AP Microeconomics Perfect Competition and Pure Monopoly

A market in which a single producer is best suited to provide productive efficiency is called a(n)

natural monopoly.

How is market supply and individual firm demand impacted when firm entry occurs in a market?

Market supply will increase and the representative firm's demand curve shifts downward.

In respect to a monopoly's marginal revenue curve, what is true?

The marginal revenue curve lies below the demand curve.

If a monopoly is earning positive short run economic profit and is producing at an output level where MR > MC, then the firm would be best served by

increasing its level of production.

When may firms enter and exit a perfectly competitive market?

only in the long run

What is true when zero economic profit is being earned in a perfectly competitive market?

There is no incentive for firms to enter or exit the market.

Average revenue equals price in both perfect competition and monopoly.

True

The long run impact of a technological breakthrough that reduces the cost of fertilizer in a perfectly competitive agricultural market would be

an increase the number of producers of agricultural products.

The breakeven quantity for a firm occurs where

P = ATC

What will happen when firms exit a market?

Market supply will shift to the left, equilibrium price in the market rises, and firms will experience an increase in profit.

A monopoly can charge any price it wants because it is not bound by the demand curve.

False

Assuming the existence of opportunity costs, if economic profit equals 0, then accounting profit

will be positive.

Identifying different groups of consumers is not important for effective price discrimination.

False

The main difference between a monopoly and a perfectly competitive firm is that

a monopoly is considered a price maker and a perfectly competitive firm is considered a price taker.

Suppose a perfectly competitive market is in long run equilibrium and market demand decreases. Market price can be expected to

decrease in the short run and increase in the long run.

Patents and high production costs can act as barriers to entry in the monopoly.

True

The monopolist's demand curve is

the market demand curve.

A monopoly creates deadweight loss because it chooses to produce where price equals marginal cost instead of marginal revenue equals marginal cost.

False

A perfectly competitive firm will _____________________ in response to an increase in market demand.

increase its level of production

In addition to creating some deadweight loss, monopolies also redistribute some consumer surplus to producers.

True

In perfect competition, long run equilibrium occurs when

price equals MC and minimum ATC.

In perfect competition, the firm's demand curve is

horizontal

If a perfectly competitive firm is producing at a level of output where price is greater than average total cost, what is true?

The firm is earning a positive economic profit and new firms will enter the market.

A normal profit is earned when

economic profit equals zero.

If a perfectly competitive firm is choosing to produce while earning a loss, then it must be true that

AVC < P < ATC at the profit maximizing quantity.