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All of the following are assumptions of the perfectly competitive model EXCEPT:
the goal of the firm is to maximize revenue.
There are no barriers to entry into a perfectly competitive market which means:
there are no obstacles that make it impossible or unprofitable for new firms to enter the market in the long run.
An individual firm operating in a perfectly competitive market:
is a price-taker.
The demand curve for a firm selling output in a perfectly competitive market is:
perfectly elastic at the price determined by the market.
Firms that are price-takers:
sell output at the price determined by the market forces of supply and demand.
Which of the following outputs is most likely to be sold in a perfectly competitive market?
Wheat
The assumed goal of firms in perfectly competitive markets is to:
maximize profit by producing at the level where marginal cost equals marginal revenue.
The profit-maximizing rule is for firms to produce the amount of output at which:
marginal cost equals marginal revenue. MR=MC
For a perfectly competitive firm earning a positive economic profit in the short run:
price is equal to marginal revenue, and price is greater than average total cost.
A firm that chooses not to produce in the short run suffers a loss equal to:
total fixed cost.
A perfectly competitive firm producing where MR = MC and P < ATC in the short run is:
incurring a short-run loss, but should continue to produce if P > AVC.
The short-run supply curve for the perfectly competitive firm is:
the portion of the MC curve that lies above the minimum of the AVC curve.
A firm is in long-run equilibrium in a perfectly competitive market when:
P = MR = MC = ATC.
A perfectly competitive firm producing where MR = MC and P = ATC in the short run is:
making an economic profit equal to zero.
Firms in perfectly competitive markets:
are price-takers and sell output at the price determined by the market forces of demand and supply.
The quantity of output bought and sold in a market is efficient when:
deadweight loss is equal to zero.
Assuming no externalities exist, long-run equilibrium under perfectly competitive conditions is:
efficient because MR = MC and P = minimum ATC.
All of the following are true regarding perfectly competitive markets EXCEPT:
barriers to entry enable firms to earn positive economic profit in the short run and in the long run.
Firms in perfectly competitive markets:
are price-takers and sell output at the price determined by the market forces of demand and supply.
If at output of 100 units, MC = MR = Price = $10 , ATC = $10 and AVC = $7, then which of the following is NOT true for a perfectly competitive firm?
Profit is not maximized because total revenue is equal to total cost
Assume blueberries are sold in a perfectly competitive market. If existing sellers in this market are earning positive economic profit:
the number of sellers is expected to increase in the long run, resulting in a lower market price, ceteris paribus.
A firm that chooses not to produce in the short run suffers a loss equal to:
total fixed cost.
The typical firm in a perfectly competitive market earns zero economic profit in the long run because:
there are no barriers preventing new firms from entering the market in the long run.
If pencil manufacturers are earning negative economic profit in the short run and there are no barriers to entry into the pencil market, economic theory predicts that:
some firms will exit the pencil market in the long run causing the price of pencils to rise, ceteris paribus.
When no externalities exist, a perfectly competitive market in equilibrium is efficient because
output is at marginal benefit equal to marginal cost, total consumer plus producer surplus is maximized, there is no deadweight loss.
Which of the following is NOT a characteristic of a monopoly market?
Firm is a price-taker
Obstacles that make it impossible or unprofitable for new firms to enter a market are:
barriers to entry that may lead to monopoly power.
For a pure monopoly, the industry or market demand curve is:
the same as the monopoly firm's demand curve.
A firm gains monopoly power when:
barriers to entry can be erected and maintained.
For a price-setting firm such as a monopoly firm, profit is maximized at the output where:
marginal revenue is equal to marginal cost assuming the firm cannot price discriminate.
A natural monopoly can:
supply the entire market at a lower cost than many competing firms.
For a monopoly firm that cannot price discriminate (single-price monopoly):
the marginal revenue curve lies below the firm's demand curve.
Barriers to entry that make it difficult for new firms to enter a market in the long run include:
patents and copyrights, government franchises and licenses, significant economies of scale.
When economies of scale exist such that one firm can supply the entire market at a lower cost than two or more competing firms:
the firm is a natural monopoly.
A monopoly firm maximizes profit at the output where:
MR=MC and the firm may earn positive economic profit, zero economic profit, or negative economic profit.
Which of the following is NOT a necessary condition for a firm to be able to benefit from price discrimination?
The firm must charge all buyers in the same market the same price
If a monopolist is able to engage in perfect (first-degree) price discrimination:
price is equal to marginal revenue. P=MR
If a monopolist sells output to all buyers in a market at the same price, then:
price is greater than marginal revenue.
An example of third-degree price discrimination is:
college students being charged a lower price for a movie ticket than adults in the general population are charged for a movie ticket.
The inefficiency that often accompanies monopoly provides justification for government regulation.
True
Mergers between health insurance providers would never be blocked by the government since they would not harm consumers.
False
The Justice Department:
reviews proposed mergers to determine if the merger would create excessive market power.
