Test #4- Chapters 9 & 10 Flashcards
_______ is a single seller facing the entire industry demand curve. The reason for this type of market structure is that the firm sells a unique product and extremely high barriers to entry protect it from competition. These barriers to entry include: (1) ownership of an essential resource, (2) legal barriers, and (3) economies of scale.
Monopoly
A ________ arises because of the existence of economies of scale in which the LRAC falls as production increases. As a result, smaller firms leave the industry, new firms fear competing with the monopolist, and the result is that a monopoly emerges naturally.
Natural Monopoly
A firm that faces a downward‑sloping demand curve is called a _______
Price maker
________ allows the monopolist to increase profits by charging buyers different prices rather than a single price. There are three necessary conditions for this condition to exist: (1) the demand curve must be downward sloping, (2) buyers in different markets must have different demand curves, and (3) the buyer must be able to prevent ________ which is reselling the product at a higher price than the purchase price.
Price discrimination- arbitrage
Which of the following is a market structure of monopoly?
a. Few firms operating as price takers.
b. Single firm operating as a price taker.
c. Single firm that is a price maker.
d. All of the answers above are correct.
C.
A monopolist earns an economic profit only when:
a. average total cost equals price.
b. marginal cost equals price.
c. marginal revenue equals price.
d. average total cost is less than price.
D.
Suppose a monopolist’s demand curve lies below its average variable cost curve. The firm will:
a. stay in operation in the short‑run.
b. earn an economic profit.
c. earn an economic profit in the long run.
d. shut down.
D.
Assume a monopolist charges a price corresponding to the intersection of the marginal cost and marginal revenue curves. If this price is between its average variable cost and average total cost curves, the firm will:
a. earn an economic profit.
b. assume demand will increase in the future.
c. shut down.
d. All of the answers above are correct.
B.
Which of the following statements best describes the price, output, and profit
conditions of monopoly?
a. Price will equal marginal cost at the profit-maximizing level of output and profits will be positive in the long-run.
b. Price will always equal average variable cost in the short-run and either profits or losses may result in the long run.
c. In the long-run, positive economic profit will be earned.
d. All of the answers above are correct.
C.
Which of the following is a difference between a monopolist and a firm in perfect competition?
a. The marginal revenue curve is downward‑sloping.
b. Marginal revenue equals price.
c. Economic profits are zero in the long‑run.
d. The marginal revenue curve lies above the demand curve.
A.
At a price of $5, 24 units of the good would be sold; at a price of $7, 25 units of output would be sold. The marginal revenue of the 25th unit of output is:
a. $14.
b. $55.
c. $6.
e. $175.
B.
_______ is the act of buying a commodity in one market at a lower price and selling it in another market at a higher price.
a. Buying short.
b. Discounting.
c. Tariffing.
d. Arbitrage.
D.
Under both perfect competition and monopoly, a firm:
a. is a price taker.
b. is a price maker.
c. will shut down in the short-run if price falls short of average total cost.
d. always earns a pure economic profit.
e. sets marginal cost equal to marginal revenue.
E.
At the point at which the marginal revenue equals zero for a monopolist facing a straight-line demand curve, the total revenue is:
a. minimum.
b. maximum.
c. rising.
d. equal to zero.
B.
Which of the following is true for the monopolist?
a. Marginal revenue is less than the price charged.
b. Economic profit is possible in the long run.
c. Profit maximizing or loss minimizing occurs when marginal revenue equals marginal cost.
d. All of the answers above are correct
D.
For a monopolist to practice effective price discrimination, one necessary condition is:
a. identical price elasticity among groups of buyers.
b. differences in the price elasticity of demand among groups of buyers.
c. that the product is a homogeneous market.
d. None of the answers above are correct.
B.
A monopolized market is characterized by:
a. sole seller of a product for which there are few suitable substitutes.
b. very strong barriers to entry.
c. a single firm facing the market demand curve.
d. All of the answers above are correct.
D.
A monopoly will price its product:
a. where total revenue is maximized.
b. where total costs are minimized.
c. at that point on the market demand curve corresponding to an output level in which marginal revenue equals marginal cost.
d. at that point on the market demand curve which intersects the marginal cost curve.
C.
A monopoly:
a. faces the market demand curve which is downward sloping.
b. has a marginal revenue curve which slopes downward and lies below its demand curve.
c. will maximize profits by producing an output level where MR = MC.
d. All of the answers above are correct.
D.
One of the necessary conditions for price discrimination to occur is that:
a. buyers in different markets have different elasticities of demand.
b. the demand curve is upward sloping.
c. buyers must be allowed to resell the good at a higher price elsewhere.
d. All of the answers above are necessary for price discrimination to occur.
A.
A price-discriminating monopoly charges the lowest price to the group that:
a. has the most elastic demand.
b. purchases the largest quantity.
c. engages in the most arbitrage.
d. is least responsive to price changes.
A.
__________ is a market structure characterized by (1) many small sellers, (2) a differentiated product, and (3) easy entry and exit.
Monopolistic Competition
The process of creating real or apparent differences between goods and services is called ___________
Product Differentiation
Advertising, packaging, product development, better quality, and better service are examples of ________
Nonprice Competition
