Microeconomics Market Structures: Competition, Monopoly, and Oligopoly

When profit-maximizing firms in perfectly competitive markets are earning profits,

new firms will enter the market.[cite: 51]

In a perfectly competitive market the price is $8. A typical firm in the market has ATC=$7, AVC=$5, and MC=$8. How much economic profit is the firm earning in the short run?

$1 per unit[cite: 52]

A firm that shuts down temporarily has to pay

its fixed costs but not its variable costs.[cite: 57]

Which of the following is not a characteristic necessary for a firm to be a monopoly?

The firm is located in a small geographic market.[cite: 58]

Which of the following is not an example of a barrier to entry?

The first Brazilian restaurant is opened in a medium sized city.[cite: 58]

A natural monopoly occurs when

there are economies of scale over the relevant range of output.

Monopoly firms are called

price-makers because they have downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve.

A monopolist can sell 200 units of output for $35 per unit. Alternatively, it can sell 201 units of output for $34.50 per unit. The marginal revenue of the $201^{st}$ unit of output is

-$65.50.[cite: 59]

The deadweight loss associated with a monopoly occurs because the monopolist

produces an output level less than the perfectly competitive level.

For a firm to price discriminate,

it must be able to identify customers with different demands.[cite: 63]

A monopolist's profits with price discrimination will be

higher than if the firm charged just one price because the firm will capture more consumer surplus.[cite: 63]

A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it

can prevent children from buying the lower-priced tickets and selling them to adults.[cite: 63]

Which of the following is not an example of price discrimination by a firm?

A natural gas company charging all customers a higher rate in the winter than in the summer[cite: 63, 64]

Which of the following statements is not correct?

Both monopolistic competition and perfect competition are characterized by product differentiation.[cite: 64]

A monopolistically competitive industry is characterized by

many firms, differentiated products, and free entry.[cite: 64]

In both perfect competition and monopolistic competition, each firm

has many competitors.[cite: 64]

When a monopolistically competitive firm raises its price,

quantity demanded declines but not to zero.[cite: 65]

In monopolistically competitive markets, free entry and exit suggests that

all firms earn zero economic profits in the long run.

Which of the following is not an argument made by critics of advertising?

Advertising promotes economies of scale.

For Coca Cola versus Pepsi, which items below are sources of product differentiation?

d) all of the above[cite: 70, 71]

Which of the following examples illustrates an oligopoly market?

A city with two firms that are licensed to sell school uniforms for the local schools[cite: 71]

When an oligopoly market reaches a Nash equilibrium,

a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.

If duopoly firms that are not colluding were able to successfully collude, then

price would rise and quantity would fall.

Cartels are difficult to maintain because

each firm has an incentive to deviate from its agreed output level.[cite: 71, 72]

Suppose a firm in a perfectly competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

$10 and 100 units

For an individual firm operating in a competitive market, marginal revenue equals

average revenue and the price for all levels of output.

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

profit is maximized.[cite: 78, 79]

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

remain unchanged.