ECO100Y5 Chapter Notes -Monopolistic Competition, Imperfect Competition, Perfect Competition

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Imperfect competition covers all situations where there is neither pure competition nor pure monopoly. Both perfect competition and pure monopoly are very unlikely to be found in the real world. In the real world, it is the imperfect competition lying between perfect competition and pure monopoly. The fundamental distinguishing characteristic of imperfect competition is that average revenue curve slopes downwards throughout its length, but it slopes downwards at different rates in different categories of imperfect competition. The monopolistic competition is one form of imperfect competition. Monopolistic competition refers to the market situation in which many producers produce goods which are close substitutes of one another. Two important distinguishing features of monopolistic competition are: In monopolistic competition, products are not homogenous nor are they only remote substitutes. These are the products produced by competing monopolists that have separate identity, brand, logos, patents, quality and such other product features. Product differentiation does not mean that goods are completely different.

Related Questions

Q5. Table 5.5

Total Output Total Costs

0 10

1 18

2 21

3 23

4 24

5 26

6 29

7 33

8 38

9 44

10 51

In Table 5.5, the marginal cost of the third unit is

a. 2.

b. 4.

c. 3.

d. 1.

Q6. When marginal physical product begins to decline, marginal cost begins to increase.

a. true

b. false

Q7. It is possible for a firm to have positive fixed cost and zero total cost.

a. true

b. false

Q8. Which one of the following is TRUE?

a. Marginal cost increases as marginal physical product decreases.

b. Marginal cost decreases as marginal product decreases.

c. Total cost is the difference between marginal cost and total variable cost.

d. Total cost is the sum of marginal cost plus total variable cost.

Q9. The slope of the production function becomes negative when diminishing returns set in.

a. true

b. false

Q10. Table 5.7

Q Total Variable Cost Average Variable Cost Total Cost Average Total Cost

1 10 50

2 50 90

3 40

Refer to Table 5.7. What is the firm's total fixed cost?

a. 20

b. 40

c. 10

d. 30

Q11. When there are economic profits in a perfectly competitive industry

a. firms have no incentive to exit or enter the industry.

b. firms exit the industry.

c. firms enter the industry.

d. the high barriers to entry prevent further competition.

Q12. The market structure of perfect competition is defined by hundreds of firms producing an essential product, with barriers to the entry of new firms.

a. true

b. false

Q13. A single supplier of a good or service for which there is no close substitute is referred to as a(n)

a. monopolistic competitor.

b. strategic competitor.

c. monopoly.

d. oligopoly.

Q14. For the perfectly competitive firm the selling price of its product is determined by

a. the length of time it has been in business.

b. the amount it chooses to spend on marketing.

c. the interaction of market supply and demand.

d. the number of competing firms.

Q15. A company finds that at the MR = MC output level, its total cost is $500, total variable cost is $400, and total revenue is $450. Your advice to the firm is to

a. reduce output to reduce the cost of production.

b. continue to produce, as total revenue covers total variable cost.

c. increase output to reduce the per unit cost of production.

d. shut down immediately.

Q16. For a monopolist

a. P > MR.

b. P = MC.

c. P = ATC.

d. P = MR.

Q17. The perfect competitor

a. chooses the profit-maximizing quantity.

b. chooses the profit-maximizing price.

c. chooses a quantity that will make the most efficient use of his labor and capital resources.

d. produces what he thinks can be sold, regardless of cost.

Q18. In perfect competition, the larger firms will be able to charge a higher price than the smaller firms.

a. true

b. false

Q19. For the perfectly competitive firm, price equals marginal revenue.

a. true

b. false

Q20. For a monopolist, selling more units requires

a. allowing more firms to enter the industry.

b. hiring a more productive labor force.

c. forming a cartel.

d. lowering the selling price.

Q21. Monopolistic competition means

a. monopolies from several countries compete in the global market.

b. a large number of firms producing differentiated products.

c. a large number of firms producing homogeneous products.

d. few firms producing differentiated products.

Q22. Opportunistic behavior is discouraged by the desire to have repeat transactions.

a. true

b. false

Q23. By saying that firms in an oligopoly are interdependent, we mean that

a. actions by one will prompt reactions by others.

b. if one increases its profits, all others will increase profits as well.

c. all firms sell identical products.

d. if one increases its profits, all others will lose profits.

Q24. Price leadership is a form of

a. barrier to entry.

b. tacit collusion.

c. opportunistic behavior.

d. noncooperative behavior.

