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1 1 of 16 5/1/2014 4:59 PM Refer to Figure 23.1 for a perfectly competitive firm. This firm should shut down in the short run if the market price is below $5. $10. $15. $20.

2 2 of 16 5/1/2014 4:59 PM Refer to Figure 23.5 for a perfectly competitive firm. This firm will maximize profits by producing the level of output that corresponds to point A. B. C. D. Which of the following is consistent with long-run equilibrium for a perfectly competitive market? Average total costs of production are maximized. Economic profits are positive. Maximum technical efficiency is achieved. Average variable costs of production are maximized.

3 3 of 16 5/1/2014 4:59 PM Refer to Figure 23.1 for a perfectly competitive firm. In the long run, this firm would stay in this market only if the market price was equal to or higher than $5. $10. $15. $20. Marginal cost pricing means that a firm Produces up to the output where P = MC for a given market price. Lowers market price to marginal cost for a given output. Lets marginal cost rise to the market price for a given output. Produces up to the output level at which MC = 0 for a given market price. Which of the following is not a characteristic of a perfectly competitive market? Zero economic profit in the long run. Perfect information.

4 4 of 16 5/1/2014 4:59 PM Homogeneous products. High barriers. The exit of firms from a market, ceteris paribus, Shifts the market supply curve to the right. Reduces the economic losses of remaining firms in the market. Increases the equilibrium output in the market. Shifts the market demand curve to the left. To maximize profits, a competitive firm will seek to expand output until Total revenue equals total cost. The elasticity of demand equals 1. Price equals marginal cost. Price equals $0. A profit-maximizing producer seeks to Maximize profit per unit. Minimize marginal cost. Minimize average total costs. Maximize total profit. Which of the following is an investment decision in a competitive market? The shutdown decision. The rate of output to produce. Entry or exit. The price to charge. For a perfectly competitive market, long-run equilibrium is characterized by all of the following but which one? P = MR. P = MC.

5 5 of 16 5/1/2014 4:59 PM P = minimum ATC. P = maximum ATC. Economic losses are a signal to producers That they are using resources in the most efficient way. That they are not using resources in the best way. That consumer demand is being satisfied. That consumers are content with the allocation of resources. Which of the following is characteristic of a perfectly competitive market? A small number of firms. Exit of small firms when profits are high for large firms. Zero economic profit in the long run. Marginal revenue lower than price for each firm. The exit of firms from a market, ceteris paribus, Shifts the market supply curve to the right. Has no effect on the economic losses of remaining firms in the market. Increases the equilibrium price in the market. Shifts the market demand curve to the left.

6 6 of 16 5/1/2014 4:59 PM Refer to Figure 23.2 for a perfectly competitive firm. This firm will maximize profits by producing the level of output that corresponds to point A. B. C. D. Which of the following is not a barrier to entry? Patents. Well-established brand loyalty. Control of distribution outlets. Perfect information. When economic losses exist in the cereal market, for example, this is an indication that The goods and services that society is giving up (the opportunity cost) are more valuable than the cereal being produced. Society's scarce resources are being used in the best way. Not enough firms are producing cereal (assuming that the market is perfectly competitive).

7 7 of 16 5/1/2014 4:59 PM The WHAT to produce question is being answered efficiently. There is an inherent tendency of a monopoly industry to Lower prices and increase output. Inhibit productivity advances. Increase innovation. Use minimum average cost pricing. A firm can take advantage of economies of scale through Investment decisions to increase capacity. A production decision to increase capacity. Investment decisions to reduce capacity. A production decision to increase output. In Table 24.1, marginal revenue at the profit-maximizing level of output is $ $ $ $550.00

8 8 of 16 5/1/2014 4:59 PM Which of the following does not contribute to a firm maintaining a monopoly? A patent. Exclusive control of important resources. Mergers and acquisitions. The presence of many close substitutes for its product. In Table 24.1, according to the profit maximization rule, at the profit-maximizing level of output marginal, cost is $200. $250. $300. $350. Compared with a competitive market with the same cost and market demand circumstances, a monopolist has Less pressure to reduce costs and less reason to improve quality. Less pressure to reduce costs and more reason to improve quality. More pressure to reduce costs and less reason to improve quality. More pressure to reduce costs and more reason to improve quality.

9 9 of 16 5/1/2014 4:59 PM In Figure 24.1, the profit-maximizing monopolist will charge a price of J. L. C. A. According to the text, one argument in favor of concentration of market power is that Market power increases incentives for innovation and invention. Market power provides for greater investment in research and development. The exercise of market power provides a more desirable mix of output. Large firms can sometimes produce more efficiently than small firms because of economies of scale in production.

