Quizlet

Question 1

A competitive firm maximizes profit by choosing the quantity at which

Answer 1

marginal cost equals price

Question 2

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_________.

Answer 2

$40, $2

Question 3

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?

Answer 3

P = MC and P = ATC

Question 4

A perfectly competitive firm’s short-run supply curve is its _________ cost curve above its _________ cost curve.

Answer 4

marginal, average variable

Question 5

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.

Answer 5

exit, left, increases

Question 6

If a perfectly competitive market is one of constant costs, this implies the long run market supply curve is

Answer 6

perfectly elastic

Question 7

Suppose the market for building new homes is perfectly competitive and one of constant costs. If the demand for new homes increases,

Answer 7

the price to build a new home will go up in the short run, but not in the long run

Question 8

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.

Answer 8

positive, zero, enter

Question 9

What is the relationship between price P, marginal revenue MR, and marginal cost MC for a profit maximizing monopolist?

Answer 9

P > MR and MR = MC

Question 10

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

Answer 10

exceed both the marginal cost and average cost of producing diamonds.

Question 11

A significant long-run difference between monopoly and perfect competition is that

Answer 11

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

Question 12

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

Answer 12

6, 45, 8, 30

Question 13

If the government attempts to break up a natural monopoly to enforce competition in a market,

Answer 13

the average cost of producing the good will increase.

Question 14

Which of the following is true regarding a monopoly?

Answer 14

a monopoly is a socially inefficient market structure since the quantity in the market is too low and price too high

Question 15

When a monopolist practices price discrimination

Answer 15

it charges different consumers different prices for the same good

Question 16

Which of the following is true regarding advertising in a perfectly competitive market

Answer 16

the firms can benefit by collectively advertising their product at the market level

Question 17

A monopolistically competitive firm sells a ______ product

Answer 17

differentiated

Question 18

The 4 firm concentration ratio measures

Answer 18

the percentage of total output in a market supplied by the four largest firms

Question 19

If the cereal market has a 4 firm concentration ratio of 36%, one would conclude it is most likely which type of market structure?

Answer 19

monopolistic competition

Question 20

Why would a firm brand its product?

Answer 20

a.
to increase market power
b.
to ensure a certain quality to the consumer
c.
to increase demand for its product
d.
ALL OF THE ABOVE

Question 21

Which of the following conditions is true for a monopolistically competitive firm at its profit maximizing level of output?

Answer 21

P > MC

Question 22

As more firms enter a monopolistically competitive market…

Answer 22

demand for each firm in the market will decrease

Question 23

Which of the following is true about a cartel?

Answer 23

a cartel maximizes the amount of profit in the industry

Question 24

If the firms in a market successfully organize a cartel, the amount of output produced in the market will be _____ the competitive level and _____ the monopoly level.

Answer 24

less than, equal to

Question 25

Antitrust laws aim to

Answer 25

prevent firms from acting in ways that reduce competition

Question 26

Which federal agency is charged with protecting consumers and promoting competition in markets?

Answer 26

Federal Trade Commission

Question 27

The practice of requiring consumers to purchase two products bundled together is called

Answer 27

tying

Question 28

Requiring consumers to purchase a certain good bundled with the purchase another good could be considered illegal if

Answer 28

other firms are not able to sell their product because of the sale of the bundled product

Question 29

Which of the following is true regarding the Nash equilibrium concept?

Answer 29

a.
firms interacting with each other don’t trust each other
b.
once competitors choose a mutual strategy, any change from that strategy will make one worse off
c.
once competitors choose a mutual strategy, neither can gain by changing their strategy
d.
ALL OF THE ABOVE

Question 30

If American and United Airlines work together and both charge a high price for airline tickets, they both earn medium profits. If they both charge a low price, they both earn low profits. If one airline sells at a low price while the other sells at a high price, the low priced airline will have the majority of customers and earn a high profit while the high priced airline has few customers and very low profits. Below is a matrix showing the four different outcomes of profit per firm given the combined decisions of either a low or high price for each firm.

Answer 30

where both airlines charge low prices since at this point neither firm can gain by changing their strategy.

Question 31

The only four consumers in a market have the following willingness to pay for a good:
Buyer
Willingness to Pay
Carlos
$15
Homer
$25
Wilbur
$35
Jose
$45

If the actual price of the good is $30, which consumers will purchase the product?

Answer 31

Jose and Wilbur

Question 32

The only four consumers in a market have the following willingness to pay for a good:
Buyer
Willingness to Pay
Carlos
$15
Homer
$25
Wilbur
$35
Jose
$45

If the actual price of the good is $30, the total amount of consumer surplus in the market is ______. If the actual price of the good falls to $28, the total amount of consumer surplus will be _______.

Answer 32

$20, $24

Question 33

The following table represents the minimum costs of five possible sellers to produce/sell their product in the market.
Seller
Cost
Abby
$1,600
Bobby
$1,300
Dianne
$1,100
Evaline
$900
Carlos
$800

If the actual price of the product is $1000, which producers will sell the product?

Answer 33

Evaline and Carlos

Question 34

The following table represents the minimum costs of five possible sellers to produce/sell their product in the market .
Seller
Cost
Abby
$1,600
Bobby
$1,300
Dianne
$1,100
Evaline
$900
Carlos
$800

If the actual price of the product is $1000, the total value of producer surplus in the market will be _______. If the price rises to $1200, the total value of producer surplus in the market will be _______.

Answer 34

$300, $800

Question 35

Jen values her time at $60 per hour (value of her time for 2 hours $120). She spends 2 hours giving Colleen a massage. Colleen was willing to pay as much as $300 for the massage, but they negotiate a price of $200. In this transaction

Answer 35

consumer surplus is $20 larger than producer surplus

Question 36

An efficient allocation of resources maximizes

Answer 36

consumer surplus plus producer surplus

Question 37

When a market is in equilibrium, the buyers are those with the ________ willingness to pay and the sellers are those with the _____ costs.

Answer 37

highest, lowest

Question 38

Producing less than the output that would exist at the equilibrium of supply and demand is inefficient because the value to the buyer, given the buyer’s price at that output, is

Answer 38

decrease, decrease

Question 39

Suppose the demand for French bread rises. This will _______ producer surplus in the market for French bread, and ______ producer surplus in the market for flour.

Answer 39

increase, increase

Question 40

If the government places a per unit tax on the sale of a good, the price that the buyer pays will _____, and the price that the seller receives will ______.
Select one:

Answer 40

increase, decrease

Question 41

If the government places a per unit tax on the sale of a good, consumer surplus ______ and producer surplus _______.

Answer 41

decreases, decreases

Question 42

The deadweight/welfare loss from a tax is represented by

Answer 42

lost consumer and producer surplus

Question 43

Supply: P = 10 + 2QDemand: P = 40 - 3Q
Suppose the supply and demand for widgets is given by the equations above. Solve for the equilibrium price and quantity.

Answer 43

P=$22, Q=6

Question 44

Supply: P = 10 + 2QDemand: P = 40 - 3Q
Given the market equilibrium price and quantity in the market for widgets given the supply and demand above, the numerical value of consumer surplus is ________ and the numerical value of producer surplus is _________.

Answer 44

54, 36