Q25. A monopolistically competitive firm in the long run

a. earns positive economic profits.

b. earns negative economic profits.

c. earns zero economic profits.

d. suffers economic losses.

Q26. Monopolistically competitive firms produce a product that is homogeneous.

a. true

b. false

Q27. Which of the following is a characteristic of both perfect competition and monopolistic competition?

a. In the long run, the firm will produce the output which minimizes average total cost.

b. Firms sell a homogeneous product.

c. In the long run, the firm will earn zero economic profit.

d. The firm seeks to differentiate its product from those of its competitors.

Q28. A monopolistically competitive firm uses advertising to

a. lower its costs.

b. differentiate its product.

c. signal its competitors that it is serious about staying in business.

d. motivate its work force.

Q29. For the monopolistic competitor, which is INCORRECT?

a. The profit maximizing rate of output is where the marginal cost curve intersects the marginal revenue curve.

b. The marginal revenue curve is downward sloping and lies below the demand curve.

c. Because the firm has some control over price, its demand curve slopes downward.

d. If the firm in a monopolistically competitive industry were making economic losses, firms would enter the industry.

Q30. Which of the following is TRUE?

a. In the model of price leadership, the dominant firm consistently charges the lowest price.

b. Opportunistic behavior is discouraged by the desire to have repeat transactions.

c. The strategic dependence that characterizes oligopoly means that no firms can earn positive accounting profits.

d. Price wars are most common in perfect competition.

Q31. Antitrust legislation seeks to correct market failure by ensuring that all firms in the industry earn an economic profit.

a. true

b. false

Q32. Market failures arise when

a. people look out for their own best interests.

b. there is a gap between the social and private costs of producing or consuming a good.

c. firms look out for their own best interests.

d. society seeks to operate at a point on the production possibilities curve.

Q33. Cases prosecuted under the Sherman Antitrust Act are intended to correct market failure arising from negative externalities.

a. true

b. false

Q34.

Figure 8.2

Refer to Figure 8.2. The market equilibrium is Q1. Point Q2 represents the optimal point of production. To reach Q2,

a. consumption of the good could be taxed.

b. a subsidy could be given to consumers.

c. production of the good could be taxed.

d. the industry producing the good should operate as a cartel.

Q35. What would happen in a free market system when production of a good generates negative externalities?

a. There would be a shortage of the good.

b. The equilibrium quantity of the good would be more than the efficient amount.

c. The equilibrium quantity of the good would be less than the efficient amount.

d. There would be a surplus of the good.

Q36. If providing a service results in negative external costs, then

a. the market price is below the true opportunity cost of resources used to provide the service.

b. the market price is above the true opportunity cost of resources used to provide the service.

c. the market quantity is too low.

d. market forces will always correct the problem.

Q37. The problem of positive externalities can be addressed by having some firms exit the industry.

a. true

b. false

Q38. The first case prosecuted under the Sherman Act was the antitrust case against Microsoft.

a. true

b. false

Q39. If your marginal tax rate is always higher than your average tax rate, then the tax system is a

a. proportional tax system.

b. regressive tax system.

c. fair tax system.

d. progressive tax system.

Q40. Private goods are characterized by the principle of rival consumption.

a. true

b. false

Q41. Collective bargaining is the process by which unions and employers negotiate the conditions of employment and wages.

a. true

b. false

Q42. The marginal physical product of labor is the addition to total revenue a firm experiences when it hires one additional worker.

a. true

b. false

Q43. A firm's marginal revenue product of labor curve is also

a. its labor demand curve.

b. its total revenue line.

c. its long-run input cost function.

d. its marginal cost curve.

Q44. An increase in the selling price of a product

a. increases the supply of labor to the industry.

b. increases the productivity of labor.

c. raises the firm's demand for labor.

d. decreases the supply of labor to the industry.

Q45. If unions succeed at restricting the supply of labor in any one area of the economy, wages in that sector will increase.

a. true

b. false

Q46. The fact that the labor supply curve slopes upward indicates that

a. workers seek to work more hours when the wage rises.

b. the income effect of a wage increases outweighs the substitution effect.

c. workers seek to work more hours when the wage decreases.

d. firms want to hire more workers when the wage rises.

