Microecon Test 3 – Flashcards
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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?
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The long-run market supply curve will be upward sloping
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If a competitive firm is selling 500 units of its product at a price of $8 per unit and earning a positive profit, then. . .
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its total cost is less than $4000
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When entry and exit behavior of firms in an industry does not affect a firm's structure
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the long-run market supply curve must be horizontal
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The competitive firm's short-run supply curve is its
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marginal cost curve, but only the portion above the minimum of the average variable cost
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If a firm in a competitive market doubles its number of units sold, total revenue for the firm will
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double
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In order to maximize profits in the short run, a firm should produce where
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marginal cost equals marginal revenue
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If all firms have the same cost of production, then in the long-run equilibrium
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all firms have 0 economic profits and just cover their opportunity costs
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What best reflects a price-taking firm
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If the firm were to charge less than the market price to earn higher revenue
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A rational pricing strategy for a profit-maximizing monopolist is
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price discrimination
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Because a monopolist must lower its price in order to sell another unit of output
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marginal revenue is less than price
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The practice of selling the same goods to different customers at different prices, but with the same marginal cost is known as
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price discrimination
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The monopolist's marginal revenue is
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always less than the price of its good
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The socially efficient level of production occurs where the marginal cost curve intersects
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demand
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Private ownership of a monopoly may benefit society because the monopoly will have an incentive to
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lower its costs to earn a higher profit
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Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial trades are
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a deadweight loss to society
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In order to sell more of its product, a monopolist must
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enact barriers to entry in related markets
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Perfect price discrimination
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eliminates deadweight loss
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Antitrust laws can prevent social welfare if
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they prevent mergers that would lower costs through more efficient joint production
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A monopolist
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does not have a supply curve because the monopolist sets its price at the same time it chooses the quantity to supply
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Monopolistic competition is an inefficient market structure because
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it has a deadweight loss, just as monopoly does
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Product differentiation causes the seller of a good to face what type of demand curve?
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downward sloping
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One key difference between an oligopoly market and a competitive market is that oligopolistic firms
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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
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To maximize its profit a monopolistically competitive firm chooses its level of output by looking for the level of output at which
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marginal revenue equals marginal cost
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In a long-run equilibrium, a firm in a monopolistically competitive market operates
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on the declining portion of its average total cost curve
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A business-stealing externality is
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the negative externality associated with entry of new firms in a monopolistically competitive market
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If advertising reduces a consumer's price sensitivity between identical goods, it is likely to
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reduce competition and reduce social welfare
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Defenders of advertising
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contend that firms use advertising to provide useful information to customers
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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,
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each existing firm experiences a decrease in demand for its product
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A similarity between monopoly and monopolistic competition is that both market structures
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sellers are price makers rather than price takers
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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
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price may exceed average total cost, but in the long run, price equals average total cost
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If "too much choice" is a problem for consumers, it would occur in which market structure?
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monopolistic competition
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A profit-maximizing firm in a monopolistically competitive market is characterized by
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average revenue exceeds marginal revenue
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Although the practice of predatory pricing is a common claim in antitrust suits, some economists are skeptical of this argument because they believe
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predatory pricing is not a profitable business strategy
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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
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can be difficult to maintain, even when cooperation would make both players of the game better off
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Games that are played more than once generally
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make collusive arrangements easier to enforce
