ECO 182 Study Guide - Final Guide: Ebay, False Advertising, Adverse Selection

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lavenderimpala743

14 Dec 2020

School

University at Buffalo

Department

Economics

Course

ECO 182

Professor

Cherry Monica

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Document Summary

Examples of firms in this market: bars/ clubs, taxi/ mini bus, hair dressing salons. They differ from perfectly competitive firms because in that market the firms are all selling identical products that do not differentiate: what are ways that firms can product differentiate. Example of way of differentiating is: lighting, flowers, location, advertising, pricing, services, etc. : demand curve for monopolistically competitive firms. Downward sloping although more elastic than one for a monopolist due to availability of lots of substitutes. In the short run a monopolistically competitive firm behavior is very similar to a monopoly. What is the implication in terms of efficiency? (both mark up pricing and excess capacity) (draw graph) If profits are being made firms enter the market which decreases demand causing price and profits to fall. If losses are being made, some firms exit which increases demand for remaining firms so prices and profits rise for existing firms.

Related Questions

1. Which of the following is a firm in a perfectly competitive market?

1) a local corn farmer

2) the Tennessee Valley Authority, a large electricity producer that serves areas of five states

3) pizza delivery

4) a grocery store

5) Kate Spade, fashion designer

2. Compare a perfectly competitive market with a monopolistically competitive market.

The markup the firm charges in a monopolistically competitive market is ___________ the markup charged by a firm in a perfectly competitive market.

The firm's excess capacity in a monopolistically competitive market is ___________ the firm's excess capacity in a firm in a perfectly competitive market.

The efficiency of a monopolistically competitive market is ___________ the efficiency of a perfectly competitive market.

1)greater than; less than; greater than

2)greater than; greater than; less than

3)less than; less than; greater than

4)greater than; less than; equal to

3. In the long run, how is price related to marginal cost in both perfect competition and in monopolistic competition?

1) The long-run price is driven to marginal cost in both competitive markets and markets that are monopolistically competitive.

2 )Both markets can charge more than the marginal cost in the long run because products are differentiated in both markets.

3) Products are identical in perfectly competitive markets, so a firm must charge less than the marginal cost in order to differentiate itself. This is not true in monopolistically competitive markets where firms can charge more than marginal cost.

4) Because monopolistically competitive firms have market power, they set a price higher than marginal cost, while competitive firms cannot.

4. Titleist has an advertising slogan is "The #1 ball in golf" Consumers can also buy generic golf balls. The manufacturers of generic golf balls do not engage in any advertising. Assume that the average total cost of producing Titleist and generic golf balls is the same.

Which producer has a stronger incentive to maintain quality control in the production of golf balls?

1) Titleist

2) a manufacturer of generic golf balls

ultramarinebeaver27

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

ivoryguinea-pig63

A. A competitive firm

can consider only its location in setting the price.
must base its competitive price on product differentiation.
has the ability to set its own price.
must accept the price determined by the intersection of the market supply and demand curves.
has no supply curve.

B. If a firm is making an economic profit, then

the factors of production are being paid their opportunity costs.
there will be no change in the number of firms if the industry is perfectly competitive.
the factors of production are being paid less than their opportunity costs.
the factors of production are being paid more than their opportunity costs.
the firm will exit the industry

C. Along a downward-sloping monopoly demand curve,

marginal revenue is greater than price.
the elasticity of demand is constant.
marginal revenue decreases when the price decreases.
marginal revenue is equal to zero when the price is equal to zero

D. If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should

shut down because economic profits are negative.
continue to produce as long as P > AVC.
continue to produce because accounting profits are positive.
set a higher price for its output.
set a lower price for its output

E. For a perfectly competitive firm, the demand curve is

the marginal revenue curve.
perfectly inelastic.
always equal to marginal cost.
the same as the market demand curve

F. A firm in a(n) industry will have the most elastic demand curve

monopolistic
oligopolistic
monopolistically competitive
perfectly competitive

G. If the demand curve of a monopolist is in the inelastic range, then

total revenue will fall if the price increases.
total revenue will be unchanged if the price increases.
total revenue will rise if the price increases.
the total supply will increase by an equal amount if demand increases.
the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

monopoly.
perfect competition.
theories of consumer behavior.
imperfect competition.
the extreme cases on the market structure continuum

I. Under which market structure do firms face the flattest (most elastic) demand curve?

perfect competition
monopolistic competition
oligopoly
monopoly

J. At the point of long-run equilibrium for a perfectly competitive firm,

economic profits are zero.
TR > TC.
TR < TC.
P = AVC.
normal profits are zero.

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ECO 182 Study Guide - Final Guide: Ebay, False Advertising, Adverse Selection

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