Q47. The upward slope of the labor supply curve suggests that the income effect of a wage increase outweighs the substitution effect.

a. true

b. false

Q48. The number of strikes occurring in U. S. firms has steadily increased over the past 25 years.

a. true

b. false

Q49. Suppose a perfectly competitive firm faces a labor market in which the going wage rate is $480 per week. If the last worker hired has a marginal physical product of 12 units of output per week, what is the selling price of the firm's output?

a. $40 per unit

b. $480 per unit

c. $240 per unit

d. $12 per unit

Q50. If workers in an industry become less productive due to low employee morale, we would expect the

a. demand for workers to decrease.

b. wages in the industry to increase.

c. supply of workers to increase.

d. demand for workers to increase.

1).

A consumer spends more time searching for a good when her reservation price is:

increased.

reduced.

fixed.

None of the statements is correct.

2).

In the game shown below, firms 1 and 2 must independently decide whether to charge high or low prices.

Which of the following are Nash equilibrium payoffs in the one-shot game?

(0, 0)

(5, -5)

(-5, 5)

(10, 10)

3).

A risk-neutral individual would:

prefer $5 with certainty to a risky prospect with the expected value of $5.

prefer a risky prospect with an expected value of $5 to a certain amount of $5.

be indifferent between a risky prospect with an expect value of $5 to a certain amount of $5.

prefer a risky prospect with the expected value of $0.50 to $5 with certainty.

4).

Snowpeak Ski Resort offers a price for a lift ticket that is barely over its marginal cost, but the high equipment rental fee keeps generating big profits. Which pricing strategy is the management using?

Price discrimination

Two-part pricing

Commodity bundling

Cross-subsidization

5).

The short run is defined as the time frame:

in which there are no fixed factors of production.

in which there are fixed factors of production.

less than one year.

less than three years.

6).

Fixed costs exist only in:

the long run.

capital-intensive markets.

the short run.

labor-intensive markets.

7).

Top of Form

Non-fed ground beef is an inferior good. In economic booms, grocery managers should:

increase their orders of non-fed ground beef.

reduce their orders of non-fed ground beef.

not change their orders of non-fed ground beef.

neither increase, reduce, nor maintain their current orders for non-fed ground beef.

Bottom of Form

8).

Which of the following pricing strategies is NOT used in markets with special cost and demand structures?

Peak-load pricing

Cross-subsidization

Transfer pricing

Low-price guarantees

9).

A perfectly competitive firm faces a:

perfectly elastic demand function.

perfectly inelastic demand function.

demand function with unitary elasticity.

None of the answers is correct.

10).

The special demand structure that induces a firm to use a cross-subsidization strategy is:

perfect substitution among products.

imperfect substitution among products.

independent demand for products.

interdependent demand for products.

11).

Which of the following factors reduces the need for government involvement in the marketplace?

The presence of externalities

The incentive to rent-seek

The need for public goods

Incomplete information

12).

Which of the following statements is true?

A mineral rights auction is not the same as a common-value auction.

An auctioneer is always indifferent between different kinds of auctions.

The Dutch and first-price, sealed-bid auctions are strategically equivalent.

An English auction always yields lower expected revenues than a second-price, sealed-bid auction.

13).

Which of the following is true concerning negative externalities?

Firms tend to produce more than the efficient level of output.

Society gains because firms do not pay the external costs of production.

Perfect competition is better than monopoly from the viewpoint of society even in the presence of negative externalities.

With negative externalities, a monopoly will always produce an output level less than is socially efficient.

14).

Which of the following is true under monopoly?

P > ATC

P > MC

P = MR

P = ATC

15).

Differentiated goods are NOT a feature of a:

perfectly competitive market.

monopolistically competitive market.

monopolistic market.

perfectly competitive market and monopolistic market.

16).

Producer surplus is measured as the area

below the demand curve and above the market price.

above the demand curve and below the market price.

above the supply curve and below the market price.

below the supply curve and above the market price.

17).

Jaynet spends $25,000 per year on painting supplies and storage space. She recently received two job offers from a famous marketing firm â one offer was for $105,000 per year, and the other was for $85,000. However, she turned both jobs down to continue a painting career. If Jaynet sells 30 paintings per year at a price of $9,000 each:

a. What are her accounting profits?

$

b. What are her economic profits?

$

18).

You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Group 1âs elasticity of demand is -2, while group 2âs is -4. Your marginal cost of producing the product is $40.

a. Determine your optimal markups and prices under third-degree price discrimination.

Instruction: Round your answers to two decimal places.

Markup for group 1:
Price for group 1: $

Markup for group 2:
Price for group 2: $

b. Which of the following are necessary conditions for third-degree price discrimination to enhance profits.

Instructions: You may select more than one answer. Click the box with a check mark for the correct answers and click twice to empty the box for the wrong answers. You must click to select or deselect each option in order to receive full credit.

