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Microecon Test 3

When a competitive market experiences increase in demand that increases production costs for existing firms and potential new entrants, what is most likely to arise?
The long-run market supply curve will be upward sloping
If a competitive firm is selling 500 units of its product at a price of $8 per unit and earning a positive profit, then. . .
its total cost is less than $4000
When entry and exit behavior of firms in an industry does not affect a firm’s structure
the long-run market supply curve must be horizontal
The competitive firm’s short-run supply curve is its
marginal cost curve, but only the portion above the minimum of the average variable cost
If a firm in a competitive market doubles its number of units sold, total revenue for the firm will
double
In order to maximize profits in the short run, a firm should produce where
marginal cost equals marginal revenue
If all firms have the same cost of production, then in the long-run equilibrium
all firms have 0 economic profits and just cover their opportunity costs
What best reflects a price-taking firm
If the firm were to charge less than the market price to earn higher revenue
A rational pricing strategy for a profit-maximizing monopolist is
price discrimination
Because a monopolist must lower its price in order to sell another unit of output
marginal revenue is less than price
The practice of selling the same goods to different customers at different prices, but with the same marginal cost is known as
price discrimination
The monopolist’s marginal revenue is
always less than the price of its good
The socially efficient level of production occurs where the marginal cost curve intersects
demand
Private ownership of a monopoly may benefit society because the monopoly will have an incentive to
lower its costs to earn a higher profit
Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial trades are
a deadweight loss to society
In order to sell more of its product, a monopolist must
enact barriers to entry in related markets
Perfect price discrimination
eliminates deadweight loss
Antitrust laws can prevent social welfare if
they prevent mergers that would lower costs through more efficient joint production
A monopolist
does not have a supply curve because the monopolist sets its price at the same time it chooses the quantity to supply
Monopolistic competition is an inefficient market structure because
it has a deadweight loss, just as monopoly does
Product differentiation causes the seller of a good to face what type of demand curve?
downward sloping
One key difference between an oligopoly market and a competitive market is that oligopolistic firms
can affect the profit of other firms in the market by choices they make while firms in the competitive market do not affect each other by the choices they make
To maximize its profit a monopolistically competitive firm chooses its level of output by looking for the level of output at which
marginal revenue equals marginal cost
In a long-run equilibrium, a firm in a monopolistically competitive market operates
on the declining portion of its average total cost curve
A business-stealing externality is
the negative externality associated with entry of new firms in a monopolistically competitive market
If advertising reduces a consumer’s price sensitivity between identical goods, it is likely to
reduce competition and reduce social welfare
Defenders of advertising
contend that firms use advertising to provide useful information to customers
Supposed the monopolistically competitive firms in a certain market are earning positive profits. In the transition from this initial situation to a long-run equilibrium,
each existing firm experiences a decrease in demand for its product
A similarity between monopoly and monopolistic competition is that both market structures
sellers are price makers rather than price takers
An important difference between the situation faced by a profit-maximizing monopolistically competitive firm in the short run and the situation faced by that same firm in the long run is that in the short run
price may exceed average total cost, but in the long run, price equals average total cost
If “too much choice” is a problem for consumers, it would occur in which market structure?
monopolistic competition
A profit-maximizing firm in a monopolistically competitive market is characterized by
average revenue exceeds marginal revenue
Although the practice of predatory pricing is a common claim in antitrust suits, some economists are skeptical of this argument because they believe
predatory pricing is not a profitable business strategy
When prisoner’s dilemma game is generalized to describe situations other than those that literally involve 2 prisoners, we see that cooperation between the players of the game
can be difficult to maintain, even when cooperation would make both players of the game better off
Games that are played more than once generally
make collusive arrangements easier to enforce

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