Exam 3 Flashcards
Speedy Flowers competes in the monopolistically competitive flower delivery industry in a city. The firm raises its prices by 5% while all other florists keep their prices the same. Which of the following is most likely to occur? Speedy Flowers will
a) be unable to sell any flowers because it was the only firm to raise price.
b) lose some of its customers.
c) increase its profits.
d) serve an increased number of customers.
B
A significant difference between perfect competition and monopolistic competition is that:
a) a perfectly competitive firm is a price setter, while a monopolistic competitive firm is a price taker.
b) a perfectly competitive firm faces a downward-sloping demand curve, while a monopolistic competitive firm faces a perfectly elastic demand curve.
c) a perfectly competitive firm sells a homogeneous product, while a monopolistic competitive firm sells a differentiated product.
d) a perfectly competitive firm sets price above marginal cost, while a monopolistic competitive firm sets price equal to marginal cost.
C
Which of the following statements is true of price discrimination?
a) Successful price discrimination will provide the firm with lower total profits than if it did
not discriminate
b) Successful price discrimination will provide the firm with more profit than if it did not
discriminate
c) Successful price discrimination will generally result in a lower level of output than would
be the case under a single-price monopoly.
d) Successful price discrimination occurs when there are differences in the costs of producing
for different groups of buyers
B
Consider an industry that is made up of six firms with the following market shares: Firm A - 25%,
Firm B - 20%, Firms C and D - 8% each, Firm E - 9%, and Firms G and H - 15% each. What is the
value of the Herfindahl-Hirschman Index?
1,684
A monopoly is characterized by all of the following except
A. there are only a few sellers each selling a unique product
B. entry barriers are high
C. there are no close substitutes to the firm’s product
D. the firm has market power
A
A monopolist’s profit maximizing price and output correspond to the point on a graph
A. where average total cost is minimized
B. where total costs are the smallest relative to price
C. where marginal revenue equals marginal cost and charging the price on the market demand curve for that output
D. where price is as high as possible
C
If a monopolist’s price is $50 at 63 units of output, and marginal revenue equals marginal cost and
average total cost equals $43, then the firm’s total profit is
a) $3,150.
b) $2,709.
c) $441.
d) $7.
C. Profit = (P-ATC)q = (50-43)63=441
Suppose a monopolist has a constant marginal cost of production and faces a demand curve given by
Q = 20 – 2P. If the profit maximizing price of the monopolist is $8, what must the marginal cost of the
monopolist be (at the profit-maximizing quantity)?
a) 6.
b) 7.
c) 8.
d) 14.
A. 6
The demand facing a monopolistically competitive firm is ________ a perfectly competitive firm
and ________ a monopolistic firm.
a) as elastic as; less elastic than
b) less elastic than; more elastic than
c) more elastic than; less elastic than
d) more elastic than; as elastic as
C
A significant difference between perfect competition and monopolistic competition is that
a) a perfectly competitive firm is a price searcher, while a monopolistic competitive firm is a price
taker.
b) a perfectly competitive firm faces a downward-sloping demand curve, while a monopolistic
competitive firm faces a perfectly elastic demand curve.
c) a perfectly competitive firm sells a homogeneous product, while a monopolistic competitive firm
sells a differentiated product.
d) a perfectly competitive firm sets price above marginal cost, while a monopolistic competitive firm
sets price equal to marginal cost.
C
T/F ?
The airline industry is a good example of a monopolistically competitive industry
False
T/F ?
In general, the demand curve facing the monopolistically competitive firm is less elastic than the demand curve facing the perfectly competitive firm
True
First Degree price discrimination
This is known as Perfect Price Discrimination.
- Suppose our class is going to Miami for the summer vacation.
- At most, I am willing to pay for the trip for $600.
- $600 is the reservation price of the trip to me.
- Jack will only pay for the trip if the price is < or = $550.
- Danielle will only pay for the trip if the price is < or = $700.
- What’s perfect price discrimination?
- Delta comes and charge me $600, Jack $550 and Danielle $700.
- No consumer surplus for any of us
Second Degree Price Discrimination
Price varies according to quantity demanded.
- Larger quantities are available at a lower unit price.
- Bulk buyers enjoy higher discounts, and is typically seen for buyer in
industries
Third Degree Price Discrimination
price varies according to attributes.
- For example, price difference between female/male price or higher
prices among disadvantaged or minority groups. - Most likely banned and/or illegal.
- Senior discounts are great!
Profit Maxing rule for different market structures.
Perfect competition
Monopolistic competition
Oligopoly
Monopoly
Perfect competition: MC = MR = Price
Monopolistic competition: MC = MR
Oligopoly: MC = MR
Monopoly: MC = MR
Characteristics of an oligopoly
Number of Firms?
Type of Product?
Ease of Entry?
Examples of Industries?
Number of Firms: few
Type of Product: identical or differentiated
Ease of Entry: low / hard
Examples of Industries: manufacturing computer or cars
What is the elasticity comparison of different market structures?
Perfect competition: perfectly elastic
Monopoly: inelastic
Oligopoly: inelastic
Monopolistic competition: somewhat elastic
characteristics of a monopoly
Number of Firms
Type of Product
Ease of Entry
Examples of Industries
Number of Firms: one
Type of Product: unique
Ease of Entry: entry blocked
Examples of Industries: first class mail delivery or tap water
Understand Dominant strategies and know what Nash equilibrium is
review practice questions
how to calculate HHI
take all percent and make it a whole number squared then add them all up
know how to calculate profit maximization price and output
review practice questions
attributes of monopolistic competition
Number of Firms
Type of Product
Ease of Entry
Examples of Industries
Number of Firms: many
Type of Product: differentiated
Ease of Entry: high
Examples of Industries: clothing stores or restaurants
