Monopoly- ECON 102 Week 11

If a monopolist is producing a quantity that generates MC > MR, then profit:

can be increased by decreasing production.

If a change in fixed cost raises average total cost above the demand curve:

the monopoly will go out of business.

The municipal swimming pool charges lower entrance fees to local residents than to nonresidents. Assuming that this pricing strategy increases the profits of the pool, we can conclude that nonresidents must have a ________ for swimming at the pool than residents.

less elastic demand

A downward-sloping demand curve will ensure that:

P > MR.

Which of the following is a barrier to entry?

control of scarce resources, economies of scale, and government-created barriers (i.e., patents and copyrights)

In the short run, a monopoly will stop producing if:

P < AVC.

In contrast with perfect competition, a monopolist:

may have economic profits in the long run.

In a monopoly in the long run:

entry by other firms will not occur.

A downward-sloping demand curve will ensure that:

P > MR.

The pricing in monopoly prevents some mutually beneficial trades. The value of these unrealized mutually beneficial trades is called:

a deadweight loss.

Which of the following is true?

If demand is downward sloping, P > MR.

Compared to a perfectly competitive market, a monopolist will produce ________ and charge a ________ price.

less; higher

In order to engage in price discrimination a firm must be:

a price-setter, and it must be able to identify consumers whose elasticities differ.

Goods that are subject to network externalities tend to be ones:

…

Quantity competition or Cournot behavior is most likely when oligopolistic firms:

cannot increase their level of output quickly due to limits on their productive capacity.

Table 12.2

Refer to Table 12.2. Jeri and Tom are arrested for having committed a crime. They are being interrogated individually and need to decide if they should confess or not confess. The police have enough information to put them in jail for 5 years. They also know the pair have committed a more egregious crime but without the help of one of the suspects they will not be able to convict them on this charge. The first number in each cell refers to the number of years of prison time Jeri will receive if she confesses or does not confess and the second number in each cell refers to the number of years of prison time Tom will receive if he confesses or does not confess. The dominant strategy for Jeri is to ________ and the dominant strategy for Tom is to ________.

confess; confess

In perfect competition:

each individual firm will have a small market share.

In perfect competition, the assumption of easy entry and exit implies that:

in the long run all firms in the industry will earn zero economic profits.

The optimal output rule for a price-taking firm is to:

produce at the point at which price is equal to marginal cost of the last unit produced.

In perfect competition, a change in fixed cost:

will encourage entry or exit in the long run so that price will change enough to leave firms earning zero profits.

Suppose that some firms in a perfectly competitive industry earn negative economic profits. In the long run:

the industry supply curve will shift to the left.

Suppose that Jody sells fish in a perfectly competitive market. He can sell each fish for $5, and today he brought 20 fish to the fish market. If his total variable cost is $110 and his total fixed cost is $50, then:

he should have stayed home.

A curve that shows the quantity of a good or service supplied at various prices after all long-run adjustments to a price change have been completed is a long-run:

industry supply curve.

If a firm’s economic profits are equal to zero, its accounting profits are most likely:

greater than economic profits.

Farmer Ted sells winter wheat in a perfectly competitive market. The market price for a bushel of winter wheat is $9. Ted has 270 bushels of wheat to sell. If his total variable cost is $2000 and his total fixed cost is $500, then

Ted is minimizing his losses.

Provided that there are no external benefits or costs, resources are efficiently allocated when:

P = MC.

If the price is greater than the average variable cost and less than the average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

continue to produce at an economic loss.

Zoe’s Bakery operates in a perfectly competitive industry. When the market price of iced cupcakes is $5, the profit-maximizing output level is 150 cupcakes. Her average total cost is $4, and her average variable cost is $3. Zoe’s marginal cost is ________, and her short-run profits are:

$5; $150

Perfect competition is a model of the market that assumes all of the following except:

firms face downward-sloping demand curves.

If a competitive firm shuts down for a holiday, it must still pay its:

fixed cost.

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the market price will ________ and the output of a typical firm will ________.

rise; rise

If there is free entry and exit in a perfectly competitive industry, the long-run equilibrium will:

be at the level of zero economic profit for each firm.

