
as shown in exhibit 15 suppose the firms price is OB. the firms total economic profit at this price is equal to the area of
answer
zero
question
the firm shown in exhibit 15 will
answer
all of the above
question
as shown in exhibit 15, if the price is OD, a perfectly competitive firm maximizes profit at which point on its marginal cost curve?
answer
I
MR=MC
question
as shown in exhibit 15, if the price is OB, the firms total cost of producing at its most profitable level of output is
answer
OYFB
question
as shown in exhibit 15, if the price is OD, the firms total revenue at its most profitable level of output is
answer
OZID
question
as shown in exhibit 15, suppose the firms price is OD. At this price the firm
answer
is earning positive economic profits
question
as shown in exhibit 15, if the price is OB, the firms total revenue at its most profitable level of output is
answer
OYFB
question
when there is a permanent increase in market demand in a constant cost industry, a firms short run average total cost curve will
answer
remain the same
question
perfect competition is defined as market structure in which
answer
ALL OF THESE
there are many small sellers.
the product is homogeneous.
it is very easy for firms to enter or exit the market.
question
under perfect competition which of the following are the same (equal) at all levels of output?
answer
price and marginal revenue
question
a portrait photographer produces output in packages of 100 photos each. if the output sold increases from 600 to 700 photos, total revenue increases from $1200 to $1400. what is the marginal revenue per photo?
answer
$2
question
In the short run, a perfectly competitive firm is producing at a price below average total cost. what is its economic profit?
answer
negative
question
in exhibit 16, if output is 200 units per week, economic profit for the firm is
answer
zero
question
in exhibit 16, economic profit for the firm is at a maximum when output per week equals
answer
250 units
question
the point of maximum profit for a business
answer
MR=MC
question
when there is a permanent increase in market demand in a decreasing cost industry, a firms short run average total cost curve will
answer
shift down
question
a perfectly competitive firms short run supply curve is the
answer
marginal cost curve above the average variable cost curve
question
when there is a permanent increase in market demand in an increasing cost industry, a firms short run average total cost curve will
answer
shift up
question
in a long run equilibrium the perfectly competitive firm sets its price equal to which of the following?
answer
all of the above
question
If there is a permanent increase in demand for the product of a perfectly competitive industry, the process of transition to a new long-run equilibrium will include
answer
both a and b
question
which best illustrates a perfectly competitive market?
answer
agriculture/ famers markets
question
short-run shutdown condition
answer
-a situation in which a firm's total revenues are less than its variable costs and the firm is better off shutting down immediately and losing only its fixed costs (if MC>MR, shut down totally)
question
Monopoly
answer
A market in which there are many buyers but only one seller. unique product. impossible entry
question
natural monopoly
answer
an industry in which one firm can achieve economies of scale over the entire range of market supply
question
network good
answer
a good whose value increases as the expected number of units sold increases
question
price maker
answer
A firm with some power to set the price because the demand curve for its output slopes downward; a firm with market power
question
price discrimination
answer
the practice of a seller charging different prices for the same product that are not justified by cost differences
question
arbitrage
answer
the practice of earning a profit by buying a good at a low price and reselling the good at a higher price
question
the monopolist faces
answer
the entire market demand curve
question
to maximize its profit, a monopoly should choose a price where demand is
answer
elastic
question
when marginal revenue is zero for a monopolist facing a downward sloping straight line demand curve, the price elasticity of demand is
answer
equal to 1
question
Both a perfectly competitive firm and a monopolist
answer
maximize profit by setting marginal cost equal to marginal revenue
question
suppose a monopolists demand curve lies below its average variable cost curve. the firm will
answer
shut down
question
which of the following statements best describes the price, output, and profit conditions of monopoly?
answer
In the long-run, positive economic profit will be earned.
question
which of the following is true for the monopolist?
answer
all the above
question
Although a monopoly can charge any price it wishes, it chooses
answer
the price that maximizes profit
question
as shown in exhibit 11, the profit maximizing price for the monopolist is
answer
OP4
question
as shown in exhibit 11, if the monopolist produces the profit maximizing output, total revenue is the rectangular area
answer
Q2 P4
question
as shown in exhibit 11, the monopolists total cost is which of the following areas?
answer
none
question
the profit maximizing output for the monopolist in exhibit 11 is
answer
Q2
question
consider the monopolists profit maximizing output in exhibit 11. at this level of output, consumers will want the monopolist to
answer
use more resources to produce additional output
question
as shown in exhibit 11, the monopolists profit maximizing price quantity point is
answer
D
question
suppose a monopolist charges a price corresponding to the intersection of marginal cost and marginal revenue. if the price is between its average variable cost and average total cost the firm will
answer
stay in operation in the short run, but shut down un the long run if demand remains the same
question
The act of buying a commodity in one market at a lower price and selling it in another market at a higher price is known as
answer
arbitrage
question
One necessary condition for effective price discrimination is
answer
difference in the price elasticity of demand among buyers
question
An example of price discrimination is the price charged for:
answer
theater tickets that offer lower prices for children
question
suppose a monopolist and a perfectly competitive firm have the same cost curves. the monopolistic firm would
answer
charge a higher price than the perfectly competitive firm
question
suppose there are two markets for football games: (1) rich alumni as fully committed to their alma mater as the lower income students and (2) students. based on this information, which market will have the lower elasticity and thus the higher price if the university can price discriminate?
