Economics Test 3

Front 1

what are the four distinct market structures

Back 1

pure competition, pure monopoly, monopolistic competition, oligopoly

Front 2

what are the characteristics of a pure competition

Back 2

-very large numbers of firms
-standardized product
-price takers (cannot change market price)
-free entry and exit

Front 3

describe the characteristics of a pure monopoly

Back 3

-one firm
-unique product; no substitute
-considerable control over price
-blocked entry and exit
-mostly public relations advertising
-example: local utilities

Front 4

describe the characteristics of a monopolistic competition

Back 4

-relatively large number of firms
-differentiated products
-some, but within narrow limits of price
-relatively easy entry/exit
-considerable emphasis on advertising
-example: retail trade, dresses, shoes

Front 5

describe the characteristics of oligopoly

Back 5

-few firms
-standardized or differentiated products
-control over prices is limited by mutual interdependence; considerable with collusion
-significant obstacles with entry/exit
-nonprice competition typically a big deal; particularly with product differentiation
-examples:automobiles, farm implements, many household appliances

Front 6

what is imperfect competition

Back 6

all market structures except pure competition. includes monopoly, monopolistic competition, and oligopoly

Front 7

what is marginal revenue

Back 7

-the change in total revenue that results from selling one more unit of output

Front 8

T/F In pure competition, marginal revenue and price are equal

Back 8

true

Front 9

The demand seen by a purely competitve firm is ______ elastic and ________ on a graph at the market price

Back 9

-perfectly
-horizontal

Front 10

Marginal revenue and average revenue are equal to each other in a ______ _____ firm

Back 10

-purely competitive

Front 11

In a purely competitive firm, it can maximize its profit or minimize its lost by

Back 11

-adjusting its output

Front 12

In a _______ industry, no single firm can influence market price. this means that the firms demand curve is perfectly elastic and price equals marginal revenue

Back 12

-competitive

Front 13

what are the two ways to determine the level of output at which a competitive firm will realize maximum profit or minimize loss

Back 13

-compare total revenue and total cost
-compare marginal revenue and marginal cost

Front 14

how does a firm maximize its short-run profit

Back 14

-by producing the output at which total revunue exceeds total cost by the greatest amount TR > TC

Front 15

in the short run, the firm will maximize profit or minimize loss by

Back 15

-producing the output at which MR = MC

Front 16

the firm will shut down if

Back 16

MR (P) < AVC

Front 17

how do you calculate economic profit

Back 17

(P-A) X Q

A = average total cost
P = product price/marginal revenue
Q = output/quantity

Front 18

if the firm is a price taker than the MR curve is

Back 18

-horizontal

Front 19

in maximizing profits a firm should

Back 19

-produce where TR > TC by the greatest amount

Front 20

in the long run, _____

Back 20

the market price of product will equal the minimum average total cost of production.

Front 21

in the long run, at a higher price economic profits

Back 21

-causes firms to enter the industry until those profits had been competed away

Front 22

in the long run, at a lower price economic profits

Back 22

-would force the exits of firms from the industry until the product price rose to equal average total cost

Front 23

the long run supply curve is ______ for a constant-cost industry, _____ for an increasing-cost industry, and ____ for a decreasing-cost industry

Back 23

-horizontal
-up sloping
-downsloping

Front 24

the long run equality of price and minimum average total cost means

Back 24

-competitive firms will use the most effecient known technolgy and charge the lowest price consistent with their production cost.

Front 25

what is a characteristic of equilibrium in long-run competitive markets?