If the price is less than the average variable cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

shut down production.

The table above gives the total cost information for Hank and Helen’s cherry farm. They sell their cherries in a perfectly competitive market, where the price is $6.00 per pound. If Hank and Helen produce and sell 6 pounds of cherries, what is their profit?

$8

A perfectly competitive firm will produce:

with a loss in the short run if its price is greater than AVC but less than ATC.

If a perfectly competitive firm is producing a quantity where MC &lt; MR, then profit:

can be increased by increasing production.

The long-run industry supply curve:

will be more elastic than the short-run industry supply curve.

Individuals in a market who must take the market price as given are:

price-takers.

The marginal revenue received by a firm in a perfectly competitive market:

is the change in total revenue divided by the change in output.

Which of the following is most likely to cause firms to exit a perfectly competitive industry?

consumer income falls

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total costs of producing candy canes by $0.05. Based on the information given, we can conclude that in the short run a typical producer of candy canes will be making:

negative economic profits.

If the price is consistently below average total cost, then in the short run a perfectly competitive firm should:

There is not enough information given to answer this question.

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total cost of producing candy canes by $0.05; there are no other changes in production costs. Based on the information given, we can conclude that in the long run we will observe:

firms leaving the industry.

Perfectly competitive industries are characterized by:

goods that are standardized

Maximizing profits also means that a firm is attempting to:

produce at the output level where the difference between total revenue and total cost is the greatest.

Tony runs Read Economic Reports. If Tony finds that the cost of completing an additional report is $100 and someone offers him $125 to complete this additional report, Tony should:

complete the additional report.

If Annie has sold 40 apples in a perfectly competitive market and her total revenue is $80, when she sells her 41st apple, her marginal revenue will be:

$2.

If firms are making positive economic profits in the short run, then in the long run:

firms will enter the industry.

The competitive model assumes all of the following except:

patents and copyrights

If there are no obstacles to new firms entering the pet-sitting industry, then we can say that this industry:

has free entry.

In the short run, if P &lt; AVC, a perfectly competitive firm:

does not produce output and incurs an economic loss.

In a perfectly competitive industry, the market demand curve is usually:

downward sloping.

A perfectly competitive small organic farm that produces 1,000 cauliflower heads in the short run has an ATC = $6 and AFC = $2. The market price is $3 per head and is equal to MC. In order to maximize profits (or minimize losses), this farm should:

shut down.

In oligopoly, a firm must realize that:

it is in an industry in which another major firm may dominate, and the firm will need to judge its actions accordingly.

A Japanese steel firm sells steel in the United States and in Japan. Since the United States buys steel from a number of sources, the U.S. demand for Japanese steel is more price-elastic than the Japanese demand for Japanese steel. If the Japanese steel firm wishes to maximize its profits, it should:

charge a lower price in the United States and a higher price in Japan.

For a monopolist with a downward-sloping demand curve, the quantity effect dominates the price effect at:

lower levels of production

In a monopoly in the long run:

entry by other firms will not occur.

Diamond rings are relatively scarce because:

De Beers limits the quantity of diamonds supplied to the market.

A monopoly is an industry structure characterized by:

barriers to entry and exit.

Suppose GoSports pennant monopoly is broken up and the pennant industry becomes perfectly competitive. We would expect the ________ to increase from the breakup and ________ to decrease from the breakup.

consumer surplus and total surplus; producer surplus

The practice of charging different prices to different customers for the same good or service, even though the cost of supplying those customers is the same, is:

price discrimination.

Which of the following is not a barrier to entry?

a ban on certain kinds of advertising

The GoSports Company is a profit-maximizing firm with a monopoly in the production of school team pennants. The firm sells its pennants for $10 each. We can conclude that GoSports is producing a level of output at which:

marginal cost equals marginal revenue.

In the short run, a monopoly will stop producing if:

P < AVC.

A firm that is a natural monopoly will:

maximize profit by producing where MR = MC.

