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ECO 2023 Lecture Notes - Lecture 22: Profit Motive, Market Power, Oligopoly

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tanwasp406
24 Nov 2017
School
FAU
Department
Economics
Course
ECO 2023
Professor
Chiang

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Document Summary

Operate during the summer but shut down during the winter months. The owners of a firm are earning economic profit if they are earning a return on their capital that is higher than what can generally be earned in other markets. It provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers. It is doing as well as typical firms in other markets. They must produce a product that the consumers value more than the resources required for its production. The value of the resources used to make the product is being reduced. Competition as a dynamic process implies that individual firms in a market use price competition as well as other forms of competition to gain the dollar votes of consumers. Some firms will exit from the industry, and market price will rise until the remaining firms can earn the normal rate of return.

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Related Questions

1.Which one of the following markets has many firms producing a product that is differentiated in nature?

A. Perfect Competition

B. Monopolistic competition

C. Monopoly

D. Oligopoly

2.Which of the following two markets is characterized by the tendency that in the long-run firms will be limited to zero economic profit?

A. Perfect competition

B. Monopoly and Perfect Competition

C. Monopoly and Oligopoly

D. This is a trick question, no firm will produce in the long run with no economic profit

3. If in the short run, a firm's marginal revenue is lower than the average variable cost, we will see the firm do what?

A. Shut down immediately

B. Stay in business but produce less

C. Keep producing in the short run and then shut down

D. Increase output


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.

Question 1

The amount of profit that can be achieved using uniform pricing is __________ the profit that can be achieved from price discrimination because of _______.

Select one:

a. greater than; the cost of trying to determine every single consumer's individual demand (willingness to pay) is prohibitively expensive.

b. less than; uniform pricing is more costly so the ATC and AVC curves are higher than they are under price discrimination.

c. equal to; the TR and TC curves are equivalent under either pricing scheme, so there is no profit advantage to either scheme.

d. less than; total demand includes people who would be willing to pay more than, as well as less than, the uniform market price.

Question 2

A firm selling in two markets is practicing price discrimination:

Select one:

a. when it refuses to sell the good to some group of consumers.

b. anytime it charges different consumers different prices.

c. when it charges the same price to different consumers as long as they differ in their demand for the good.

d. when it is charging different consumers, different prices, and the price difference is not based upon cost differences.

Question 3

To successfully practice price discrimination:

Select one:

a. consumers in two separate markets must have identical demand.

b. the firm must possess market power.

c. it must be easy for consumers in one market to sell to consumers in the other market.

d. the firm must be a pure monopoly.

Question 4

If it could practice first-degree price discrimination, a firm with market power could earn:

Select one:

a. its typical monopoly profit as well as the area which, under uniform pricing, would represent the deadweight loss associated with market power.

b. an area half the size of its monopoly power under uniform pricing.

c. its typical monopoly profit as well as the area which, under uniform pricing, would represent consumer surplus.

d. its typical monopoly profit as well as the area which, under uniform pricing, would represent consumer surplus and the deadweight loss associated with market power.