	At least one group has elasticity of demand less than one in absolute value.
	There are two different groups with different (and identifiable) elasticities of demand.
	We are able to prevent resale between the groups.
	At least one group has elasticity of demand greater than 1 in absolute value.

19).

You are the manager of a firm that receives revenues of $60,000 per year from product X and $80,000 per year from product Y. The own price elasticity of demand for product X is -1.5, and the cross-price elasticity of demand between productY and X is -1.4.

How much will your firm's total revenues (revenues from both products) change if you increase the price of good X by 2 percent?

Instructions: Round your answer to the nearest dollar. Include a minus (-) sign if applicable.

$

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home / study / business / economics / questions and answers / Question 1 Which Of The Following Is The Best Example ... Question: Question 1 Which of the following is the best exam... Bookmark Question 1 Which of the following is the best example of a positive externality? A car company lays off 10,000 employees in order to cut costs. An individual drives a large SUV, which increases the amount of greenhouse gases in the atmosphere. An individual smokes in a restaurant, which bothers other patrons. A child is vaccinated against a disease, which reduces the probability that other children will catch the disease. 4 points Question 2 As a result of a negative externality, the market equilibrium quantity is too ______ compared to the socially optimal quantity. As a result of a positive externality, the market equilibrium quantity is too ______ compared to the socially optimal quantity. high; high. low; low. high; low. low; high. 4 points Question 3 Based on the diagram below, the deadweight loss area associated with the market equilibrium equals: Week06_graph1.jpg $10 $50 $80 $1,000 4 points Question 4 A firm's accounting profit is given by total revenue: less implicit costs. less explicit costs. less economic profit. less implicit and explicit costs. 4 points Question 5 Suppose an activity has a private cost equal to $30 and a private benefit equal to $30. The associated social cost equals $35 and the social benefit equals $30. Which of the following statements is true about this activity? There is a negative externality associated with this activity but not a positive externality. There is a positive externality associated with this activity but not a negative externality. There is both a positive and a negative externality associated with this activity. There is neither a positive nor a negative externality associated with this activity. 4 points Question 6 The Coase Theorem implies that: the efficient level of an externality is generally zero. private individuals living in market economies should not be concerned with externalities. government intervention is not always needed to arrive at the efficient level of an externality. government laws are unnecessary. 4 points Question 7 An industry in which a small number of large firms sell products that are either close or perfect substitutes is: perfectly competitive. monopolistically competitive. an oligopoly. a monopoly. 4 points Question 8 When a negative externality is present in a market: a tax can increase the level of economic surplus. the social benefits are greater than the private benefits. there is generally too little of the good produced by private markets. the government should ensure that there are zero external costs associated in all markets. 4 points Question 9 In the presence of a positive externality, the government can arrive at the socially optimal output level by: paying producers a subsidy equal to the amount of social benefits associated with the activity. charging producers a tax equal to the amount of social costs associated with the activity. paying producers a subsidy equal to the amount of external benefits associated with the activity. charging producers a tax equal to the amount of external costs associated with the activity. 4 points Question 10 The tragedy of the commons is that: too few individuals have access to high quality healthcare. common people overconsume public goods. the quality of life for lower income people is generally lower than that of higher income people. a resource with no price tends to be exploited until its marginal benefit falls to zero. 4 points Question 11 One potential remedy to the tragedy of the commons is to: never allow a single individual to consume more than one percent of the common resource. criminalize the usage of common resources. allow individuals to use a common resource as long as they receive some benefit from doing so. place a common resource under private ownership. 4 points Question 12 As a result of a positional externality: contestants have a tendency to invest in a series of mutually offsetting investments in performance enhancement. there is generally an underinvestment in performance enhancement. the market price of performance enhancement materials is too high. the quality of performance in competitive situations is lower than the socially optimal level. 4 points Question 13 Which of the following statements is true regarding health insurance? Economics shows that all health related procedures should be free to individuals because the health of an individual is priceless. Total economic surplus would be larger if individuals faced an incentive to only use services when the benefit exceeds their costs. Health maintenance organizations provide an incentive for doctors to prescribe expensive nonessential services. First dollar insurance coverage has likely had very little to do with rising healthcare expenditures since World War II. 4 points Question 14 A strategy that yields a higher payoff no matter what the other players in the game choose is known as a: prisoner's strategy. dominated strategy. dominant strategy. Nash strategy.

ECO100Y5 Chapter Notes -Monopolistic Competition, Imperfect Competition, Perfect Competition

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