Log in
HomeTextbook Notes300,000CA170,000

ECON 208 Chapter Notes - Chapter 9: Perfect Competition, Mastercard, Market Power

41 views9 pages
ceruleancrow212
21 Jan 2019
School
McGill University
Department
Economics
Course
ECON 208
Professor
Paul Dickinson

For unlimited access to Textbook Notes, a Class+ subscription is required.

selin.aksezgin and 39983 others unlocked
ECON 208 Full Course Notes
27
ECON 208 Full Course Notes
Verified Note
27 documents

Document Summary

If total revenues are not enough to cover total costs, economic profits will be negative, and we say the firm is making economic losses. If the firm produces nothing, it will have an operating loss that is equal to its fixed costs. If a firm decides that production is worth undertaking, then it must decide how to produce. If it is worthwhile for the firm to produce at all, the profit-maximizing firm should produce the output at which marginal revenue equals marginal cost. If existing firms make positive economic profits, new firms have an incentive to enter the industry. If existing firms make zero profits, there are no incentives for new firms to enter, and no incentives for existing firms to exit. If existing firms make economic losses, there is an incentive for existing firms to exit the industry. Conditions for long-run equilibrium: existing firms must be maximizing profits, given their existing capital.

Get access

Grade+
$40 USD/m
Billed monthly
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
10 Verified Answers
Class+
$30 USD/m
Billed monthly
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
7 Verified Answers

Related Documents

ECON 208 Lecture Notes - Lecture 14: Market Power, Market Structure, Perfect Competition
rubyhippopotamus354
ECON 208 Lecture Notes - Lecture 3: Market Power, Perfect Competition, Product Differentiation
fuchsiabeetle733
ECON 208 Lecture Notes - Lecture 8: Perfect Competition, Market Structure, Market Power
plumgoldfish970

Related Questions

1. Which of the following is a characteristic of pure monopoly?

A. close substitute products

B. barriers to entry

C. the absence of market power

D. "price taking"

 

2. An example of a monopoly would be

A. one of many U.S. wheat farmers

B. one of the few U.S. automakers

C. AT&T cell phone service

D. the local water company

 

3. In which market structure do firms exist in very large numbers, each firm produces an identical product, and there is freedom of entry and exit?

A. monopoly

B. oligopoly

C. only perfect competition

D. only monopolistic competition

E. both perfect competition and monopolistic competition

 

4. Which of the following is the best example of a perfectly competitive market?

A. farming

B. diamonds

C. athletic shoes

D. soft drinks

E. electricity distribution


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.

11-Short-run costs which increase and decrease as an output increases or decreases are called: a.Variable costs b.Secondary costs c.Derived costs d.Partial costs e.Potential costs 12.The addition to total cost resulting from the addition of the last unit of output is called the: a.Total variable cost b.Average variable cost c.Fixed cost d.Implicit cost e.Marginal cost 13.The fact that a single large factory may be more efficient than several smaller factories of the same total capacity is a reflection of: a.Increasing returns of scale. b.The law of diminishing marginal returns c.Comparative advantage d.The crowding-out effect e.Reproduction cost of assets 14.A possible reason for the existence of increasing return to scale is: a.The inability of a firm to increase all inputs proportionally b.Problems of coordination and control c.Higher input prices d.Larger fixed costs with a larger plant size. e.Greater specialization 15.The model of perfect competition is useful because: a.Most firms in the real world are perfectly competitive b.Perfectly competitive firms exert significant perfect competition. c.Government regulation is designed to eliminate perfect competition. d.It is a model of an ideal world which sheds much light on a market structure’s effects on resources allocation e.Advertising agencies are heavily dependent on the advertising dollars of perfectly competitive firms 16.A market consisting of many firms producing homogeneous products, having complete knowledge of relevant information, no power over the product’s market price, and low barriers to entry is characteristic of: a.Perfect competition b.Monopoly c.Monopolistic competition d.Oligopoly e.None of the above markets 17.A market consisting of many firms, low barriers to entry, some control over price, but considerable non-price competition is characteristic of: a.Perfect competition b.Monopoly c.Monopolistic competition d.Oligopoly e.None of the above. 18.A market consisting of a few firms producing similar products with significant barriers to entry is characteristic of: a.Perfect completion. b.Monopoly c.Monopolistic competition. d.Oligopoly e.None of the above