Principles of Econ Exam 3 Flashcards
The market structure in which there is more than one firm, but not very many (a few), is known as
Oligopoly
Which of the following is true for the market structure of perfect competition?
Many small firms selling a homogeneous product
Which of the following is a correct assumption regarding costs in the market structure of perfect competition?
Firms exhaust economies of scale at a low level of output
Because firms exhuast economies of scal at a low level of output they ha
Oligopoly is characterized by a few large firms with some barriers to entry.
True
A market with only a few sellers is known as a monopoly
False
Economists assume that under perfect competition all firms in the market have access to the same technology and know where to buy inputs at the same prices.
True
In perfect ompetition every producer knows the cheapest way to produce.
In long run equilibrium, all firms in a perfectly competitive market structure earns no economic profit.
True
Don’t forget the firm owner still earns a normal profit (their implicit
For a firm in perfect competition, an individual supply curve (the willingness and ability to supply a product at different prices is formed by the upward sloping portion of the individual firm’s marginal cost curve.
True
For perfectly competitive firm to be in long run equilibrium, the firm will produce at the minimum of the long-run average total cost curve.
True
The market supply curve is based on the sum of the individual producer’s supply curves in the market structure of perfect competition.
True
This process is known as Horizontal summation because, graphically, we
A perfect competitor will have an incentive to shut down in the short-run if the firm’s average variable costs is greater than the price of the product.
True
A perfect competitor may sometimes continue to operate in the short-run even if it’s total costs exceed its total revenue
True (If the losses are smaller than the fixed costs, the firm will continue to operate in the short run. The “short-run” is the amount of time that a firm has at least one fixed cost (associated with a fixed input i.e. the mortgage or rent for the factory).
Perfectly competitive firms are price takers?
True (These firms sell relatively small quantities, compared to the market as a whole; therefore they do not have control over price (in the short run). Firms that face perfect competition do not have control over the price that they sell their product for - they only have control over how much they produce. Firms that face perfect competition change their levels of profit and loss based on how much they produce at the given market price.)
When the market structure is one of perfect competition,
marginal revenue is equal to the price of the product. (Check photo)
In the short run, the perfectly competitive firm maximizes profits by producing the quantity for which
marginal revenue equals marginal cost (check photo)
Within a perfectly competitive market structure, the demand curve for an individual firm ____________& the demand curve for the market as a whole ________.
is horizontal; slopes upward and to the right
In the market structure of perfect competition, if firms are making profits within an industry, in the long-run we would expect to see.
Review photo
Which of the following is most likely to be a monopoly?
local electricity distributor
A firm that holds a monopoly position in the market place is
price maker
A monopolist is able to maximize it’s profits by
producing output where MR=MC; and charging a price where optimal quantity intersects the demand curve
When a natural monolpoly exists in a given industry, the per-unit costs of production will be
Lowest when a single firm generates the entire output of the industry
Following the assumption that firms maximize profits, how will the prices and quantity produced of an unregulated monopolist compare with ideal market of perfect competition
output will be too small and its price too high
The slope of the demand curve for a monopoly firm is
downward sloping
For monopolist, the marginal revenue curve ___ the demand curve.
Always lies beneath
For a pure monopoly to exist,
There is one single seller in that particular industry
____ law implies ownership over an idea or concept or image (Hint: your idea is the forms of property)
intellectual property
____ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry
an oligopoly
____ arised when firms act together to reduce output &/or raise the price of the product.
Collusion
A___refers to a group of firms colluding with one another to produce at the monopoly output and sell at the monopoly price.
cartel
The branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs most often used by economists is
game theory
The perceived demand curve for a group of competing oligopoly firms will appear kinked as a result of their commitment to
match price cuts, but not price increases
Perfect competition and monopoly stand at ___of the spectrum of economic market structures
opposite ends
Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engages in what economists call____
monopolistic competition
If monopolistic competitors must expect a process of entry and exit like perfectly competitive firms,
they will be unable to earn higher-than-normal profits in the long run.
The demand curve as perceived by a monopolistic competitor is ___
downward-sloping
The first step to be taken by a profit-maximizing monopolistic competitor trying to decide what price to charge is to…
select the profit maximizing quantity to produce
If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then,
the firm should keep expanding production until MR=MC
Through the process of exit, in the long run, monopolistically competitive firms remaiining in the market
are no longer earning losses _ they are earning zero economic profit
When entry eccurs in a monopolisticall competitive industry
the demand and marginal revenue curves for all other firms will shift to the left
If each of two competing monopolists undertakes equal advertising efforts to attract consumer away from the other, the total result is
they will simply neutralize one another’s efforts
The single most common form of competition in the U.S. is
monopolistic competition among firms with differentiated products
