Principles of Econ Exam 3

Question 1

The market structure in which there is more than one firm, but not very many (a few), is known as

Answer 1

Oligopoly

Question 2

Which of the following is true for the market structure of perfect competition?

Answer 2

Many small firms selling a homogeneous product

Question 3

Which of the following is a correct assumption regarding costs in the market structure of perfect competition?

Answer 3

Firms exhaust economies of scale at a low level of output

Because firms exhuast economies of scal at a low level of output they ha

Question 4

Oligopoly is characterized by a few large firms with some barriers to entry.

Answer 4

True

Question 5

A market with only a few sellers is known as a monopoly

Answer 5

False

Question 6

Economists assume that under perfect competition all firms in the market have access to the same technology and know where to buy inputs at the same prices.

Answer 6

True

In perfect ompetition every producer knows the cheapest way to produce.

Question 7

In long run equilibrium, all firms in a perfectly competitive market structure earns no economic profit.

Answer 7

True

Don’t forget the firm owner still earns a normal profit (their implicit

Question 8

For a firm in perfect competition, an individual supply curve (the willingness and ability to supply a product at different prices is formed by the upward sloping portion of the individual firm’s marginal cost curve.

Answer 8

True

Question 9

For perfectly competitive firm to be in long run equilibrium, the firm will produce at the minimum of the long-run average total cost curve.

Answer 9

True

Question 10

The market supply curve is based on the sum of the individual producer’s supply curves in the market structure of perfect competition.

Answer 10

True

This process is known as Horizontal summation because, graphically, we

Question 11

A perfect competitor will have an incentive to shut down in the short-run if the firm’s average variable costs is greater than the price of the product.

Answer 11

True

Question 12

A perfect competitor may sometimes continue to operate in the short-run even if it’s total costs exceed its total revenue

Answer 12

True (If the losses are smaller than the fixed costs, the firm will continue to operate in the short run. The “short-run” is the amount of time that a firm has at least one fixed cost (associated with a fixed input i.e. the mortgage or rent for the factory).

Question 13

Perfectly competitive firms are price takers?

Answer 13

True (These firms sell relatively small quantities, compared to the market as a whole; therefore they do not have control over price (in the short run). Firms that face perfect competition do not have control over the price that they sell their product for - they only have control over how much they produce. Firms that face perfect competition change their levels of profit and loss based on how much they produce at the given market price.)

Question 14

When the market structure is one of perfect competition,

Answer 14

marginal revenue is equal to the price of the product. (Check photo)

Question 15

In the short run, the perfectly competitive firm maximizes profits by producing the quantity for which

Answer 15

marginal revenue equals marginal cost (check photo)

Question 16

Within a perfectly competitive market structure, the demand curve for an individual firm ____________& the demand curve for the market as a whole ________.

Answer 16

is horizontal; slopes upward and to the right

Question 17

In the market structure of perfect competition, if firms are making profits within an industry, in the long-run we would expect to see.

Answer 17

Review photo

Question 18

Which of the following is most likely to be a monopoly?

Answer 18

local electricity distributor

Question 19

A firm that holds a monopoly position in the market place is

Answer 19

price maker

Question 20

A monopolist is able to maximize it’s profits by

Answer 20

producing output where MR=MC; and charging a price where optimal quantity intersects the demand curve

Question 21

When a natural monolpoly exists in a given industry, the per-unit costs of production will be

Answer 21

Lowest when a single firm generates the entire output of the industry

Question 22

Following the assumption that firms maximize profits, how will the prices and quantity produced of an unregulated monopolist compare with ideal market of perfect competition

Answer 22

output will be too small and its price too high

Question 23

The slope of the demand curve for a monopoly firm is

Answer 23

downward sloping

Question 24

For monopolist, the marginal revenue curve ___ the demand curve.

Answer 24

Always lies beneath

Question 25

For a pure monopoly to exist,

Answer 25

There is one single seller in that particular industry

Question 26

____ law implies ownership over an idea or concept or image (Hint: your idea is the forms of property)

Answer 26

intellectual property

Question 27

____ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry

Answer 27

an oligopoly

Question 28

____ arised when firms act together to reduce output &/or raise the price of the product.

Answer 28

Collusion

Question 29

A___refers to a group of firms colluding with one another to produce at the monopoly output and sell at the monopoly price.

Answer 29

cartel

Question 30

The branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs most often used by economists is

Answer 30

game theory

Question 31

The perceived demand curve for a group of competing oligopoly firms will appear kinked as a result of their commitment to

Answer 31

match price cuts, but not price increases

Question 32

Perfect competition and monopoly stand at ___of the spectrum of economic market structures

Answer 32

opposite ends

Question 33

Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engages in what economists call____

Answer 33

monopolistic competition

Question 34

If monopolistic competitors must expect a process of entry and exit like perfectly competitive firms,

Answer 34

they will be unable to earn higher-than-normal profits in the long run.

Question 35

The demand curve as perceived by a monopolistic competitor is ___

Answer 35

downward-sloping

Question 36

The first step to be taken by a profit-maximizing monopolistic competitor trying to decide what price to charge is to...

Answer 36

select the profit maximizing quantity to produce

Question 37

If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then,

Answer 37

the firm should keep expanding production until MR=MC

Question 38

Through the process of exit, in the long run, monopolistically competitive firms remaiining in the market

Answer 38

are no longer earning losses _ they are earning zero economic profit

Question 39

When entry eccurs in a monopolisticall competitive industry

Answer 39

the demand and marginal revenue curves for all other firms will shift to the left

Question 40

If each of two competing monopolists undertakes equal advertising efforts to attract consumer away from the other, the total result is

Answer 40

they will simply neutralize one another's efforts

Question 41

The single most common form of competition in the U.S. is

Answer 41

monopolistic competition among firms with differentiated products