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1. A perfectly competitive firm, monopolistically competitive firm and monopoly firm produce at the output where marginal revenue equals marginal cost (MR = MC) but only the perfectly competitive firm achieves allocative efficiency. Explain why this is the case
2. Explain whether you agree or disagree with the following statement. “The concept of diminishing returns refers to a firm's long-run average cost increasing as output increases.”
3. What three main assumptions need to be satisfied if a market is to be described as perfectly competitive? Explain why each of these assumptions is important.
4. What is moral hazard? Explain using an example.

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Jarrod Robel
Jarrod RobelLv2
31 Dec 2018

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Related questions

1. Which of the following is true under a monopoly?

  • A. Monopolist chooses the highest possible price.
  • B. Monopolist chooses a price that is always higher than marginal cost of production.
  • C. Marginal revenue of a monopolist is price.
  • D. None of the above are true for monopoly.

2. You are the manager of a monopoly that faces a demand curve described by P = 230 -20Q. Your costs are C = 5 +30Q. The profit-maximizing output for your firm is:

  • A. 4
  • B. 5
  • C. 6
  • D. 7

3. Which of the following is true?

  • A. A monopolist produces on the inelastic portion of its demand.
  • B. A monopolist always earns an economic profit.
  • C. The more inelastic the demand, the closer marginal revenue is to price.
  • D. In the short run a monopoly will shutdown if P < AVC.

4. In a competitive industry with identical firms, long rum equilibrium is characterized by:

  • A. P = AC
  • B. P = MC
  • C. MR = MC
  • D. All of the above

5. You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q2. Your firm's maximum profits are:

  • A. 125
  • B. 250
  • C. 100
  • D. 85

6. A perfectly competitive firm faces:

  • A. A perfectly elastic demand function
  • B. A perfectly inelastic demand function
  • C. a demand function with unitary elasticity
  • D. none of the above

1. The principle that a firm should produce up to the point where the marginal revenue (MR) from the sale of an extra unit of output is equal to the marginal cost (MC) of producing the extra unit applies: ( I put A)

  to both perfectly competitive firms and monopolies
  only to monopolies
  only to perfectly competitive firms
 

only to firms that can employ discriminatory pricing strategies

2. If a monopolist or a perfectly competitive firm is producing at a break-even point, then: ( I put II, IV)
i. average revenue is equal to average variable cost
ii. average revenue is equal to the o average total cost
iii. total revenue is equal to total variable cost
iv. total revenue is equal to the total cost

  i
  ii
  iii
  I and iii
 

ii and iv

3. What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common? (I put A)

  they are all barriers to entry
  they all help explain why a monopolists demand and marginal revenue curves are identical
  they must all be present before a monopolist may practice price discrimination
  they all help explain why a firm's short-run average total cost curve is U-shaped

1. All of the following are characteristics of long-run equilibrium for firms in a monopolistically competitive market except:

A. price equals marginal cost.

B. price equals average total cost.

C. price exceeds the minimum of the average total cost.

D. marginal cost equals marginal revenue.

2. All of the following are strategies a firm with market power can adopt to increase its profits over time except:

A. erecting barriers to entry.

B. setting price equal to the marginal costs of production.

C. mergers with, and acquisitions of, competing firms.

D. influencing the regulatory process.

3. Assume that for a particular firm's output price = $80, marginal cost = $30, average total cost = $25. Based on this information, the firm's Lerner Index is equal to:

A. 0.313.

B. 0.625.

C. 0.6.

D. 0.375.

4. Assume that when the price is $20, the quantity demanded is 9 units, and when the price is $19, the quantity demanded is 10 units. Based on this information, what is the marginal revenue resulting from an increase in output from 9 units to 10 units?

A. $10

B. $1

C. $19

D. $20

5. Because firms produce a differentiated product, each of the firms in a monopolistically competitive market faces a demand curve that is:

A. perfectly elastic.

B. downward sloping.

C. perfectly inelastic.

D. perfectly elastic or perfectly inelastic depending on whether the firm's output is a luxury or a necessity.

6. Suppose a monopolist is producing a level of output such that MR > MC. What should the firm do to maximize its profits?

A. The firm should increase output.

B. The firm should increase the price.

C. The firm should do nothing - it wants to maximize the difference between MR and MC in order to maximize its profits.

D. The firm should hire less labor.

7. Suppose the firms in a monopolistically competitive market are earning positive economic profits. What will happen to move the market to its long-run equilibrium?

A. The demand curves faced by firms in the market will shift to the right.

B. The firms' demand curves will become less elastic.

C. More close substitutes will appear in the market.

D. Some firms will exit the market if they can't cover all of their fixed and variable costs.

8. The Lerner Index is a measure of market power that focuses on:

A. the difference between a firm's product price and its marginal costs of production.

B. the share of the market controlled by the X largest firms in the market.

C. the ratio of the price of a firm's product to the price elasticity of demand for the product.

D. the sum of the squares of the market share of each firm in an industry.

9. The measure of market power that focuses on the share of the market controlled by the X largest firms in the market is known as:

A. the Lerner Index.

B. the Herfindahl-Hirschman Index.

C. the Minimum-Efficient Scale Index.

D. a concentration ratio.

10. The monopoly characteristic of monopolistically competitive firms ensures that such firms will earn positive economic profits over the long-run.

a. True

b. False

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