unit 4

Question 1

revenue maximizing quantity for a monopoly or monopolistically competitive firm is when

Answer 1

MR = 0

Question 2

where is the collusion outcome in a payoff matrix

Answer 2

the quadrant where both firms decide to do the same thing

Question 3

how would you explain that a firm has a dominant strategy

Answer 3

Firm A would chose to do X no matter what Firm B does

Question 4

what is collusion in a oligopoly

Answer 4

when producers secretly set production low and prices high

Question 5

when imperfectly competitive firms produce more output, what must happen to the price they charge

Answer 5

price decreases (MR below D)

Question 6

what is the profit like in the long run for a monopolistically competitive firm

Answer 6

in the long run, they break even so P = ATC

Question 7

where is allocatively efficient point

Answer 7

where P = MC

Question 8

Why does an oligopoly not have a dominant strategy

Answer 8

Firm A’s best choice depends on what Firm B does

Question 9

Nash equilibrium is

Answer 9

outcome where each player has made the best decision possible, given the actions of others
- likely choice for both firms

Question 10

why are monopolies and monopolistically competitive firms not allocatively effiecint

Answer 10

because they will price above marginal cost, P > MC

Question 11

if a monopoly engages in perfect price discrimination, what happens to the MR curve

Answer 11

• merges with demand curve
• No DWL
• firm is allocatively efficient if a monopoly perfectly price discriminates

Question 12

if a monopoly is producing at profit maximizing point, what is true

Answer 12

Marginal Revenue = Marginal cost < price

Question 13

why are oligopolies not allocatively efficient

Answer 13

• they charge price above MC, P > MC
• higher price, lower quantity ( creates DWL)

Question 14

why are oligopolies not productively efficient

Answer 14

• they operate on the downward sloping portion of the ATC curve

Question 15

what do the numbers in a pay off matrix represent

Answer 15

the amount of economic profit the firm could earn depending on the outcomes

Question 16

how do you solve for the collusion outcome, the best outcome fir both businesses

Answer 16

just find the highest combined profit, add up the two numbers in the squares and the highest is the collusion outcome

Question 17

a firm does not have a dominant strategy when

Answer 17

the firm has two different things they would decide to do when taking into consideration what the other firm might do

Question 18

if a firm is in Long run equilibrium, the ATC is

Answer 18

tangent to the Qf, PF point on the demand curve

Question 19

firms must lower their product prices to sell additional sells in what market structure

Answer 19

Monopolistically competitive

Question 20

in perfect price discrimination, price is equal to

Answer 20

P =MR

Question 21

a monopoly is allocatively efficient when

Answer 21

they perfectly price discriminate

Question 22

why do firms engage in perfect price discrimination

Answer 22

creates more profit opportunity than any other pricing mechanism

Question 23

why doesn’t every firm perfectly price discriminate?

Answer 23

1) you need to know a lot about your customer
2) if there is competition, it prevents competing firms from charging the highest price

Question 24

where is allocative efficiency on a graph

Answer 24

where MC intersects Demand

Question 25

what is excess capacity

Answer 25

when demand for a product is less than the amount of product that a business could potentially supply to the market amount by which actual production falls short of the minimum ATC output

Question 26

When a monopolistically competitive firm is in long-run equilibrium

Answer 26

marginal revenue equals marginal cost and price equals average total cost

Question 27

Advertising can hinder economic efficiency in an industry when it

Answer 27

increases entry barriers

Question 28

pure monopolists obtain profits in the long run because

Answer 28

of high barriers to entry in a monopoly

Question 29

a pure monopolists demand curve is relatively elastic where

Answer 29

in the price range where Marginal revenue is positive

Question 30

if the price of your product is less than min AVC, you should

Answer 30

close down because, by producing, your losses will exceed your total fixed costs

Question 31

if the price is lower than AVC in a perfectly competitive firm, what should the firm do