Back 25

Combined consumer and producer surplus is maximized

Front 26

Competitive firms maximize

Back 26

total profits by producing where price equals marginal cost

Front 27

Suppose a decrease in product demand occurs in a decreasing-cost industry. Compared to the original equilibrium the new long-run competitive equilibrium will entail

Back 27

a higher price and a lower total output

Front 28

A competitive firm is currently producing 2000 units per month at a total cost of $12,000. Its fixed costs are $1,000 and its marginal cost is $5. If the market price is $5.60, this firm:

Back 28

should increase production

Front 29

For all values above minimum average variable cost, a competitive firm's

Back 29

supply curve is coincident with its marginal cost curve

Front 30

factors contributing to barriers to entry are

Back 30

-economies of scale
-patents and licenses
-ownership or control of resources
-pricing and other strategic BOE

Front 31

the existence of pure monopoly and other imperfectly competitive market structures is explained by barriers to entry in the form of

Back 31

-economies of scale
-patent ownership and research
-ownership or control of essential resources
-pricing and other strategic behavior

Front 32

the demand curve for the monopolist is

Back 32

-the market demand curve
-not perfectly elastic
-downsloping

Front 33

the pure monopolist will maximize profit by

Back 33

MR = MC

Front 34

with the same costs, the pure monopolist will find it profitable to

Back 34

-restrict output and charge a higher price than would sellers in a purely competitive industry

Front 35

monopoly creates an _______ loss for society

Back 35

-efficiency

Front 36

monopoly increases income inequality because

Back 36

on average, consumers of monopolized products have less income than corporate owners.

Front 37

x-ineffiency, the failure to producewith the least costly combination of inputs, is more common amoung ______ than ______ firms

Back 37

-monopolies
-competitive

Front 38

a monopolist can increase its profit by

Back 38

practicing price discrimination
-segregate buyers on the basis of elasticities of demand
-its product/service cannot be readily transferred between the segregated market

Front 39

At a monopolist's current output, ATC = $10, P = $11, MC = $8 and MR = $7. This firm is realizing:

Back 39

an economic profit that could be increased by producing less output

Front 40

In long run equilibrium, profit-maximizing competitive firms and a monopolistic firms both

Back 40

produce the output at which marginal revenue equals marginal cost

Front 41

Suppose a monopolist could segment its market into two distinct submarkets and prevent resale between them. Its profits would increase if it charged a higher price to the group whose:

Back 41

demand is more inelastic

Front 42

The allocative inefficiency of nondiscriminating monopoly arises from the fact that:

Back 42

price exceeds marginal cost

Front 43

characteristics of monopolistic competition

Back 43

-small market shares
-no collusion
-independent action
-product differentiation

Front 44

name some aspects of product differentiation

Back 44

-product attributes
-service
-location
-brand name and packaging
-some control over price

Front 45

whats a four firm concentration ratio

Back 45

output of four largest firms/total output in the industry

Front 46

the demand curve faced by a monopolistic competitive seller is

Back 46

-highly but not perfectly elastic
-because it has many competitors producing similar goods

Front 47

the price elasticity of demand faced by the monopolistic competitive firm depends on

Back 47

-number of rivals
-degree of product differentiation

Front 48

the monopolistically competitive firm maximizes its profit in the short run by

Back 48

MR = MC

Front 49

what are 'competition like elements' in monopolistic competition

Back 49

-entry is relatively easy
-only a normal profit in the long run

Front 50

a monopolistic competitor will earn a _______ in the long run

Back 50

normal profit

Front 51

economic equality requires

Back 51

P = MC = minumum ATC

Front 52

in monopolistic competition, neither ______ nor ______ efficiency occurs in long run equilibrium

Back 52

-productive
-allocative

Front 53

An industry whose Herfindahl index is 5300, producing a standardized product, is most likely an example of:

Back 53

oligopoly

Front 54

Suppose several firms in a purely competitive industry begin to experiment slightly with their product designs. This product differentiation allows them to modestly increase their prices and increase their short-run profits. The industry now more closely resembles:

Back 54

monopolistic competition

Front 55

Suppose only three airlines service a particular route. One of the airlines typically signals its price intentions through a daily posting on its internet site, which the other two quickly match. This best describes:

Back 55

price leadership

Front 56

If an oligopolist's demand curve is kinked at the going price:

Back 56

The loss in revenue from reducing output by one unit exceeds the gain in revenue from expanding output by one unit