question

4 market models

answer

pure competition, monopolistic competition, oligopoly, pure monopoly

question

pure competition

answer

very large number of firms, standardized product, no control over price (price taker, unique), conditions of entry- very easy, no obstacles, no advertising (non price competition), ex.) agriculture

question

monopolistic competition

answer

many firms, differentiated product, some control over price, but within narrow limits, conditions of entry- relatively easy considerable emphasis on advertising, brand names, trade marks, ex.) retail trade, dresses, shoes

question

oligopoly

answer

few firms, standardized or differentiated product, control over price is limited by mutual inter-dependence; considerable with collusion (unique), conditions of entry- significant obstacles, non price competition- typically a great deal, particularly with product differentiation ex.) steel, auto, farm implements

question

pure monopoly

answer

one firm, unique product; no close subs, considerable control over price, blocked conditions with entry, mostly public relation advertising, ex.) local utilities

question

firms that operate in a purely competitive industry:

answer

do not differentiate their products

question

firms within competition are considered to be price _____?

answer

takers

question

_______ is relatively rare in the real world, although the market model is highly ____ to several industries.

answer

pure competition, relevant

question

the market structures designated as "imperfect competition" are:

answer

pure monopoly, oligopoly, monopolistic competition

question

which best describes oligopoly?

answer

involves only a few sellers of a standardized or differentiated product, so each firm is affected by the decisions of its rivals

question

which best describes monopolistic competition?

answer

a relatively large number of sellers producing differentiated products and in which entry or exit from the industry is quite easy

question

which of the following best describes a pure monopoly?

answer

one firm selling a single unique product, where entry of additional firms is blocked and product differentiation is not an issue

question

which best describes pure competition?

answer

an industry involving a very large number of firms producing identical products and in which new firms can enter or exit the industry very easily

question

market models are distinguished based upon differences in:

answer

type of product conditions of energy the number of firms non- price competition

question

what best determines a firm's decisions regarding price and production?

answer

the industry in which it operates

question

an oligopoly has _____ sellers and must consider the decisions of its rivals in determining its own _____ and output

answer

few, price

question

in a purely competitive markets, individual firms do not exert control over_____

answer

price, demand, supply

question

best summarizes why a firm in a purely competitive market will not increase its product price?

answer

asking a price higher than the market price would be futile because consumers could substitute with other perfectly identical products

question

in a purely competitive industry, buyers view the products of firms B,C,D and E as _____ ________ for the product of firm A

answer

perfect substitutes

question

within pure competition, an individual firm would not be able to affect ______ in that industry by simply changing its output

answer

price

question

why is the purely competitive firms demand curve perfectly elastic?

answer

the individual firm is a price taker, the marginal revenue curve coincides with the firm's equilibrium price

question

a purely competitive firm is a price ____.

answer

taker

question

firms within pure competition will face demand that is:

answer

perfectly elastic

question

why a firm in a purely competitive market will not lower its product price?

answer

charging a price lower than market price would cause its profits to shrink as its competitors continue to charge the market price

question

a firm operating in a purely competitive market is a price taker because it:

answer

cannot change market price, it can only adjust to it

question

best describes the concept of a price taker?

answer

one of a large number of firms producing an identical product as every firm in its industry and only providing a fraction of total market supply

question

a purely competitive firm can maximize its economic profit (or minimize its loss) only by adjusting its _______.

answer

output

question

a purely competitive firm's marginal revenue curve will _______ the firm's demand curve

answer

coincide with

question

a purely competitive firm will maximize its profits by producing up to the point where:

answer

the horizontal distance between the total revenue and total cost curves is the greatest

question

a firm within pure competition will maximize its profit when total cost is maximized over total revenue

answer

false

question

a purely competitive firm will ask all of the following questions except:

answer

will production result in normal profit?

question

a purely competitive firm's horizontal demand curve indicates:

answer

perfect price elasticity

question

which two ways can a purely competitive firm determine the level of output at which it will realize maximum profit or minimum losses?

answer

by comparing total revenue to total costs, by comparing marginal revenue to marginal cost

question

a firm should stop producing if its average _______ cost its _______ _____ price

answer

variable, greater than

question

in pure competition, economic profit is calculated as product _____ or ______ revenue minus average total cost multiplied by output

answer

price, marginal

question

in a perfectly competitive market, price is _____ __ marginal revenue, therefore, price is _____ ____ marginal cost.

answer

equal to, equal to

question

in the initial stages of production, where output is relatively ____, marginal ______ will usually, but not always, exceed marginal ______.

answer

low, revenue, cost

question

a firm should produce any unit of output whose:

answer

marginal revenue is greater than marginal cost

question

from an economic standpoint, the break-even point is the level of output at which a firm makes _____ profit.

answer

a zero, a normal

question

the portion of the firm's _______ cost curve lying _____ its average _____ cost curve is its short-run supply curve

answer

marginal, above, variable

question

best describes the individual firm's supply curve?

answer

the individual firm's supply curve represents a negligible fraction of total supply and therefore cannot affect price

question

explains why technological progress reduces marginal cost?

answer

because technological progress increases the productivity of labor

question

a wage increase would increase marginal costs and shift the supply curve:

answer

to the left, upward

question

what following factors will alter costs and shift the marginal cost or short run supply curve to a new location?

answer

technology, prices of variable inputs

question

which are true statements about perfectly competitive firms?

answer

quantity supplied increases in direct response to an increase in product price and desire to maximize profit at greater levels of output, the higher marginal costa equal the product price and marginal revenue and profit is maximized because marginal costs ride with increased output, a purely competitive firm must get higher prices to motivate it to produce more output

question

because of the law of diminishing returns, marginal costs eventually fall as more units of output are produced

answer

false

question

a firm should produce if:

answer

price is equal to or greater than minimum average total cost, meaning that the firm is profitable or that losses are less than fixed costs price is equal to or greater than minimum average variable cost, meaning that the firm is profitable or that losses are less than fixed costs

question

the quantity of a product supplied by a firm in pure competition should _______ as long as price rises

answer

increase

question

the price at which the firm will break-even or where it earns a normal profit, but not an economic profit?

answer

p4

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