If a monopolist is producing a quantity that generates MC &lt; MR, then profit:

can be increased by increasing production.

The large barriers to entry are a reason a monopoly:

earns an economic profit in the long run.

Marginal revenue for a monopolist is:

not equal to price.

In contrast to perfect competition, a:

monopoly produces less at a higher price.

A statement that best reflects an evaluation of monopoly firms is that:

they are economically inefficient.

A firm that faces a downward-sloping demand curve is a:

price-setter.

Suppose a monopoly can separate its customers into two groups. If the monopoly practices price discrimination, it will charge the lower price to the group with:

the higher price elasticity of demand.

A monopolist is likely to ________ and ________ than a comparable perfectly competitive firm.

produce less; charge more.

Public policies toward monopoly in the United States often consist of:

the regulation of natural monopolies.

At the profit-maximizing level of production, a perfectly competitive industry will produce an ________ level of production, and a monopolist produces an ________ level of production.

efficient; inefficient.

Which of the following is a barrier to entry?

control of scarce resources, economies of scale, and government-created barriers (i.e., patents and copyrights).

A monopoly is a market characterized by:

a single seller.

For a monopolist, the market demand curve:

is also the demand for the monopolist’s product.

Which of the following is true?

If demand is downward sloping, P > MR.

The demand curve facing a monopolist is:

downward sloping.

Which of the following is true regarding monopolies?

Monopolies produce too little and charge too much from the standpoint of efficiency.

Which of the following is not an example of price discrimination?

a special Fourth of July sale.

In perfect competition, the firm produces the output such that ________, and in monopoly, the firm produces the output such that ________.

P = MR = MC; P > MR = MC

If a monopolist can engage in perfect price discrimination, then:

it produces at the socially efficient level.

Market structures are categorized by the following two criteria:

the number of firms and whether or not products are differentiated.

Price discrimination leads to a ________ price for consumers with a ________ demand.

lower; more elastic

Which of the following statements about the differences between monopoly and perfect competition is incorrect?

Monopoly profits can continue to exist in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

Natural monopolies include all of the following except:

a diamond mining company.

A monopoly can be temporary because of:

technological change.

Because monopoly firms are price-setters:

they can sell more only by lowering price.

A natural monopoly exists whenever a single firm

has economies of scale over the entire range of production that is relevant to its market.

A monopoly is an industry structure characterized by:

barriers to entry and exit.

Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is:

$19.

To practice effective price discrimination, a monopolist must be able to:

prevent the resale of goods among groups of buyers.

A natural monopolist that is price regulated at the marginal cost output level will:

eventually incur losses if MC is less than ATC.

Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can charge only $20,000 each. The quantity effect of selling the sixth motor home is:

$20,000.

The table above gives the total cost information for Hank and Helen’s cherry farm. They sell their cherries in a perfectly competitive market, where the price is $6.00 per pound. What is the profit-maximizing quantity of cherries?

5 pounds.

The supply curve found by summing up the short-run supply curves of all of the firms in a perfectly competitive industry is called the:

short-run market supply curve.

An assumption of the model of perfect competition is:

many buyers and sellers.

Lilly is the price-taking owner of an apple orchard. The price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect:

lower apple prices due to the entry of new firms.

Price-takers are individuals in a market who:

have no ability to affect the price of a good in a market.

A perfectly competitive firm is selling a product at the market price of $11. It produces and sells the profit-maximizing quantity of 20 units, and at this level of output, its average total cost is $10 and its average variable cost is $8. What is the firm’s level of profit?

$20.

A perfectly competitive firm will maximize profit by:

producing at the point at which marginal revenue equals the marginal cost of the last unit produced.

For the Colorado beef industry to be classified as perfectly competitive, ranchers in Colorado must have ________ on prices and beef must be a ________ product.

no noticeable effect; standardized

Consider the corn industry (a perfectly competitive industry). The price per bushel is $2 and there are constant returns to scale. If the long-run, minimum ATC is $1.50 per bushel, it should follow that (ceteris paribus):

the long-run price will be $1.50 per bushel.

The competitive model assumes all the following except:

patents and copyrights.