answer
the alumni market
question
monopolistic competition
answer
A market structure characterized by many small sellers, a differentiated product, and easy market entry.
question
product differentiation
answer
a process of creating differences between similar goods and services
question
nonprice competition
answer
The situation in which a firm competes using advertising, packaging, product development, better quality, and better service, rather than lower prices.
question
Oligopoly
answer
A market structure characterized by a few large sellers, either identical or differentiated product, and difficult market entry.
question
mutual interdependence
answer
A condition in which an action by one firm may cause a reaction from other firms.
question
kinked demand curve
answer
A demand curve facing an oligopolist that assumes rivals will match a price decrease, but ignore a price increase.
question
price leadership
answer
a pricing strategy in which one firm first sets its price and other firms in the industry follow with the same or very similar prices
question
cartel
answer
a group of firms acting in unison
question
game theory
answer
A model of the strategic moves and countermoves of rivals.
question
clothing stores in cities are an illustration of
answer
monopolistic competition
question
Firms in a monopolistically competitive industry produce
answer
differentiated products
question
monopolistic competitive firms in the long run earn
answer
zero pure economic profits
question
The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will
answer
produce at the level in which price equals long-run average cost
question
which of the following statements best describes the price, output, and profit conditions of monopolistic competition?
answer
Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero.
question
entry of new firms will occur in a monopolistic competitive industry until
answer
economic profit equals zero
question
as presented in exhibit 10, what is the short run profit maximizing output for the monopolistic competitive firm?
answer
400 units per day
question
as presented in exhibit 10, what is the short run profit per unit of output for the monopolistic competitive firm?
answer
$5
question
in which of the following market structures can firms be price makers?
answer
monopoly, monopolistic competition, and oligopoly
question
an oligopoly is a market structure in which
answer
there are a few major firms selling a differentiated or identical product.
question
mutual interdependence among firms in an oligopoly means that
answer
it is difficult to know how firms will react to decisions of rivals
question
a common characteristic of oligopolies is
answer
interdependence in pricing decisions
question
which of the following best describes a cartel?
answer
A group of cooperating oligopolists that jointly reduce output and raise price in imitation of a monopolist. When entry is very costly, these high prices can persist.
question
which of the following is true about an oligopoly equilibrium compared with equilibrium under similar circumstances but with perfect competition?
answer
output is smaller and price is higher than under perfect competition
question
which of the following market structures describes an industry in which a group of firms formally agrees to control prices and output of a product?
answer
cartel
question
assume costs are identical for the two firms in exhibit. if both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by
answer
widget company charging the high price and ajax company charging the high price
question
suppose costs are identical for the two firms. if both firms assume the other will compete and charge a lower price, equilibrium will be established by
answer
widget company charging the low price and ajax company charging the low price
question
suppose costs are identical for the two firms. each firm assumes without formal agreement that if it sets the high price, its rival will not charge a lower price. under these tit for tat conditions, equilibrium will be established by
answer
widget company charging the low price and ajax company charging the low price
question
As a result of a kinked demand curve, the price:
answer
settles at the kink
question
the kinked oligopoly demand curve is a result of the assumption by an oligopolist that
answer
price increases will not be matched, but price reductions will
question
examples of firms in a monopoly
answer
google, microsoft, AT&T
question
Oligopoly examples
answer
Ford Chevy & Dodge, Cell phone providers, Cable Television, Entertainment industry
question
monopolistic competition examples
answer
Pizza shops, grocery stores, restaurants, furniture
question
Profit calculation
answer
total revenue - total cost
question
profit reaches a maximum when
answer
the vertical difference between the total revenue and total cost curves is at a maximum
question
if the price is below the minimum point on the average variable cost curve
answer
firm shuts down
question
does a kansas wheat farmer operate in a perfectly competitive market structure?
answer
yes
question
a price maker firm faces
answer
a downward sloping demand curve
question
marginal revenue curve for a monopolist
answer
lies below the demand curve, and the total revenue curve reaches a maximum where marginal revenue equals zero
question
If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:
answer
earn an economic profit
question
if the price is less than atc but greater than avc
answer
the firm loses money but remains in operation in the short run
question
If price is less than marginal cost, a perfectly competitive firm
answer
shuts down to minimize losses in the short run

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