Answer 31

shut down

Question 32

do all firms maximize where MR = MC

Answer 32

yes

Question 33

where do imperfectly competitive firms price

Answer 33

above MC, which is why they are not allocatively efficeint and there is a DWL

Question 34

where is the ATC curve in a monopoly graph when the firm is breaking even

Answer 34

the ATC curve is tangent to the Pe, Qe point intersection on the demand curve ATC = P --> zero economic profit

Question 35

where is the ATC curve in a monopoly graph when the firm is making a profit

Answer 35

the min ATC would be in between the MR = MC and MC = D point ATC < Demand --> Profit

Question 36

where is the ATC curve in a monopoly graph if the firm is earning a loss

Answer 36

the ATC graph is higher from the breaking even curve so not touching any curve besides MC

Question 37

where is the socially optimal point on a graph

Answer 37

at the intersection of MC and D curve

Question 38

where is productively efficient on a graph

Answer 38

where P = min ATC

Question 39

what type of imperfect competition always captures economies of scale

Answer 39

a natural monopoly

Question 40

what does price discriminating do to the consumer surplus

Answer 40

it turns into profit

Question 41

what does perfect price discrimination do to the firm

Answer 41

- no DWL - consumer surplus into profit - MR = MC is the allocatively efficient point because Price of the last unit produced = MC

Question 42

what market structure has excess capacity

Answer 42

a monopolistically competitive market

Question 43

what does a monopolistically competitive firm have for profits in the long run

Answer 43

zero economic profits

Question 44

how would you find out the quantity of where a firm is earn zero economic profit

Answer 44

find the point where ATC equals demand, and drop down to the x axis

Question 45

if the firm is experiencing economies of scale, the LRATC curve will be like what at that quantity

Answer 45

it will be downward sloping as output increases

Question 46

which market structure is prone to collusion or the formation of cartels

Answer 46

Oligopolies, they can do these and form a monopoly outcome

Question 47

When a perfectly competitive firm sells additional units of output, its total revenue will

Answer 47

increase at a constant rate

Question 48

The condition for allocative efficiency is violated when

Answer 48

firms have price setting power

Question 49

Which of the following statements is true for a monopolist at the profit-maximizing output level?

Answer 49

price exceeds marginal revenue

Question 50

if LRATC is upward sloping, the firm is experiencing

Answer 50

diseconomies of scale

Question 51

if LRATC is downward sloping, the firm is experiencing

Answer 51

economies of scale

Question 52

in cross price elasticity, if the value is negative the good is a

Answer 52

complement

Question 53

in income elasticity, if the value is negative the good is

Answer 53

an inferior good

Question 54

where is the unit elastic point on a graph

Answer 54

where MR = 0

Question 55

if cross price elasticity of demand is positive it is what type of good

Answer 55

substitutes

Question 56

if you have less time for a good, is it elastic or inelastic

Answer 56

its more einelastic

Question 57

if P goes up and TR goes up, the good is

Answer 57

inelastic

Question 58

if P goes up and TR goes down, the good is

Answer 58

elastic

Question 59

if a monopolist is producing in the inelastic region of the demand curve, they will increase profits if they do what

Answer 59

decrease quantity and increase price

Question 60

what is P equal to for a monopolistically competitive firm in the long run

Answer 60

P = ATC

Question 61

what are the characteristics of a perfectly price discriminating monopoly

Answer 61

MR=D CS and profit all become PS

Question 62

Why does the monopolist not want to produce in the inelastic section of its demand curve?

Answer 62

because MR is negative

Question 63

if the monopolist raises its prices in the elastic portion of the curve, what will happen to its total revenue

Answer 63

decrease

Question 64

price discriminating monopolies charge multiple different prices and convert what into what

Answer 64

CS into profit

Question 65

if consumers demand is more elastic (sensitive to changes in price) the firm will charge them

Answer 65

less because they are price discriminating

Question 66

if consumers demand is more inelastic (not sensitive to changes in price) the firm will charge them

Answer 66

more because they will pay that price