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ECON 1B03 Lecture Notes - Lecture 10: Monopolistic Competition, Marginal Revenue, Demand Curve

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Verified Note
pucecod490
8 Nov 2018
School
McMaster University
Department
Economics
Course
ECON 1B03
Professor
Hannah Holmes

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9

ECON 1B03 Lecture Notes - Lecture 9: Economic Surplus, Reservation Price, Economic Equilibrium

10

ECON 1B03 Lecture Notes - Lecture 10: Monopolistic Competition, Marginal Revenue, Demand Curve

11

ECON 1B03 Lecture Notes - Lecture 11: Monopoly Profit, Oligopoly, Market Price

Document Summary

Econ 1b03 lecture 7: monopoly and monopolistic competition. Big firm that produces a firm that nobody produces anything like: no substitutes. Service entire market: demand curve of the monopoly is the actual market demand curve. Marginal revenue still = cost: but doesn"t still equal price. Trying to keep others out of the market sometimes so big others can"t compete at the low cost they can afford. Practice questions: using the same example from the previous workshop, let"s now assume that market demand and market supply for concrete blocks, a monopolistic market are: Assume that the monopoly is large enough that its mc is the same as the market supply curve in perfect competition. Its atc = q/6, and the monopoly has mr = 75/q: sketch the monopoly"s d, mr, mc and atc curve. This is a huge positive profit, but it is a monopoly. Remember that the competitive equilibrium quantity was q=90 and p = 30.

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Related Questions

A. A competitive firm

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

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

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

C. Along a downward-sloping monopoly demand curve,

  1. marginal revenue is greater than price.
  2. the elasticity of demand is constant.
  3. marginal revenue decreases when the price decreases.
  4. 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

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

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

  1. the marginal revenue curve.
  2. perfectly inelastic.
  3. always equal to marginal cost.
  4. the same as the market demand curve

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

  1. monopolistic
  2. oligopolistic
  3. monopolistically competitive
  4. perfectly competitive

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

  1. total revenue will fall if the price increases.
  2. total revenue will be unchanged if the price increases.
  3. total revenue will rise if the price increases.
  4. the total supply will increase by an equal amount if demand increases.
  5. the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

  1. monopoly.
  2. perfect competition.
  3. theories of consumer behavior.
  4. imperfect competition.
  5. the extreme cases on the market structure continuum

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

  1. perfect competition
  2. monopolistic competition
  3. oligopoly
  4. monopoly

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

  1. economic profits are zero.
  2. TR > TC.
  3. TR < TC.
  4. P = AVC.
  5. normal profits are zero.

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

6. Power Printers Total Costs (per hour)

q TC

0 65

1 80

2 95

3 120

4 150

5 200

If the price of a printer is $50 in this perfectly competitive industry, what is the profit-maximizing rate of output?

7. Which of the following is NOT true in a perfectly competitive market?

a. There is free entry and exit into the industry.

b. Each firm produces a differentiated product.

c. Each firm faces a perfectly elastic demand curve.

d. Price is equal to marginal revenue at every output level for the firm.

8. A perfectly competitive firm should always continue to operate in the short run as long as:

a. P < ATC at the rate of output where MR = MC.

b. P < AVC at the rate of output where MR = MC.

c. MR > AVC at the rate of output where MR = MC.

d. MR > AFC at the rate of output where MR = MC.

9. A firm that makes zero economic profits:

a. Must eventually go bankrupt.

b. Should shut down.

c. Incurs a loss, but should not shut down.

d. Covers all its costs, including a provision for normal profit.

10. A monopoly firm is different from a competitive firm in that:

A. There are many substitutes for the monopolist’s product whereas the competitive firm’s demand curve is perfectly elastic.

B. The monopolist’s demand curve is perfectly inelastic, whereas the competitive firm’s demand curve is perfectly elastic.

C. The monopolist can influence the price in the market, whereas the competitive firm is a price taker.

D. All of the above