A perfectly competitive industry with constant costs initially operates in long-run equilibrium. When demand increases, one will observe that:

in the short run, prices and profits will be higher, but in the long run, price will fall back to its original level and firms will again earn zero economic profit.

If a perfectly competitive firm is producing a quantity where MC &gt; MR, then profit:

can be increased by decreasing production.

Maximizing profits also means that a firm is attempting to:

produce at the output level where the difference between total revenue and total cost is the greatest.

If the price is consistently below average total cost, then in the short run a perfectly competitive firm should:

There is not enough information given to answer this question.

In the short run, for a perfectly competitive firm, the portion of the MC curve at or above the shut-down price is also its:

individual short-run supply curve.

Hank operates a perfectly competitive firm in the long run. For several periods the market price has been $20, and he knows his break-even price is $22. Hank should:

exit the industry, since he is making losses.

The shut-down point in the short run is:

the minimum point of AVC.

Firms will make a profit in the long run or short run if the price is:

greater than ATC. (average total cost).

In a perfectly competitive market, tastes and preferences lead to an increase in the demand for the good. Holding everything else constant, this will lead to an increase in price that will result in:

positive economic profits for firms, which will attract new firms, which in turn will result in a reduction in the price.

When a perfectly competitive industry is in equilibrium:

the value of marginal cost is the same for all firms.

A perfectly competitive industry with constant costs initially operates in long-run equilibrium. When demand increases, one will observe that in the long and short runs:

output will increase.

The resources needed for growing cucumbers are relatively abundant. Many new firms could enter this industry and not change costs. If that happens,

the long-run industry supply curve will be horizontal.

Ashley, who makes knitted caps, determines that her marginal cost of producing one more knitted cap is equal to $10. A consumer offers her $12 if she sells one more knitted cap to her. Ashley will:

sell the additional knitted cap, since the marginal revenue is greater than the marginal cost for the unit.

The slope of the total revenue curve is:

constant under perfect competition.

For a perfectly competitive firm, marginal revenue:

is equal to price.

The table above gives the total cost information for Hank and Helen’s cherry farm. They sell their cherries in a perfectly competitive market, where the price is $6.00 per pound. If Hank and Helen produce and sell 6 pounds of cherries, what is their profit?Goods that are subject to network externalities tend to be ones:

$8.

that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the typical firm is likely to begin:

earning an economic profit.

Suppose that Jody sells fish in a perfectly competitive market. He can sell each fish for $20, and today he brought 20 fish to the fish market. If his total variable cost is $110 and his total fixed cost is $50, then:

he has earned an economic profit.

Which of the following is the best example of a commodity in a perfectly competitive industry?

apples.

If a perfectly competitive firm is producing a quantity where MC = MR, then profit:

is maximized.

the shut-down price is:

the minimum of AVC curve.

A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if the price is:

greater than average total cost.

A perfectly competitive firm’s marginal cost curve above the average variable cost curve is its:

short-run supply curve.

Suppose Sarah’s pottery studio is charging the market price, which is just higher than her minimum average total cost. This means that Sarah:

is earning a small economic profit.

If the price is consistently below the average variable cost, then in the short run a perfectly competitive firm should:

shut down.

For a firm producing at any level of output greater than the most profitable one, a reduction in output decreases:

total cost more than total revenue.

Critics of the National Collegiate Athletic Association (NCAA) argue that the NCAA monopolizes college athletics and prevents student-athletes from earning money while in college. If this is true, what type of entry barrier does the NCAA have?

control of a scarce resource or input

Because business travelers’ demand for airline flights is relatively ________, small increases in price will result in relatively ________ in additional business travelers.

price-inelastic; small decreases

In contrast to perfect competition, a:

monopoly produces less at a higher price.

One of the major differences between a monopolist and a purely competitive firm is that the monopolist has a ________ demand curve, while the purely competitive firm has a ________ demand curve.

downward-sloping; perfectly elastic

A monopolist’s marginal cost curve shifts up, but the firm’s demand curve remains the same and the firm does not shut down. Compared to the condition before the increase in marginal costs, the monopolist will ________ its price and ________ its level of production.

raise; decrease

Temporary monopolies via the provision of sole ownership rights to profit from the production, use, or sale of a good are provided by:

patents and copyrights.

