Exam 3

The demand curve for a monopoly’s product is

The market demand for the product

At the profit-maximizing level of output for a perfectly competitive firm

Price = Marginal Cost

A monopolistically competitive firm faces a downward sloping demand curve because

of product differentiation

What characteristic of a perfectly competitive firm that causes it to be a price taker

1. Many buyers and sellers

2. Homogeneous Product

What trade-offs do consumers face when buying a product from a monopolistically competitive firm

Consumers pay a price greater than marginal cost, but they also have choices more suited to their tastes

A firm would decide to shut down if its production resulted in

MR < AVC

What happens if a perfectly competitive industry/market becomes a monopoly? Compared to perfectly competition, a profit-maximizing monopoly would ____ quantity. In addition, a monopoly would ____ price

Decrease; Raise

If the total market size remains constant, a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because

Some of its customers have switched to purchasing the products of new entrants in the market

Producing a differentiated product occurs in which of the following industries

Monopolistic competition and oligopoly

Which of the following scenarios could be considered as price discrimination

A bookstore offers a discount to students but not to other customers

What are the most important differences between perfectly competitive markets and monopolistically competitive markets? Unlike in perfectly competitive markets, in monopolistically competitive markets

Firms face downward sloping demand curves, and there are substantial barriers to entry

Patents, tariffs, and quotas are all example of

Government-imposed barriers

The firm’s short-run supply curve is its

Marginal Cost Curve

To be natural monopoly, a firm must

Have economies of scale that are so large that is can supply the entire market at a lower cost than two or more firms

Firms price discriminate

To increase profits

What determines entry and exit of firms in a perfectly competitive industry in the long run

New firms will enter if existing firms are making a profit and existing firms will exit if they are experiencing loses

In the long run, the monopolist can earn

None of the above

When a firm advertises a product, it is trying to shift the demand curve for the product to the ____ and make it more ____

Right; Inelastic

Producing where marginal revenue equals marginal cost is equivalent to producing where

total profit is maximized

The streaming video industry, where a firm’s profitability depends on its interactions with other firms, is an example of

Oligopoly

All of the following characteristics are common to both monopolistic competition and perfect competition except

Firms take market prices as given

Network Externalities

Exist when the usefulness of a product increases with the number of consumers who use it

Oligopoly differs from perfect competition and monopolistic competition in that

Because oligopoly firms often react when other firms in their industry change their prices, it is difficult to know what the oligopolist’’ demand curve looks like

Relative to a perfectly competitive market, a monopoly results in

A gain in producer surplus less than the loss in consumer surplus

A monopolistically competitive firm maximizes profit where

Price > Marginal Cost

Long-run economic profits would most likely exist in which market structure?

Monopoly and Oligopoly

If buyers of a monopolistically competitive product feel the products of different sellers are strongly differentiated, then the demand for each seller’s product is

Inelastic

When a monopolistically competitive firm cuts its price to increase its sales, it experiences a loss in revenue due to the

Price Effect