Problem 1: The four major characteristics of a purely competitive market structure are ____________, _____________, ___________, ______________.
Problem 2. The demand curve facing a pure competitor is __________ elastic; such a demand curve is (horizontal, vertical) ________ at the going price.
Problem 3. We assume that the goal of the firm is to maximize profits; if so, the pure competitor should produce up to the point where MR equals __________; total profits are defined as _________ minus ________.
Problem 4. Marginal revenue equals __________, divided by ___________.
Problem 5. Because we include the opportunity cost of capital as a cost of production, the profits we define are (accounting, economic) profits.
Problem 6. The marginal cost curve eventually is upward sloping, due to the law of ___________; the marginal cost curve intersects the average variable cost curve at ____________, and it intersects the average total cost at ___________.
Problem 7. If marginal cost is below average cost, average cost will _________; if marginal cost is above average cost, average cost will ____________.
Problem 8. If the firm is earning zero economic profits, it (would, would not) _________ continue to operate.
Problem 9. The competitive firm's short-run supply curve is its __________ curve; the industry short-run supply curve is derived by ___________ all the firm supply curves.
Problem 10. In the long run a firm in a purely competitive industry will earn exactly zero economic profits.
This is true because if economic profits are positive, some firms will ________ the industry and price will fall; if economic profits are negative, some firms will _________ the industry and price will rise.
Problem 11. If an industry expands and input prices do not change, such an industry is a ___________- cost industry and the long-run supply curve is horizontal; if input prices rise, the industry is a(n)_________-cost and the long run industry supply curve is _______ sloping; if input prices fall, the industry is a(n)___________ - cost industry and the industry's long-run supply curve is ________ sloping.
Problem 12. In the long run a purely competitive firm will earn (negative, positive, zero) _________ economic profits. Its price will be (greater than, less than, equal to) __________ marginal cost, and output (will, will not) _________ be produced at minimum average total cost.
I) TRUE-FALSE QUESTIONS:
T F 1. The more broadly we define an industry, the less likely it is to be a monopoly.
T F 2. Because of barriers to entry, a monopolist must earn long-run profits.
T F 3. The monopolist's marginal revenue curve lies below its demand, or average revenue, curve.
T F 4. A monopolist must charge the same price to all buyers.
T F 5. The monopolist total revenue curve is linear.
T F 6. The monopolist will never produce on the inelastic portion of its demand curve.
T F 7. Total Profits are maximized where total revenue equals total costs.
T F 8. If MR > MC, the firm can increase profits if it produces less.
T F 9. A monopolist can select only one profit-maximizing price, given the output it
chooses to produce.
T F 10. Because there are no close substitutes for a monopolist's output, its demand curve is inelastic
throughout.
II) COMPLETION QUESTIONS:
11. A monopolist is a __________ supplier that constitutes the entire industry; its demand curve is _________ sloped.
12. Before a monopolist can earn monopoly profits, there must be ___________ entry.
13. If a monopolist must charge the same price to everyone, when it produces more, its marginal revenue will be ( less than, greater than, equal to) ___________ its price.
14. The monopolist maximizes total profits at that output for which ________ equals ________; given its profit maximizing output, the monopolist (need not, must) ___________charge a price consistent with that quantity.
15. If a monopolist need not charge the same price to everyone, then it can ___________, and its profits will rise; a monopolist can charge different prices to different groups if it can prevent the ____________ of its product.
16. A monopolist charges a price that is too _____________, and it produces an output that is too ____________; therefore the monopolist is ( less, more) ___________ socially
efficient than pure competition.
III) MULTIPLE-CHOICE QUESTIONS:
17. Which of the following is not a characteristic of the monopoly market structure?
a. one seller
b. homogenous product
c. restricted entry
d. price taker
18. Which of the following is a potential barrier to entry?
a. government license requirement
b. sole ownership of a key resource.
c. great economies of scale, relative to demand
d. All of the above.
19. Which is not true about monopolies?
a. linear total revenue curve
b. may earn long run economic profits
c. negatively sloped demand curve
d. All of the above
20. The firm maximizes total profits at that output where
a. total revenue equals total cost
b. marginal revenue equals marginal costs
c. negatively sloped demand curve
d. All of the above.
21. Once a monopolist produces a profit-maximizing output,
a. the price is determined for it, given its demand curve.
b. it can select any price it wants.
c. it s competitors select price.
d. price cannot be determined.
22. If MR < MC, then the firm
a. is maximizing total profits.
b. can increase total profits by producing more.
c. can increase total profits by producing less.
d. is maximizing total revenues.
23. Monopoly profit
a. equals (AR - AC) times quantity sold.
b. equals price times quantity sold.
c. exist only in the short run.
d. exist because no entry barriers exist.
24. A monopolist will price discriminate if
a. price differentiation exist.
b. it can separate markets by different price elasticities of demand and prevents resale.
c. it chooses to maximize average revenues.
d. all buyers have the same price elasticity of demand.