Problem Set 4 (Chapters 14 & 15) Flashcards
A competitive firm maximizes profit by choosing the quantity at which
a.average total cost is at its minimum
b.marginal cost equals price
c.average total cost equals the price
d.marginal cost equals average total cost
B
A profit-maximizing firm in a perfectly competitive market is currently producing 500 units of output, at a price of $40 and total cost of $1000. At this current level of output, marginal cost is _______, and average total cost is_________.
a.$8, $6
b.$2, $2
c.$20, $2
d.$40, $2
D
In the long-run equilibrium of a perfectly competitive market with identical firms, what are the relationships among price P, marginal cost MC, and average total cost ATC?
a.P > MC and P > ATC
b.P > MC and P = ATC
c.P = MC and P > ATC
d.P = MC and P = ATC
D
A perfectly competitive firm’s short-run supply curve is its _________ cost curve above its _________ cost curve.
a.average total, marginal
b.average variable, marginal
c.marginal, average total
d.marginal, average variable
D
The existence of economic losses in a perfectly competitive market induces firms to __________ the market, which shifts the market supply curve to the__________ and __________ market price.
a.exit, left, increases
b.enter, right, decreases
c.enter, left, decreases
d.enter, right, increases
A
If a perfectly competitive market is one of constant costs, this implies the long run market supply curve is
a.upward sloping
b.downward sloping
c.perfectly elastic
d.perfectly inelastic
C
Suppose the market for building new homes is perfectly competitive and one of constant costs. If the demand for new homes increases,
a.the price to build a new home will go up in the short run and the long run
b.the price to build a new home will go up in the short run, but not in the long run
c.the price to build a new home will go up in the short run, but go down in the long run
d.the price to build a new home will go down in the short run and the long run
B
Suppose the pretzel market is perfectly competitive and in its long run equilibrium. If then there is a new process that reduces the costs for each firm in the industry, short run economic profits will be _________, though in the long run economic profit will be _____ as firms _______ the industry.
a.negative, zero, exit
b.zero, positive, enter
c.positive, positive, neither enter or exit
d.positive, zero, enter
D
What is the relationship between price P, marginal revenue MR, and marginal cost MC for a profit maximizing monopolist?
a.P = MR and MR = MC
b.P > MR and MR = MC
c.P = MR and MR > MC
d.P > MR and MR > MC
B
Suppose the DeBeers company is a monopolist in its market to sell diamonds. Also suppose this year the company earns economic profits. This implies that the price of diamonds will
a.be equal to the marginal cost of producing diamonds.
b.be equal to the average cost of producing diamonds.
c.exceed the marginal cost of producing diamonds, but be equal to the average cost of producing diamonds.
d.exceed both the marginal cost and average cost of producing diamonds.
D
A significant long-run difference between monopoly and perfect competition is that
a.there’s free entry and exit in a perfectly competitive market, while barriers to entry exist in a monopolized market.
b.the monopolist controls market supply, while the perfectly competitive firm’s influence on market supply is imperceptible.
c.the demand curve for the monopolist is the market demand curve, while the demand curve faced by the perfectly competitive firm is perfectly elastic.
d.all of the above.
D
The graph below shows the average cost, marginal cost, demand, and marginal revenue curves for a market. If the market is perfectly competitive, the price is ___ and the quantity is ____. If the market is monopolized, the price is ___ and the quantity is ____.
a.8, 30. 6, 45
b.8, 30. 4, 30
c.6, 45, 8, 30
d.8, 30. 6, 30
C
If the government attempts to break up a natural monopoly to enforce competition in a market,
a.the average cost of producing the good will increase.
b.the smallest firm will have a significant cost advantage over the larger, less efficient firms.
c.the average cost of producing the good will decrease.
d.the price paid by consumers will be expected to remain the same.
A
Which of the following is true regarding a monopoly?
a.a monopoly is a socially efficient market structure since prices are maximized where MR=MC
b.a monopoly is a socially inefficient market structure since the quantity in the market is too high and price too low
c.a monopoly is a socially inefficient market structure since the quantity in the market is too high and price too high
d.a monopoly is a socially inefficient market structure since the quantity in the market is too low and price too high
D
When a monopolist practices price discrimination
a.it sets the price and quantity where market MR = MC
b.it charges different consumers different prices for the same good
c.it does not allow its good to be sold to certain undesirable groups
d.it is selling a good at a point where P < MC
Feedback
B
