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Essentials of Investments9th EditionAlan J. Marcus, Alex Kane, Zvi Bodie 689 solutions Pure monopolists may obtain economic profits in the long run because of advertising. marginal revenue is constant as sales increase. of barriers to entry. of rising average fixed costs. of barriers to entry. A natural monopoly occurs when long-run average costs decline continuously through the range of demand. a firm owns or controls some resource essential to production. long-run average cost rise continuously as output is increased. economies of scale are obtained at relatively low levels of output. long-run average costs decline continuously through the range of demand. When a firm is on the inelastic segment of its demand curve, it can increase total revenue by reducing price. decrease total costs by decreasing price. increase profits by increasing price. increase total revenue by more than the increase in total cost by increasing price. increase profits by increasing price. With respect to the pure monopolist's demand curve, it can be said that the stronger the barriers to entry, the more elastic is the monopolist's demand curve. price exceeds marginal revenue at all outputs greater than 1. demand is perfectly inelastic marginal revenue equals price at all outputs price exceeds marginal revenue at all outputs greater than 1. Which of the following is a characteristic of a pure monopolist's demand curve? Average revenue is less than price Its elasticity coefficient is 1 at all levels of output. Price and marginal revenue are equal at all levels of output It is the same as the market demand curve It is the same as the market demand curve. Because the monopolist's demand curve is downsloping, MR will equal price price must be lowered to sell more output. The elasticity coefficient will increase as price is lowered. its supply curve will also be downsloping price must be lowered to sell more output.
In the short run, a monopolist's economic profits are always positive because the monopolist is a price-maker. are usually negative because of government price regulation. are always zero because consumers prefer to buy from competitive sellers. may be positive or negative depending on market demand and cost conditions. may be positive or negative depending on market demand and cost conditions. The supply curve for a monopolist is perfectly elastic. upsloping. that portion of the marginal cost curve lying above minimum average variable cost. nonexistent. nonexistent. If a regulatory commission wants to provide a natural monopoly with a fair return, it should establish a price that is equal to minimum average fixed cost. average total cost. marginal cost. marginal revenue. average total cost. If a regulatory commission wants to establish a socially optimal price for a natural monopoly, it should select a price at which the marginal cost curve intersects the demand curve. at which marginal revenue is zero. at which the average total cost curve intersects the demand curve. that corresponds with the equality of marginal cost and marginal revenue. at which the marginal cost curve intersects the demand curve. If a regulatory commission imposes upon a nondiscriminating natural monopoly a price that is equal to marginal cost and below average total cost at the resulting output, then the firm will realize an economic profit. the firm will earn only a normal profit. allocative efficiency will be worsened. the firm must be subsidized or will go bankrupt the firm must be subsidized or it will go bankrupt. Profits encourage entry into purely competitive industries and losses encourage exit from purely competitive industries because when losses are negative, firms cannot cover explicit costs. when losses occur, firms need to raise the prices of their products. when profits are zero, the firm is earning sufficient revenue to cover its opportunity cost. when profits are positive, the firm is earning sufficient revenue to cover its opportunity cost. when profits are zero, the firm is earning sufficient revenue to cover its opportunity cost. The equality of P and MC means the firm is achieving allocative efficiency, since the industry is producing the amount of product at a price that covers its costs. productive efficiency, since the industry is producing the amount of product that equates society's valuation of that product and the price of the product. market efficiency, because price equals average cost. allocative efficiency, since the industry is producing the amount of product that equates society's valuation of that product and the price of the product. allocative efficiency, since the industry is producing the amount of product that equates society's valuation of that product and the price of the product. Suppose that as the output of mobile phones increases, the cost of touch screens and other component parts decreases. If the mobile phone industry features pure competition, we would expect the long-run supply curve for mobile phones to be: Downward sloping. U-shaped. Upward sloping. Horizontal. Downward sloping. If a monopoly can experience economies of scale, it can lower cost and eliminate competitors, which reduces resource use. raise the price above a pure competitor and improve resource allocation. raise the price and lower output, which reduces resource use. reduce the price below a pure competitor and improve resource allocation. reduce the price below a pure competitor and improve resource allocation. In the short run, a profit-maximizing monopolistically competitive firm sets it price equal to marginal revenue. equal to marginal cost. above marginal cost. below marginal cost. above marginal cost. In the long run, a profit-maximizing monopolistically competitive firm sets it price above marginal cost. below marginal cost. equal to marginal revenue. equal to marginal cost. above marginal cost. In the long run, the price charged by a monopolistically competitive firm seeking to maximize profit will be less than both MC and ATC. exceed ATC but equal MC. exceed MC but equal ATC. exceed both MC and ATC. exceed MC but equal ATC. Which of the following is not characteristic of long-run equilibrium under monopolistic competition? Price equals minimum average total cost. Marginal cost equals marginal revenue. Price is equal to average total cost. Price exceeds marginal cost. Price equals minimum average total cost. Long-run equilibrium for a monopolistically competitive firm where economic profits are zero results from rising marginal costs. a perfectly elastic product demand curve. relatively easy entry. product differentiation and development. relatively easy entry. Economists say competitive markets are efficient because by producing up to the point where MB = MC, profits are maximized and the difference between consumer surplus and producer surplus is maximized. by producing up to the point where MB = MC, the maximum potential consumer surplus and producer surplus are generated by producing in the output range where MB < MC, profits are reduced and the difference between consumer surplus and producer surplus is maximized. by producing in the output range where MB > MC, profits are earned and the difference between consumer surplus and producer surplus is maximized. by producing up to the point where MB = MC, the maximum potential consumer surplus and producer surplus are generated Which of the following statements is true? Producing more or less than equilibrium results in negative profits, which is inefficient. Producing less than equilibrium leaves unrealized producer and consumer surplus, and producing more than equilibrium reduces total surplus. Producing more than equilibrium leaves unrealized producer and consumer surplus, and producing less than equilibrium reduces producer surplus. Producing less than equilibrium leaves unrealized producer and consumer surplus, and producing more than equilibrium increases consumer and producer surplus. Producing less than equilibrium leaves unrealized producer and consumer surplus, and producing more than equilibrium reduces total surplus. Excise taxes on beer would demonstrate a social concern for alcohol use. raise revenue that could be used to enforce underage drinking. discourage the consumption of beer and reduce the external costs of such things as drunk driving and domestic violence. discourage the production of beer and reduce the external costs of such things as drunk driving and domestic violence. discourage the consumption of beer and reduce the external costs of such things as drunk driving and domestic violence. |
In the long run a profit-maximizing monopolistically competitive firm sets it price quizlet
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