10 10 of 16 5/1/2014 4:59 PM In Table 24.1, according to the profit maximization rule, at the profit-maximizing level of output, marginal revenue is $300. $200. $100. $250.

11 11 of 16 5/1/2014 4:59 PM In Figure 24.2, total revenue at the profit-maximizing rate of output is $ $6.40. $4.00. $ Monopolists are price Takers, as are competitive firms. Takers, but competitive firms are price makers. Makers, but competitive firms are price takers. Makers, as are competitive firms. For a monopolist, marginal revenue equals

12 12 of 16 5/1/2014 4:59 PM Price. Price times quantity. The change in quantity divided by the change in total revenue. The change in total revenue divided by the change in quantity. In Table 24.1, according to the profit maximization rule, at the profit-maximizing level of output, total revenue is $900. $1,200. $650. $950. Which of the following is likely to occur if a monopoly suddenly loses its ability to deny potential competitors entry into the market? The market price of the product will fall. The total market quantity of output produced will fall. Profits for the market will increase. The industry demand curve for the product will shift. Which of the following is a barrier to entry in a monopoly market? Economic profits greater than zero for the monopolist. A rising long-run average total cost curve. A patent on a new product. A vertical supply curve.

13 13 of 16 5/1/2014 4:59 PM Economies of scale over the entire range of market output Lead to higher levels of competition. Become a low barrier to entry, preventing a market from being contestable. Mean that as the size of a firm increases, its minimum average total costs rise. Mean that the long-run average total cost curve is downward-sloping. In the long run, an oligopolist is most likely to Experience economic profits because of barriers to entry. Experience zero economic profits because barriers to entry do not exist in the long run. Produce at the most technically efficient output level due to long-run competition. Face a straight demand curve. Which of the following may not characterize an oligopoly? A few firms. Substantial market power. High barriers to entry. Many firms. High training costs help firms maintain Contestable markets. Cartels. Government regulation. Barriers to entry. The goal of an oligopoly is to maximize Market share to achieve long-run economic profit. Short-run profit to achieve long-run maximum revenue. Short-run profit to achieve long-run market share. Profit in the short run and to minimize cost in the long run.

14 14 of 16 5/1/2014 4:59 PM How might an oligopolist increase total revenue without changing price? Reduce output. Reduce marketing efforts. Through nonprice competition. Reduce costs. A firm cannot maintain above-normal profits over the long run Without the existence of a cartel. Unless barriers to entry exist. Unless predatory pricing occurs. Without retaliation occurring. Oligopolistic behavior includes Tacit collusion. High concentration ratios. High barriers to entry. Independent pricing. Suppose the larger firm of a duopoly has sales of $400 million and the smaller firm has sales of $100 million. The market share of the larger firm is 80 percent. 40 percent. 20 percent. 10 percent. If an oligopolist is going to change its price or output, its initial concern is The response of its competitors. A change in its cost structure. The concentration ratio. The response of the Federal Trade Commission.

15 15 of 16 5/1/2014 4:59 PM In which of the following market structures are entry barriers the highest? Perfect competition. Monopolistic competition. Oligopoly. Monopoly. The number of firms in an oligopoly must be Four. Large enough so that firms cannot coordinate. Small enough so that one firm's decisions have a significant impact on the decisions of the other firms in the industry. Small enough so that revenues are large enough to support advertising expenditures. Suppose there are three firms in a market. The largest firm has sales of $50 million, and each of the other two firms has sales of $25 million. The Herfindahl-Hirschman Index of this industry is 2,500. 3,750. 2,550. 3,125. Open and explicit agreements concerning pricing and output shares transform an oligopoly into a Monopoly. Cartel. Differentiated oligopoly. Perfectly competitive firm. Market power is the ability of a firm to Advertise. Act as a price taker. Control the price and quantity supplied.

16 16 of 16 5/1/2014 4:59 PM Increase the number of substitute goods. Which of the following may not characterize an oligopoly? A few firms. No market power. High barriers to entry. Substantial control over price. Given the payoff matrix in Table 25.1, if the probability of rivals reducing their price even though you don't is 10 percent, what is the expected payoff for Company ABC not cutting prices? $0. $5. -$500. -$5,000. If a firm in an oligopoly expands its market share at prevailing prices, its competitors Lose market share. Increase their market share. Ignore the expansion. Increase their profits.

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