Chapter 8 (Managing Markets)

Question 1

Economics of scale

Answer 1

Exist whenever long-run average costs decline as output increases

Question 2

Diseconomies of scale

Answer 2

Exist whenever long-run average costs increase as output increases

Question 3

Economies of scope

Answer 3

Exist when the total cost of producing two products within the same firm is lower than when the products are produced by separate firms.

Question 4

Cost complementarities

Answer 4

Exist when the marginal cost of producing one output is reduced when the output of another product is increased

Question 5

Monopoly output rule

Answer 5

A profit-maximizing monopolist should produce the output Q^m such that marginal revenue equals marginal cost

Question 6

Monopoly pricing rule

Answer 6

Given the level of output Q^m that maximizes profits the monopoly price is the price on the demand curve corresponding to the Q^m units produced

Question 7

Monopolistic competition

Answer 7

A market in which (1) there are many buyers and sellers; (2) each firm produces a differentiated product; and (3) there is free entry and exit

Question 8

Deadweight loss of monopoly

Answer 8

The consumer and producer surplus that is lost due to the monopolist charging a price in excess of marginal cost

Question 9

Profit maximization rule for monopolistic competition

Answer 9

To maximize profits, a monopolistically competitive firm produces where its marginal revenue equals marginal cost. The profit-maximizing price is the maximum price per unit that consumers are willing to pay for the profit-maximizing level of output.

Question 10

Long run and monopolistic competition

Answer 10

In the long run, monopolistically competitive firms produce a level of output such that 1) P > MC, 2) P = ATC > minimum average costs

Question 11

Comparative advertising

Answer 11

A form of advertising where a firm attempts to increase the demand for its brand by differentiating its product from competing brands.

Question 12

Brand equity

Answer 12

The additional value added to a product because of its brand

Question 13

Nice marketing

Answer 13

A marketing strategy where goods and services are tailored to meet the needs of a particular segment of the market

Question 14

Green marketing

Answer 14

A form of niche marketing where firms target products toward consumers who are concerned about environmental issues

Question 15

Brand myopic

Answer 15

A manager or company that rests on a brand’s past laurels instead of focusing on emerging industry trends or changes in consumer preferences

Question 16

How does a monopoly maximize revenue

Answer 16

Monopolies maximize revenue when MR = 0

Question 17

How do perfectly competitive firms maximize profit?

Answer 17

When price equals marginal cost

Question 18

Where is the short run supply curve for a perfectly competitive firm?

Answer 18

Where MC is greater than ATC

Question 19

What is the monopoly level of output?

Answer 19

MR = MC

Question 20

Where is the short run supply curve for a monopoly?

Answer 20

There is no supply curve for a monopolist

Question 21

What does the supply curve determine?

Answer 21

How much will be produced at a given price

Question 22

Perfectly competitive firms determine how much output to produce based on

Answer 22

P = MC

Question 23

What is the monopolistic competition level of output?

Answer 23

MR = MC

Question 24

What is the profit-maximizing level of output for monopolistic competition?

Answer 24

The price per unit that consumers are willing to pay for the profit-maximizing level of output.

Question 25

The optimal advertising to sales ratio

Answer 25

Eqa / -Eqp where Eqa is the advertising elasticity and Eqp is the own price elasticity