Module 5

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How does a competitive market compare to a monopoly that engages in perfect price discrimination?

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c. In both cases, total social welfare is the same.

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The amount of money that a firm receives from the sale of its output is called

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b. total revenue.

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For a monopolist, marginal revenue is

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d. negative when the price effect is greater than the output effect.

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Antitrust laws may

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d. restrict the ability of firms to merge.

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Variable cost divided by quantity produced is

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d. None of the above is correct.

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When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is

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d. upward sloping.

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Riva crafts and sells hard cider as a part-time job. She can bottle and sell four cases in a week. She is considering hiring her friend Atul to help her. Together, Riva and Atul can bottle and sell seven cases per week. What is Atul's marginal product?

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c. 3 cases

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Both monopolistic competition and oligopoly are market structures

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c. that fail to achieve the total surplus achieved by perfect competition.

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Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to

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c. remain unchanged.

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Economists normally assume that the goal of a firm is to

answer

...

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A student might describe information about the costs of production as

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d. All of the above could be correct.

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Amanda inherited the only local cable TV/Internet company in town after her father passed away. The company has a local monopoly on the delivery of high-speed Internet service. The company is completely unregulated by the government and is therefore free to operate as it wishes. Assume that Amanda understands the true power of her new monopoly. Which of the following statements is (are) correct?

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c. (i) only

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A firm's opportunity costs of production are equal to its

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c. explicit costs + implicit costs.

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A monopolistically competitive firm faces the following demand curve for its product:

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b. this market is in long-run equilibrium.

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During the holiday season, high-end retailers frequently place a high price on merchandise on weekends and discount the price during the week. They do this because they believe that two groups of customers exist: shoppers with little free time and bargain hunters. Bargain hunters have time to shop around and frequently shop during the week. What do economists call this price strategy used by high-end retailers?

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d. price discrimination

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A restaurant that has market power can

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d. influence the market price for the meals it sells.

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Predatory pricing occurs when

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b. A monopolist decreases its prices to maintain its monopoly. Economists are skeptical that this practice is profitable.

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Consider a firm that operates in a perfectly competitive market. Currently the firm is producing 300 units of output and the price is $20. If marginal cost at 300 units is $22, the firm

answer

b. could increase profits by reducing output from 300 units.

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In Lee Benham's 1972 article examining the impact of advertising on the average price paid for a pair of eyeglasses, Benham found that

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d. the average price paid for eyeglasses was nearly 20% lower in the states that did not restrict advertising.

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Although the practice of predatory pricing is a common claim in antitrust suits, some economists are skeptical of this argument because they believe

answer

c. predatory pricing is not a profitable business strategy.

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Chloe's Café sells gourmet cinnamon rolls. In the long run, the café incurs a total cost of $500 to produce 1,000 cinnamon rolls. If Chloe's Café exhibits constant returns to scale between 1,000 and 1,500 cinnamon rolls, the long-run average total cost for 1,250 cinnamon rolls is

answer

a. equal to $0.50.

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If a competitive firm is currently producing a level of output at which profit is not maximized, then it must be true that

answer

d. None of the above is correct.

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When a monopolist maximizes profit, its marginal cost will

answer

d. be less than the price per unit of its product.

question

The competitive firm's short-run supply curve is its

answer

d. marginal cost curve, but only the portion above the minimum of average variable cost.

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Which of the following would be an example of an implicit cost?

answer

a. (i) only

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If a competitive firm is selling 500 units of its product at a price of $8 per unit and earning a positive profit, then

answer

c. its total cost is less than $4,000.

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Entry of new firms in monopolistically competitive industries can convey a negative externality on producers because firms lose customers and profits from the entry of new competitors. This externality is called the

answer

business-stealing externality,

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In a natural monopoly,

answer

c. if the government requires marginal cost pricing, it will likely have to subsidize the firm.

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Which of the following statements is not correct?

answer

a. Monopolistically competitive firms advertise in order to increase the elasticity of the demand curve they face.

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Game theory is necessary to understand which kinds of markets?

answer

b. (iii) and (iv) only

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Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when four units of output are produced, the total cost is $175, and the average variable cost is $33.75. What would the average fixed cost be if ten units were produced?

answer

b. $4

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Suppose that Christine owns her own CPA firm. She uses only two inputs in her business: her hours worked (labor) and a computer (capital). In the short run, Christine most likely considers

answer

a. labor to be variable and capital to be fixed.

