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ECON 2 Lecture Notes - Lecture 13: Marginal Revenue, Perfect Competition, Marginal Cost

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rosebuffalo981
13 Aug 2020
School
Irvine Valley College
Department
Economics
Course
ECON 2
Professor
colins

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Document Summary

Earning supernormal profits will in the long-run attract other new firms into the industry. While changes in the output of an individual firm will have no perceptible effect on market supply, the influx of many new producers into the industry will clearly have a marked impact. If market demand for the industry"s product is constant, the increased market supply will pull down price. Nevertheless, firms will still be attracted into the industry so long as supernormal profits exist. Only when these have been completed away, with all firms earning only normal profit, will the industry be in equilibrium. The adjustment from short-run to long-run equilibriums is shown in the diagram below: ref. Market demand and market supply is represented by demand and supply respectively, and the initial market price is 0p. Given this price, the firm produces its equilibrium output oq.

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Related Questions


1.
If firms in a monopolistically competitive market are earningpositive profits,
A) firms will likely be subject to regulation.
B) barriers to entry will be strengthened.
C) some firms must exit the market.
D) new firms will enter the market.
2.

Panel c in the set of figures shown is consistent with a firm in amonopolistically competitive market that is


A) earning profit and is in both short-run and long-runequilibrium.
B) earning economic profit and is in short-run equilibrium, but notlong-run equilibrium.
C) earning profit and is in long-run equilibrium, but not short-runequilibrium.
D) earning a negative profit and is not in equilibrium.
3.
When a profit-maximizing firm in a monopolistically competitivemarket is producing the long-run equilibrium quantity,
A) its marginal revenue will exceed its marginal cost.
B) its average revenue will equal its marginal cost.
C) it will be earning positive economic profits.
D) its demand curve will be tangent to its average-total-costcurve.
4.
Monopolistic competition differs from perfect competition becausein monopolistically competitive markets
A) each of the sellers offers a somewhat different product.
B) strategic interactions between firms is vitally important.
C) there are barriers to entry.
D) all firms can eventually earn economic profits.
5.
The free entry and exit of firms in a monopolistically competitivemarket guarantees that
A) economic losses can persist into the long run, but not economicprofits.
B) both economic profits and economic losses can persist into thelong run.
C) economic profits can persist into the long run, but not economiclosses.
D) both economic profits and economic losses disappear in the longrun.
6.


Panel (a) shows a profit-maximizing monopolistically competitivefirm that is

A) All answers are correct
B) earning a zero profit.
C) charging a price that is equal to average total cost.
D) in long-run equilibrium.
7.
Since a firm in a monopolistically competitive market faces a
A) perfectly elastic demand curve, it will always operate withexcess capacity.
B) downward-sloping demand curve, it will always operate atefficient scale.
C) perfectly inelastic demand curve, it will always operate atefficient scale.
D) downward-sloping demand curve, it will always operate withexcess capacity.
8.
In a monopolistically competitive market,
A) firms can enter or exit the market without restriction.
B) each firm takes the price of its product as given.
C) each firm produces a product that is essentially identical tothe products of other firms in the market.
D) there are only a few sellers.
9.
The fact that there is a great deal of advertising of men’s shavingproducts indicates that
A) it costs firms very little to produce those products.
B) the market for those products is perfectly competitive.
C) those products are highly differentiated.
D) All answers are correct
10.
A profit-maximizing firm in a monopolistically competitive marketdiffers from a firm in a perfectly competitive market because thefirm in the monopolistically competitive market
A) has no barriers to entry.
B) faces a downward-sloping demand curve for its product.
C) faces a horizontal demand curve at the market clearingprice.
D) is characterized by market share maximization.

1- All of the following statements apply to a purely competitive market in the long run, except:

A- In the long run, all inputs are variable in quantity.

B- Firms can expand their plant capacities in the long run.

C- Total fixed costs remain constant even when output expands in the long run.

D- Firms may enter or leave the industry in the long run.

2- Which of the following is true of normal profits?

A- They are necessary to keep a firm in the industry in the long run

B- They are zero under pure competition in the long run

C- They are excluded from a firm's costs of production

D- They are what attract other firms to enter an industry

3- -The long-run supply curve would be perfectly elastic when:

A- An increase in demand does not cause a change in product price

B- An increase in demand causes an increase in product price

C- A decrease in demand causes an increase in short-run supply

D- A decrease in demand causes an increase in product price

4- What happens in a decreasing-cost industry when some firms leave and the industry's output contracts?

A- The average cost will increase

B- The average cost will decrease

D- The total cost will decrease

C- The product price will decrease

5- Which of the following statements about a competitive firm is correct?

A-To maximize profits a competitive firm should produce at that output at which total revenue is greatest

B- In long-run equilibrium a competitive firm will produce at the point of minimum average costs

C- A competitive firm will produce in the short run so long as total receipts are sufficient to cover total fixed costs

D-A competitive firm will close down in the short run whenever price is less than the minimum attainable average total cost

6- When there is allocative efficiency in a purely competitive market for a product, the minimum price producers are willing to accept is:

A- Less than marginal benefit

B- Greater than marginal cost

C- Equal to the amount of efficiency or deadweight losses

D- Equal to the maximum price consumers are willing to pay

7- A patent is the legal right granted to a firm that allows it to:

A- Make copies of other firm's products

B- Be the sole buyer of a particular product or resource

C- Sell its new product exclusively for a set number of years

D- Be the exclusive distributor of a particular imported product

1. if the government attempts to break up a natural monopoly to enforce competition in an industry

A. the average cost of producing the good will increase

B. the smallest firm will have a significant cost advantage over the larger, less efficient firms

C. the average cost of producing the good will decrease

D. the price paid by consumers will be expected to remain the same.

2. which statement is true?

A. the monopolistic competitor always makes a profit in the short run

B. the monopolistic competitor operates at peak efficiency

C. product differentiation takes place in the minds of the buyers

D. none of these statements is true

3. Price discrimination

A. occurs when a good or service is resold

B. is prohibited by law

C. occurs when a seller charges two or more prices for the same good or service

D. occurs when the seller charges different prices for different quality products

4. Monopolistic competition may lead to each of the following except

A. inefficiency

B. overdifferentiation

C. overcapacity

D. monopoly profits

5. In the long run in monopolistic competition

A. most firms are making a profit

B. the absence of entry barriers ensures that there are no profits

C. economies of scale ensure that there are no profits

D. most firms are losing money

6. Price discrimination means

A. charging different prices for identical goods that have identical production costs

B. paying wages according to race or sex rather than productivity

C. exploiting the working masses by charging the highest single price possible.

D. eliminating all costs so that only pure profits are realized

7. The definition of monopolistic competition includes

A. few firms and ease of entry and exit

B. few firms and barrieres to entry and exit

C. many firms and barriers to entry and exit

D. many firms and ease of entry and exit

8. Which statement is true?

A. there are many firms in a monopolistically competitive industry.

B. monopolistic competitors produce an identical product

C. in order for product differentiation to take place, there must be clear physical differences amont the products sold

D. none is true

9. Long-run equilibrium for firms in monopolistically competitive industries is similar to that for firms in perfect competition in that

A. price equals minimum possible average total cost

B. price equals marginal cost

C. marginal revenue equals average total cost

D. price equals average total cost

10. Which statement is false?

A. Oligopolies are illegal in most states

B. most oligopolies engage in outright collusion

C. Ford motor company is an oligopoly

D. none of these statements is false