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Unit 11 Review

Terms in this set (24)

If a monopolist finds that demand is elastic at the level of output where marginal revenue is equal to marginal cost, the monopolist will:
maintain that level of output
Because a perfectly competitive firm is a price-taker, its short-run demand curve is:
perfectly elastic
If a regulatory commission wants to ensure that a monopolist produces the largest quantity of output that is consistent with earning a normal profit, it will require the monopolist to charge a price equal to its:
average total cost
For a perfectly competitive increasing-cost industry, an increase in demand will cause the price to:
rise and the cost of inputs to rise
Oscar sells bicycles in a perfectly competitive market. In the short run, at the quantity at which marginal revenue equals marginal cost, the market price is above Oscar's average variable cost and below his average total cost. Oscar should:
produce at a loss because he is covering his variable costs
In the long run for a perfectly competitive constant-cost industry, if existing firms are producing where the price is greater than the average total cost, firms will enter the industry, the price will:
fall, and existing firms will decrease production
Relative to a competitive industry with the same costs, a monopolist charges:
a higher price and produces less output
According to the price-taking firm's optimal output rule, a perfectly competitive firm should produce the quantity at which marginal cost is equal to:
marginal revenue and price
The demand curve for a monopolist producing a normal good is downward-sloping because of:
diminishing marginal utility
The marginal revenue curve for a monopolist lies below the demand curve because of:
the price effect
For a perfectly competitive industry, the short run industry supply curve is determined by:
horizontally summing all the firm's supply curves
Perfect price discrimination will result in:
more output and less consumer surplus
If a monopolist charges a price such that marginal revenue is greater than marginal cost, then the monopolist:
can improve its profit by reducing its price
The long-run industry supply curve for a perfectly competitive firm is:
flatter and more elastic than the short-run supply curve
Tia sells hats in a perfectly competitive market. If, in the long, run, the market price exceeds the minimum of Tia's average variable cost but is below the minimum of her average total cost, Tia should:
shut down her business immediately
A perfectly competitive firm is a price-taker because:
intense competition prevents it from influencing the market price
A perfectly competitive firm is guaranteed to be profitable when it produces a level of output where:
price is greater than average total cost
In order to practice price discrimination, a firm must have:
market power
What price represents the shut-down price in the short run? (chart question)
At an output of 3, AVC = 30/3 = $10 (Shutdown price occurs at the minimum AVC. AVC=VC/Q
Suppose a decrease in the demand for tomatoes brings the market price down to $15. How many bushels should be produced in order to maximize profits? (chart question)
$4 (price = MR. Profit maximization occurs at the point closest to or equal to MC. However, if MC exceeds MR, then we've produced too much and are now losing money!)
Average total cost is minimized by producing the level of output where the marginal cost:
curve intersects the average total cost curve
The short-run supply curve for a perfectly competitive firm is its:
marginal cost curve above the average variable cost curve
A perfectly competitive industry will likely have:
more consumer surplus, less producer surplus, and less deadweight loss than a monopoly
Suppose an increase in the demand for tomatoes brings the market price up to $22. How many bushels should be produced in order to maximize profits?
6
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