MACRO Exam 3

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former sells similar, although not identical, products.

A significant difference between a monopolistically competitive firm and a purely competitive firm is
that the:

Highly elastic demand curve

A monopolistically competitive firm has a:

exceed MC, but equal ATC

In the long-run, the price charged by a monopolistically competitive firm seeking to maximize profit
will:

160

Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. The profitmaximizing
output for this firm will be:

\$16

Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. This firm's
profit-maximizing price will be:

Profit of \$480

Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. This firm
will realize an economic:

New firms will enter the industry

Refer to the above diagram. If all monopolistically competitive firms in the industry have profit
circumstances similar to the firm shown above:

Must consider the reaction of its rivals when it determines its price policy

Mutual interdependence means that each oligopolistic firm:

The concentration ratio is more than 80 percent

Suppose that total sales in an industry in a particular year are \$600 million and sales by the top four
sellers are \$200 million, \$150 million, \$100 million, and \$50 million, respectively. We can conclude
that:

2,200

Assume six firms comprising an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The
Herfindahl Index for this industry is:

Each will realize a \$20 million profit

Refer to the above diagram where the numerical data show profits in millions of dollars. Beta's profits
are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If both firms

Refer to the above diagram wherein the numerical data show profits in millions of dollars. Beta's profits
are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Beta
commits to a high-price policy, Alpha will gain the largest profit by:

D

Refer to the above diagram where the numerical data show profits in millions of dollars. Beta's profits are
shown in the northeast corner and Alpha's profits in the southwest corner of each cell. With independent
pricing the outcome of this duopoly game will gravitate to cell:

A

Refer to the above diagram where the numerical data show profits in millions of dollars. Beta's profits are
shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Alpha and Beta
engage in collusion, the outcome of the game will be at cell:

Beta can increase its profit by lowering its price

Refer to the above diagram where the numerical data show profits in millions of dollars. Beta's profits are
shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Alpha and Beta
agree to a high-price policy through collusion, the temptation to cheat on that agreement is demonstrated
by the fact that:

Competitors will follow a price cut but ignore a price increase

The kinked-demand curve of an oligopolist is based on the assumption that:

Economies of scale are large relative to market demand

A monopoly is most likely to emerge and be sustained when:

Marginal revenue is less then average revenue

The non-discriminating pure monopolist must decrease price on all units of a product sold in order to sell
more units. This explains why:

+\$3

A monopolist can sell 8 units of a product per day at a unit price of \$12. To sell 9 units, it must reduce
price to \$11. The marginal revenue of the 9th unit is:

Both productively and allocatively inefficient

A nondiscriminating pure monopolist is generally viewed as:

160

Refer to the graph above for an industry. If the industry were purely competitive, the output quantity
would be:

90

Refer to the graph above for an industry. If the industry had a pure monopoly, the output quantity would
be:

14

Refer to the graph above for an industry. If the industry were purely competitive, the market price would
be:

16

Refer to the graph above for an industry. If the industry had a pure monopoly, the product price would
be:

Be able to separate buyers into different markets with different price elasticities

To practice long-run price discrimination, a monopolist must:

A major airline sells tickets to senior citizens at a lower price than other passengers

Which case below best represents a case of price discrimination?

Considerable nonprice competition

Which of the following is not a basic characteristic of pure competition?

perfectly elastic

Which of the following is not a basic characteristic of pure competition?

can sell as much output as it chooses at the existing price

A perfectly elastic demand curve implies that the firm:

change in total revenue associated with the sale of one more unit of output

Marginal revenue is the:

The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping

Which of the following statements is correct?

The firm will maximize profits by operating where MC = MR = P.

Assume that in a perfectly competitive market, a firm's cost are
Marginal Cost= average variable cost at \$20
Marginal Cost= average total cost at \$30
Marginal Cost= average revenue at \$25

How will this firm determine the profit maximizing level of output?

The firm will charge \$25; the price is determined by the market, not the firm.

Assume that in a perfectly competitive market, a firm's cost are
Marginal Cost= average variable cost at \$20
Marginal Cost= average total cost at \$30
Marginal Cost= average revenue at \$25

What price will this firm charge? Explain how the firm determined this price.

Yes, the firm should operate in the short run because it is covering all of its variable costs and some of its fixed costs; price is greater than average variable cost.

Assume that in a perfectly competitive market, a firm's cost are
Marginal Cost= average variable cost at \$20
Marginal Cost= average total cost at \$30
Marginal Cost= average revenue at \$25

Should the firm produce in the short run? Why or Why Not?

The firm will earn an economic loss because average revenue (price) is less than average total cost.

Assume that in a perfectly competitive market, a firm's cost are
Marginal Cost= average variable cost at \$20
Marginal Cost= average total cost at \$30
Marginal Cost= average revenue at \$25

Will this firm earn a profit or incur a loss? Why?

zero units at a loss of \$100

Refer to the above data. If the market price for the firm's product is \$12, the competitive firm will produce:

8 units at an economic profit of \$16

Refer to the above data. If the market price for the firm's product is \$32, the competitive firm will produce:

produce 7 units at a los of \$14

Refer to the above data. If the market price for the firm's product is \$28, the competitive firm will:

The firm will shut down in the short run, but stay in the industry in the long run if it expects the product price to rise high enough soon

If a purely competitive firm is currently facing a situation where the price of its product is lower than the average variable cost, but it believes that the market demand for its product will increase soon, then:

New firms to enter, and the industry's supply to increase

Assume that the market for soybeans is purely competitive. Currently, firms growing soybeans are experiencing economic profits. In the long run, we can expect:

Will earn sero economic profit in the long run

The representative firm in a purely competitive industry

New firms will be attracted into the industry

Refer to the graphs above for a purely competitive market in the short run. The graphs suggest that in the long run, assuming no changes in the given information:

Supply curve will shift to the right

Refer to the graphs above for a purely competitive market in the short run. The graphs suggest that in the long run, assuming no changes in the given information, the market:

Profits will decrease

Refer to the graphs above for a purely competitive market in the short run. The graphs suggest that in the long run, assuming no changes in the given information, the firms in the industry will find that:

As the industry expands, input prices are bid up for some factors of production

One explanation for the existence of an increasing-cost industry is

Example: