ch. 8,9,10
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Which of the following is not true of a perfectly competitive market?
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Firms face significant barriers to entry.
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Perfectly competitive firms are price takers because
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each firm is small and goods are perfect substitutes for one another
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Adam's Apples, a small firm supplying apples in a perfectly competitive market, decides to cut its production in half this year. As a result, the
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market price will not be affected
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Because market price remains constant as a perfectly competitive firm expands output, each firm faces
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a horizontal demand curve
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Total cost and total revenue for a firm in a perfectly competitive wool blanket market How much profit is the firm in Exhibit 8-2 earning (or how much of a loss is it suffering)?
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-10
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The total revenue curve for a perfectly competitive firm
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is a straight line starting from the origin and sloping upward
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For perfectly competitive firms, what is the relationship among market price (P), average revenue (AR), and marginal revenue (MR)?
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P = AR = MR
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Consider Exhibit 8-6. At which quantity will this firm maximize profit?
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At point D
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At the profit-maximizing output level, the firm represented in Exhibit 8-11 experiences
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a profit of abfm
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If Harry's Blueberries, a perfectly competitive firm, shuts down in the short run, Harry must pay
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only fixed cost
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If a perfectly competitive firm is incurring a short-run loss, it
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will continue to run in the short run if its variable cost is covered
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Which of the following statements about the perfectly competitive firm represented in Exhibit 8-16 is false?
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short run losses are maximized at output level q* because MR = MC there
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Claude's Copper Clappers sells clappers for $60 each in a perfectly competitive market. At its present rate of output, Claude's marginal cost is $65, average variable cost is $25, and average total cost is $62. To improve his profit/loss situation, Claude should
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reduce output but not to zero
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The short-run supply curve of a perfectly competitive firm is
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the part of its marginal cost curve rising above the average variable cost curve
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A decline in demand in a competitive industry could result in
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all of the above
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Long-run equilibrium for a perfectly competitive firm occurs when
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P=MC=MR=ATC
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A constant-cost industry is one
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whose cost do not change as new firms enter
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Assume that a perfectly competitive increasing-cost industry is in long-run equilibrium when market demand suddenly increases. Which of the following statements is not correct?
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Existing firms will earn economic profits in the new long-run equilibrium
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If a market is productively efficient,
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the output is being produced at the lowest possible resource cost
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In the short run, producer surplus equals
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TR-VC
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If every firm is a price taker, then which of the following characteristics does their industry have?
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large number of sellers
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Suppose the equilibrium price in a perfectly competitive industry is $100 and a firm in the industry charges $112. Which of the following will happen?
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The firm will not sell any of its output
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Suppose the market for hot pretzels in New York City is perfectly competitive. What is true of demand in this market?
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The demand curve facing each seller is perfectly elastic.
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In Connecticut, the apple market is perfectly competitive. Suppose that consumer tastes change so that the market demand for apples increases. In that case, the demand curves faced by individual firms will
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shift upward
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Consider Exhibit 8-5. If the market price is $20, this perfectly competitive firm will
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suffer a loss of $2
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The slope of the total revenue curve for a perfectly competitive firm equals
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marginal revenue, which is equal to price
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Farmer Fanny sells her crops in a perfectly competitive market. If she produces 500 bushels for total revenue of $3,000 and if harvesting the 501st bushel would raise her total cost from $2,500 to $2,510, her
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profit will fall by $4 if she harvests the 501st bushel
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In Exhibit 8-9, price equals
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$28
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At the profit-maximizing output level, the firm represented in Exhibit 8-9 experiences
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a profit of $1,200
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In the short run, if a firm shuts down, its loss is equal to
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its fixed costs
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Many country inns shut down in the off-season because
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the off-season revenue can't cover variable cost
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In Exhibit 8-14, what area represents fixed cost at the loss-minimizing output?
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cjkd
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At its present rate of output, 200 units, a perfectly competitive firm has total cost of $10,000, marginal cost of $38, and fixed cost of $2,000, and it charges the market price of $38 per unit. To maximize profit or minimize loss, this firm should
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shut down
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For the perfectly competitive firm represented in Exhibit 8-17, the short-run supply curve is
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cde
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Suppose that an increase in population increases demand in New Haven County's perfectly competitive market for auto repair. Which of the following is true in the short run?
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Auto repair centers may be able to earn economic profit.
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Tim Tupper's term paper-typing business is a perfectly competitive firm in long-run equilibrium. Which of the following does not describes the firm's situation?
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Entrepreneurs outside the industry will be eager to enter.
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Assume that a perfectly competitive constant-cost industry is in long-run equilibrium when market demand suddenly decreases. Which of the following statements is incorrect?
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The market supply curve will shift to the right in the long run
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The long-run market supply curve for an increasing-cost, perfectly competitive industry
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slopes upward
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Allocative efficiency occurs in markets when
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marginal benefit and marginal cost for the last unit sold are equal
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If MC's Hammers, a perfectly competitive firm, finds that its total revenue is $45,000, its fixed cost is $20,000, and its total cost is $50,000, its producer surplus is
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$15,000
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A monopolist is
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a single seller of a product with no close substitutes
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Patent laws
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increase incentive to innovate by restricting entry into a market
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The demand curve a monopolist uses in making an output decision is
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the same as the market demand curve
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Which of the following is true of marginal revenue for a monopolist that charges a single price?
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P > MR because the monopolist must decrease price on all units sold in order to sell an additional unit.
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In Exhibit 9-1, the marginal revenue of the third unit is
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$20
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If all of a monopolist's costs are fixed costs, it will produce where marginal revenue is zero.
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True
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The firm in Exhibit 9-3, which charges the same price to all customers, will produce where
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MR=MC
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The profit-maximizing output and price for the firm in Exhibit 9-3, which charges the same price to all customers, are
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117 and $24
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The firm in Exhibit 9-3, a monopolist that maximizes profit by charging all customers the same price, is making a profit of
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$468
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In Exhibit 9-7, how much profit is the monopoly earning at the profit-maximizing quantity?
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$34
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A monopolist earning short-run economic profit determines that at its present level of output, marginal revenue is $23 and marginal cost is $30. Which of the following should the firm do to increase profit?
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Raise price and lower output
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Which of the following is not true of a pure monopoly?
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It is a price taker
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Gilligan runs the only dry-cleaning business on a desert isle. If the cost of cleaning fluid falls, he can increase profit by
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lowering price
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In the short run, a monopolist will always shut down when
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total variable cost is greater than total revenue at all output levels
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A monopolist has no supply curve because
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as demand changes, each output level can be consistent with more than one profit-maximizing price
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Which of the following statements is true of a monopolist?
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The firm might earn a profit in the long run
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What is true at the profit-maximizing quantity for a nondiscriminating monopolist but not true of a perfectly competitive firm?
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Price is greater than marginal cost
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Exhibit 9-15 depicts a non-discriminating monopoly market. Consumer surplus is represented by area
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eda
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In Exhibit 9-15, deadweight loss to consumers from a monopolist that does not price discriminate is represented by area
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abf
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A profit-maximizing monopolist produces an output level that is allocatively inefficient because
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price is greater than marginal cost
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Which of the following prevents potential competitors from entering a monopolist's market?
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legal restrictions
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Natural monopolies form when
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long-run average cost declines as a firm expands output
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The demand curve faced by a firm with a patent on a marketable product
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slopes downward
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In Exhibit 9-1, the marginal revenue of the sixth unit is
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-$40
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As a monopolist increases the quantity of output produced, what happens to price (P) and marginal revenue (MR)?
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both P and MR decrease but MR falls faster than P
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For a nondiscriminating monopolist, describe the relationship between market price (P), average revenue (AR), and marginal revenue (MR).
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P=AR>MR
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Which of the following is true at the profit-maximizing quantity for both a perfectly competitive firm and a monopoly?
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Marginal revenue equals marginal cost
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Optimal output and price for the nondiscriminating monopolist in Exhibit 9-5 are
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1100 and $28
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The nondiscriminating monopolist at its profit-maximizing quantity in Exhibit 9-5 is making a profit of
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$11000
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Consider Exhibit 9-8. What is the profit-maximizing price?
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$23.33
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In the short run, how will a profit-maximizing monopolist react if its marginal cost suddenly increases? It will
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restrict output to extract a higher price from customers
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Suppose Arf n' Barf restaurant has a monopoly on restaurant food in a certain small town. Their rent, which is one of several fixed costs they pay whether they sell food or not, has gone up. In the short run, the Arf n' Barf should
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pay the higher rent and leave menu prices unchanged
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In the short run, the monopolist depicted in Exhibit 9-13 should
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continue producing because P>AVC at some output levels
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A monopolist's short-run supply curve is
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nonexistent
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Which of the following falsely describes a nondiscriminating monopolist at profit maximization?
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Economic profit is always positive.
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Which of the following is true in both perfect competition and monopoly?
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Firms go out of business in the long run if total revenue cannot cover total costs
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If the government breaks up a constant-cost, nondiscriminating monopoly into a perfectly competitive industry, what would we expect with regard to output and price?
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Output will increase and price will decrease
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In Exhibit 9-11, for a monopolist that does not price discriminate, consumer surplus at the profit-maximizing level of output is
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the area under the demand curve bounded above a price of $136
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In Exhibit 9-11, the level of output that would achieve allocative efficiency is
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884 units
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What area in Exhibit 9-17 represents consumer surplus under monopoly without price discrimination?