The Sherman Act of 1890:
declared monopoly and unreasonable trade restraints illegal.
The Federal Trade Commission Act of 1914:
established the Federal Trade Commission to deal with unfair business practices.
The Clayton Act of 1914:
specified the conditions under which mergers would be considered anti- competitive.
The U.S. Postal Service is an example of:
a government-operated monopoly.
If government regulators force a monopoly seller to charge a price equal to marginal cost and the firm produces where MR = MC, then:
the output level will be efficient but economic profit might be negative.
When government sets price equal to average total cost for a natural monopoly:
economic profit is equal to zero.
A firm is a pure monopoly when:
it is the only seller of a unique product and barriers to entry prevent other sellers from entering the market in the long run.
When economies of scale exist such that one firm can supply the entire market at a lower cost than two or more competing firms:
the firm is a natural monopoly.
Ceteris paribus, a monopoly firm that is earning positive economic profit in the short run:
can continue to earn positive economic profit in the long run if it can maintain barriers to entry.
compared to a competitive market, a monopoly market in which the monopoly firm is a single-price seller:
produces a lower level of output and charges a higher price.
Government addresses the problem of monopoly inefficiency by:
using antitrust laws to promote competition, regulating the price a monopolist can charge for output, operating the monopoly itself, especially in the case of natural monopoly.
From society's perspective:
competition leads to lower prices, higher output, and greater efficiency than monopoly.
A monopolistically competitive market is characterized by:
many firms, product differentiation, and easy entry in the long run.
Monopolistically competitive firms have some market power because of:
product differentiation.
Which of the following outputs is most likely to be sold in a monopolistically competitive market?
Children's clothing
The demand curves of firms in monopolistically competitive markets are relatively elastic compared to the market demand curve for the general product due to:
the existence of close substitutes.
If a monopolistically competitive firm is earning a positive economic profit in the short run, then:
the positive economic profit will be eliminated in the long run as new firms enter the industry to compete for the above-normal profit.
The typical firm in a monopolistically competitive industry earns zero economic profit in the long run because:
there are no barriers to prevent the entry of new firms with similar products.
Game Theory suggests that competing firms in an oligopolistic industry may be:
reluctant to change prices because they anticipate that rivals will match price cuts but ignore price increases.
Behavior in which a dominant firm's pricing strategy is followed by other firms in the industry is called:
price leadership.
A group of firms in an industry that band together and agree to charge a common price and set output quotas is referred to as:
a cartel.
All of the following markets fit the characteristics of an oligopoly EXCEPT the market for:
fresh fruit.
An entrepreneur who is thinking about starting a new company producing and selling ketchup to compete at the national level with Heinz, Hunts, and Del Monte will likely have a hard time overcoming:
the economies of being established.
If firms in an oligopoly market are able to collude, then:
the market price is likely to be higher and the output is likely to be lower than they would be if firms could not collude.
Game theory helps explain:
the strategic behavior of firms in oligopoly markets.
Industry profit is likely to be lowest in an industry that:
is a contestable market.
A market characterized by many firms, product differentiation, and easy entry in the long run is:
monopolistically competitive.
A market that is made up of a few large firms that engage in strategic behavior is:
an oligopoly.
Which of the following best represents an example of a product provided in an oligopoly market?
Soft drinks
Hairstylists operate in a(n):
monopolistically competitive market.
Monopolistically competitive firms:
may earn either profits or losses in the short run, but tend to earn zero economic profits in the long run.
The characteristic that distinguishes oligopoly from other market structures is:
interdependence (strategic behavior) among firms in pricing and output decisions.
The Herfindahl-Hirschman Index is a measure of industry concentration that is calculated by:
summing the squares of the market shares of each firm in the industry.
The percentage of total industry output accounted for by the largest firms in an industry is called the:
concentration ratio.
To be successful in increasing the price of their product, members of a cartel must:
restrict market output.
The Price Leadership model leads to the prediction that:
a single firm may dominate an oligopoly market, so other firms simply set their product price equal to the price set by the dominant firm to avoid retaliation from the dominant firm.
A perfectly competitive firm is a price-taker, meaning the firm faces a:
perfectly elastic demand function.
The free-market outcome is efficient as long as:
marginal benefit is equal to marginal cost for the market equilibrium quantity, deadweight loss is equal to zero, total surplus (consumer and producer surplus combined) is maximized.
Which of the following statements in NOT true regarding the monopoly model?
Like a perfectly competitive firm, a monopoly firm is a price-taker and cannot independently influence the market price for its product.
The main difference between perfect competition and monopolistic competition is that perfectly competitive firms sell identical products and each faces a perfectly elastic demand, while monopolistically competitive firms offer products that are differentiated, resulting in a downward-sloping demand for each firm's output.
True
If a monopolistically competitive firm is able to convince consumers that it sells a higher quality product than what is offered by rival firms, the firm will be able to:
charge a higher price than rival firms, but quantity demanded will decrease.
