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

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

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

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

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

answer

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

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

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

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

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

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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micro econ ch 8-10

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