Suppose that a profit-maximizing monopoly firm undergoes a substantial technological change that reduces its marginal and average total costs by $40. If in response to its reduction in cost the firm changes its price in a profit-maximizing way, then we can predict that its total output will:

rise.

In 1999, a judge declared that Microsoft was a monopolist. Assuming that it is maximizing its profits at its current level of output, we may conclude that if Microsoft were to increase its price, its total revenue would:

fall.

An increase in the fixed costs of a monopoly firm would ________ price and ________ quantity in the short run.

not change; not change.

Which of the following statements is correct for a firm that can price-discriminate?

It should adjust prices so that customers with price-elastic demand pay lower prices than those with inelastic demand.

Suppose that the Yankee Cap Company is a profit-maximizing firm that has a monopoly in the production of baseball caps. The firm sells its baseball caps for $25 each. For this information, we can assume that the Yankee Cap Company is producing a level of output at which:

marginal cost equals marginal revenue.

The demand curve for a monopoly is:

the industry demand curve.

A monopoly responds to a decrease in marginal cost by ________ price and ________ output.

decreasing; increasing

Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can only charge $20,000 each. The price effect of selling the sixth motor home is:

-$5,000.

Goods that are subject to network externalities tend to be ones:

for which the value of the good to an individual is higher when more people use it.

A local community college charges lower tuition fees to local town residents than to nonresidents. This pricing strategy increases the profits of the community college. Using this information, we can conclude that nonresidents must have a ________ for attending the community college than residents.

less price-elastic demand.

Network externalities exist when a good’s value to the consumer rises as:

the number of people who use the good increases.

The monopoly firm’s profit-maximizing price is:

given by the point on the demand curve for the profit-maximizing quantity.

A firm in a perfectly competitive industry is maximizing its profits at 400 units. If the marginal revenue and marginal cost are both $35 and the firm’s average total cost is $25, this firm’s profit is

$4,000

If the firm produces a quantity at which total cost exceeds total revenue, then:

economic profit is negative.

A perfectly competitive industry is in a state of long-run equilibrium. Which of the following must be true?

P = MR = MC = ATC.

If a perfectly competitive firm increases production from 10 units to 11 units and the market price is $20 per unit, total revenue for 11 units is:

$220.

if price falls below average total costs, then the firm will shutdown in the short run.

true

The long-run industry supply curve relates the price of a good or service to the quantity produced after all adjustments to a price change have been made.

true

Heath’s company is currently producing 30 units of output. The price of the good is $8 per unit. Total fixed costs are $50 and the average variable cost is $5 at 30 units. This company:

$40.

The short-run industry supply curve:

shows the total quantity supplied by all firms in an industry for each possible price when the number of producers is given.

A firm’s profit is equal to:

(Price – Average total cost) x Quantity

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the typical firm is likely to begin:

earn an economic profit. /increase in business economic profit.

Which of the following is a characteristic of a perfectly competitive firm?

JorDawn cannot tell which farm the peaches came from-they all look alike.

In the model of perfect competition:

no individual or firm has enough power to have any impact on price.

If all firms in an industry are price-takers, then:

an individual firm cannot alter the market price even if it doubles its output.

The price received by a firm in a perfectly competitive market:

is equal to the market price.

When a firm cannot affect the market price of the good that it sells, it is said to be a:

price-taker.

If a perfectly competitive firm can sell a bushel of soybeans for $40 and it has an average variable cost of $50 per bushel and the marginal cost is $52 per bushel, the firm should:

cut output to zero.

For a firm producing at any level of output lower than the most profitable one, an increase in output adds:

more to total revenue than to total cost.

In perfect competition:

goods are standardized and all market participants are price-takers.

In the short run, a firm will continue to sell its product as long as:

the price is greater than average variable costs.

A firm’s decision about whether or not to stay in business should be based on:

its economic profit.