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area a
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Firms may easily enter a monopolistically competitive market.
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True
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The demand curve facing Imelda's Shoe Boutique, a monopolistically competitive firm,
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slopes downward because Imelda's sells a differentiated product
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Monopolistic competition is different from perfect competition because monopolistic competitors produce
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differentiated products
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The monopolistic competitor in Exhibit 10-1 is in
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short run equilibrium because it is earning a positive economic profit
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In Exhibit 10-1, the monopolistic competitor's total economic profit at the profit-maximizing level of output is
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$750
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Consider Exhibit 10-2. If the firm is charging price P* for output q*, then in order to minimize loss in the short run, the firm should
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continue to produce because price is greater than average variable cost
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Assume a monopolistically competitive firm is earning an economic profit. The marginal revenue from selling an additional unit is $30 and the marginal cost of producing that additional unit is $23. The firm should
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reduce its price and increase its output level
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In the long run, the economic profit of Hoot's Pump Chicken 'n' Ribs, a monopolistic competitor,
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is eliminated because of new firms entering the industry
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A rise in demand for restaurant meals is likely to cause which of the following in the short run?
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economic profit for restaurants
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If a monopolistically competitive firm is in long-run equilibrium and average cost equals $150, then the market price must be $150.
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True
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Although both perfectly competitive and monopolistically competitive firms earn normal profits in the long run, monopolistically competitive firms will not
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operate where price equals marginal cost
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Monopolistic competition is similar to
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pure monopoly, in that firms face downward-sloping demand curves, and similar to perfect competition, in that long-run economic profit is zero
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An oligopoly is characterized by
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few firms, which have control over the market price
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It is harder to explain the behavior of firms in oligopoly than in other market structures because in oligopoly
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firms base their decisions on what their rivals do
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If a firm must produce a significant share of market output before low average costs can be achieved, the structure of this industry will tend to be
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oligopoly
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A brand name may contribute to oligopolists' economic profit by
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acting as a barrier to entry
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A cartel's marginal cost curve is the
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horizontal sum of all the individual firms' marginal cost curves
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A cartel is
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a group of oligopolistic firms that engage in formal collusion
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Tacit collusion occurs in industries that
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contain price leaders
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If oligopolists engaged in some sort of collusion, industry output would be __________ and the price would be __________ than under perfect competition.
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smaller, higher
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The term monopolistic competition
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denotes an industry with many sellers of differentiated products
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If a monopolistically competitive firm raises its price it
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loses some, but not all of its customers
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A firm could differentiate its product by all of the following means except one. Which is the exception?
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emphasizing that the product provides the same benefits to consumers as the others on the market, even when it is really physically different
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At the profit-maximizing output, the monopolistically competitive firm in Exhibit 10-3 is in
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short-run equilibrium because price is greater than average total cost
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At the profit-maximizing output level, the firm in Exhibit 10-7 is
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earning economic profit of $760
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In order to maximize profit or minimize loss, the firm in Exhibit 10-9 should
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shut down
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Assume the firm in Exhibit 10-8 is currently charging price P and producing output level Q. In order to maximize profit (or minimize loss), the firm should
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charge less and sell more
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Because of easy entry, monopolistically competitive firms will
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earn no economic profit in the long run
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When there is no change in each firm's cost structures, a permanent decrease in demand for convenience store service is likely to cause which of the following in the long run?
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fewer firms in the industry
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If the firms in a monopolistically competitive industry are earning short-run economic profits, which of the following is not likely to occur in the long run?
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Firms will continue to earn economic profits
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One difference between perfect competition and monopolistic competition is that
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in perfect competition, firms take full advantage of economies of scale in long-run equilibrium; in monopolistic competition, firms do not
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Monopolistically competitive firms do not achieve allocative efficiency in the long run because
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price is greater than marginal cost
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Which of the following characteristics distinguishes oligopoly from other market structures?
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interdependence among firms in the industry
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If Ford raises the price of its automobiles, the demand curve for GM automobiles
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shifts to the right
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All of the following statements regarding Exhibit 10-13 are true except one. Which is the exception?
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The firm represented in the exhibit will likely be a perfect competitor.
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If the leading canned soup company introduces dozens of new flavors in order to dominate shelf space, the company is most likely trying to create a barrier to entry by
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crowding out the competition
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A cartel's profit-maximizing quantity occurs where the cartel's
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marginal cost equals marginal revenue
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Under which of the following market conditions is it most difficult to maintain a cartel agreement?
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There are many firms in the industry and these firms have different costs.
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Which of the following does not hinder successful price leadership?
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potentially large economic profits due to this activity
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If ALL firms in an industry are successful in making a cartel then the price would be __________than under perfect competition and __________ under pure monopoly.
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higher, no different