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The fundamental source of monopoly power is

answer

d. barriers to entry.

question

Monopolistically competitive markets differ from perfectly competitive markets due to

answer

d. (iii) only

question

A dairy produces and sells organic milk. Last year it sold 500,000 gallons of milk at a price of $7 per gallon. For last year, the firm's

answer

b. total revenue was $3.5 million.

question

In reality, perfect price discrimination is

answer

d. rarely possible.

question

Which of the following statements is not correct?

answer

d. Both monopolistic competition and perfect competition are characterized by product differentiation.

question

Entry into a market by new firms will increase the

answer

a. supply of the good.

question

A monopolistically competitive firm is currently charging a price of $10 and producing 12,000 units/month. It faces monthly fixed costs of $15,000 and has an average variable cost of $6/unit. In the long run, we would expect:

answer

d. The price will fall and output will fall

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A monopolistically competitive firm

answer

b. experiences a zero profit in the long run.

question

A monopoly can earn positive profits because it

answer

b. can maintain a price such that total revenues will exceed total costs.

question

A market structure with barriers to entry is

answer

c. a monopoly.

question

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

answer

a. tying

question

The more firms an oligopoly has,

answer

a. the more likely the firms will charge a price close to the perfectly competitive price.

1 of 44

question

How does a competitive market compare to a monopoly that engages in perfect price discrimination?

answer

c. In both cases, total social welfare is the same.

question

The amount of money that a firm receives from the sale of its output is called

answer

b. total revenue.

question

For a monopolist, marginal revenue is

answer

d. negative when the price effect is greater than the output effect.

question

Antitrust laws may

answer

d. restrict the ability of firms to merge.

question

Variable cost divided by quantity produced is

answer

d. None of the above is correct.

question

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is

answer

d. upward sloping.

question

answer

c. 3 cases

question

Both monopolistic competition and oligopoly are market structures

answer

c. that fail to achieve the total surplus achieved by perfect competition.

question

Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to

answer

c. remain unchanged.

question

Economists normally assume that the goal of a firm is to

answer

...

question

A student might describe information about the costs of production as

answer

d. All of the above could be correct.

question

answer

c. (i) only

question

A firm's opportunity costs of production are equal to its

answer

c. explicit costs + implicit costs.

question

A monopolistically competitive firm faces the following demand curve for its product:

answer

b. this market is in long-run equilibrium.

question

answer

d. price discrimination

question

A restaurant that has market power can

answer

d. influence the market price for the meals it sells.

question

Predatory pricing occurs when

answer

b. A monopolist decreases its prices to maintain its monopoly. Economists are skeptical that this practice is profitable.

question

Consider a firm that operates in a perfectly competitive market. Currently the firm is producing 300 units of output and the price is $20. If marginal cost at 300 units is $22, the firm

answer

b. could increase profits by reducing output from 300 units.

question

In Lee Benham's 1972 article examining the impact of advertising on the average price paid for a pair of eyeglasses, Benham found that

answer

d. the average price paid for eyeglasses was nearly 20% lower in the states that did not restrict advertising.

question

Although the practice of predatory pricing is a common claim in antitrust suits, some economists are skeptical of this argument because they believe

answer

c. predatory pricing is not a profitable business strategy.

question

answer

a. equal to $0.50.

question

If a competitive firm is currently producing a level of output at which profit is not maximized, then it must be true that

answer

d. None of the above is correct.

question

When a monopolist maximizes profit, its marginal cost will

answer

d. be less than the price per unit of its product.

question

The competitive firm's short-run supply curve is its

answer

d. marginal cost curve, but only the portion above the minimum of average variable cost.

question

Which of the following would be an example of an implicit cost?

answer

a. (i) only

question

If a competitive firm is selling 500 units of its product at a price of $8 per unit and earning a positive profit, then

answer

c. its total cost is less than $4,000.

question

answer

business-stealing externality,

question

In a natural monopoly,

answer

c. if the government requires marginal cost pricing, it will likely have to subsidize the firm.

question

Which of the following statements is not correct?

answer

a. Monopolistically competitive firms advertise in order to increase the elasticity of the demand curve they face.

question

Game theory is necessary to understand which kinds of markets?

answer

b. (iii) and (iv) only

question

answer

b. $4

question

Suppose that Christine owns her own CPA firm. She uses only two inputs in her business: her hours worked (labor) and a computer (capital). In the short run, Christine most likely considers

answer

a. labor to be variable and capital to be fixed.

question

The fundamental source of monopoly power is

answer

d. barriers to entry.

question

Monopolistically competitive markets differ from perfectly competitive markets due to

answer

d. (iii) only

question

A dairy produces and sells organic milk. Last year it sold 500,000 gallons of milk at a price of $7 per gallon. For last year, the firm's

answer

b. total revenue was $3.5 million.

question

In reality, perfect price discrimination is

answer

d. rarely possible.

question

Which of the following statements is not correct?

answer

d. Both monopolistic competition and perfect competition are characterized by product differentiation.

question

Entry into a market by new firms will increase the

answer

a. supply of the good.

question

answer

d. The price will fall and output will fall

question

A monopolistically competitive firm

answer

b. experiences a zero profit in the long run.

question

A monopoly can earn positive profits because it

answer

b. can maintain a price such that total revenues will exceed total costs.

question

A market structure with barriers to entry is

answer

c. a monopoly.

question

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

answer

a. tying

question

The more firms an oligopoly has,

answer

a. the more likely the firms will charge a price close to the perfectly competitive price.

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Module 5

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