Quizlet Flashcards
A competitive firm maximizes profit by choosing the quantity at which
marginal cost equals price
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_________.
$40, $2
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?
P = MC and P = ATC
A perfectly competitive firm’s short-run supply curve is its _________ cost curve above its _________ cost curve.
marginal, average variable
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.
exit, left, increases
If a perfectly competitive market is one of constant costs, this implies the long run market supply curve is
perfectly elastic
Suppose the market for building new homes is perfectly competitive and one of constant costs. If the demand for new homes increases,
the price to build a new home will go up in the short run, but not in the long run
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.
positive, zero, enter
What is the relationship between price P, marginal revenue MR, and marginal cost MC for a profit maximizing monopolist?
P > MR and MR = MC
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
exceed both the marginal cost and average cost of producing diamonds.
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
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
6, 45, 8, 30
If the government attempts to break up a natural monopoly to enforce competition in a market,
the average cost of producing the good will increase.
Which of the following is true regarding a monopoly?
a monopoly is a socially inefficient market structure since the quantity in the market is too low and price too high
When a monopolist practices price discrimination
it charges different consumers different prices for the same good
Which of the following is true regarding advertising in a perfectly competitive market
the firms can benefit by collectively advertising their product at the market level
A monopolistically competitive firm sells a ______ product
differentiated
The 4 firm concentration ratio measures
the percentage of total output in a market supplied by the four largest firms
If the cereal market has a 4 firm concentration ratio of 36%, one would conclude it is most likely which type of market structure?
monopolistic competition
Why would a firm brand its product?
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
Which of the following conditions is true for a monopolistically competitive firm at its profit maximizing level of output?
P > MC
As more firms enter a monopolistically competitive market…
demand for each firm in the market will decrease
Which of the following is true about a cartel?
a cartel maximizes the amount of profit in the industry
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.
less than, equal to
Antitrust laws aim to
prevent firms from acting in ways that reduce competition
Which federal agency is charged with protecting consumers and promoting competition in markets?
Federal Trade Commission
The practice of requiring consumers to purchase two products bundled together is called
tying
Requiring consumers to purchase a certain good bundled with the purchase another good could be considered illegal if
other firms are not able to sell their product because of the sale of the bundled product
Which of the following is true regarding the Nash equilibrium concept?
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
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.
where both airlines charge low prices since at this point neither firm can gain by changing their strategy.
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?
Jose and Wilbur
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 _______.
$20, $24
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?
Evaline and Carlos
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 _______.
$300, $800
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
consumer surplus is $20 larger than producer surplus
An efficient allocation of resources maximizes
consumer surplus plus producer surplus
When a market is in equilibrium, the buyers are those with the ________ willingness to pay and the sellers are those with the _____ costs.
highest, lowest
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
decrease, decrease
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.
increase, increase
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:
increase, decrease
If the government places a per unit tax on the sale of a good, consumer surplus ______ and producer surplus _______.
decreases, decreases
The deadweight/welfare loss from a tax is represented by
lost consumer and producer surplus
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.
P=$22, Q=6
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 _________.
54, 36
