Which of the following is true for a firm in long run equilibrium in monopolistic competition quizlet?

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Terms in this set (14)

Assume a decreasing-cost perfectly competitive industry. Which of the following statements is true?
a) Firms will earn economic profits in long-run equilibrium.
b) The short-run market supply curve is upward sloping; the long-run supply curve is horizontal or perfectly elastic.
c) As industry output expands, there are fewer firms producing in the long run.
d) As industry output contracts, each firm's long-run average total cost curve shifts upward.
e) Input prices rise as the industry produces more output.

d) As industry output contracts, each firm's long-run average total cost curve shifts upward.

- not a) bc long-run would still be at MR = MC; no individual firm is making economic profit
- not b) bc it's not horizontal/perfectly elastic, it's downsloping the more output expands, the more demand for the resource, the lower the price for that resource
- not c) bc the relationship between the two is opposite; output would expand because of more firms joining the market
- not e) bc input prices decrease (not increase)

Assume an increasing-cost perfectly competitive industry. Which of the following statements is true?
a) The short-run market supply curve will be upward sloping, but the long-run market supply curve will be horizontal.
b) Firms must be producing where their long-run average cost curve upward sloping, exhibiting diseconomies of scale.
c) In the long run, firms will actually sustain economic losses.
d) Firms no longer produce at the minimum of long-run average total cost in long-run equilibrium.
e) As the industry expands its output, at least one input price increases, increasing the minimum of long-run average total cost.

e) As the industry expands its output, at least one input price increases, increasing the minimum of long-run average total cost.

- not a) bc long-run supply curve is only horizontal when constant-cost curve, so it would be an upward supply curve, not horizontal
- not b) bc long run break even is productively and allocatively efficient
- not d) bc they'll produce at minimum ATC

Which of the following statements relating to a profit-maximizing perfectly competitive firm is true?
a) The firm is facing downward-sloping demand and marginal revenue curves.
b) The firm will raise its price to increase revenue.
c) The firm's price is above its marginal revenue at every output level.
d) The firm's price is given by the market and is equal to marginal revenue.
e) The firm continues to produce as long as marginal revenue is greater than zero.

d) The firm's price is given by the market and is equal to marginal revenue.

In absence of barriers to entry, a typical firm is currently in long-run equilibrium. Assume there is an increase in the market demand for the good that the firm is producing. Which of the following will happen in the long run?
a) New firms will enter the market.
b) The market supply will decrease, but the quantity supplies will increase.
c) The firm will earn positive economic profit.
d) The firm's price will be greater than its average revenue.
e) The firm will continue to produce the same quantity of output.

a) New firms will enter the market

In the short run, which of the following must be true for a perfectly competitive firm that is maximizing profits?
a) The firm will shut down if it has any economic losses.
b) The firm will produce at the minimum of average total cost.
c) The firm will produce where MR=MC, but price from the demand curve is greater than MC.
d) The firm will produce where MR=MC as long as P is greater than average variable cost.
e) The firm will produce the quantity that exhibits allocative and productive efficiency.

d) The firm will produce where MR=MC as long as P is greater than average variable cost.

At its current level of output, a firm's total revenue is greater than its total variable cost but less than its total cost. If the firm is producing at the point where marginal revenue is equal to marginal cost, what should the firm do to maximize profit in the short run?
a) Increase price to increase revenue.
b) Decrease price to increase quantity.
c) Exit the market to minimize losses.
d) Continue to produce at its current level of output to minimize losses.
e) Shut down.

d) Continue to produce at its current level of output to minimize losses.

Which of the following statements relating to a firm in an imperfectly competitive market and a firm in a perfectly competitive market is true?
a) An imperfectly competitive firm does not experience diminishing returns, while a perfectly competitive firm experiences diminishing returns.
b) An imperfectly competitive firm will always earn economic profits, while a perfectly competitive firm always earns zero economic profits.
c) An imperfectly competitive firm and a perfectly competitive firm have a marginal revenue that equals the product price.
d) When an imperfectly competitive firm raises the price, it will likely continue to sell some units of output, but when a perfectly competitive firm raises the price, it will sell no output.
e) Both imperfectly competitive and perfectly competitive firms face no barriers to entry.

d) When an imperfectly competitive firm raises the price, it will likely continue to sell some units of output, but when a perfectly competitive firm raises the price, it will sell no output.

Which of the following statements relating to a firm in an imperfectly competitive market and a firm in a perfectly competitive market is true?
a) Firms in both types of markets will likely advertise the merits of their products to increase sales.
b) Firm in both types of markets will increase price to increase total revenues when their demand is inelastic.
c) An imperfectly competitive firm must lower its price to increase sales, while a perfectly competitive firm can increase sales by increasing output at the current price.
d) Barriers to entry give both imperfectly competitive and perfectly competitive firms market power to raise price.
e) As their product becomes different from their competitors' product, both an imperfectly competitive firm and a perfectly competitive firm will face less elastic consumer demand.

c) An imperfectly competitive firm must lower its price to increase sales, while a perfectly competitive firm can increase sales by increasing output at the current price.

If Zeta, a single producer, had exclusive control of a key resource needed to produce good Z, a likely result would be which of the following?
a) Good Z would be produced in a perfectly competitive market.
b) Slight differences in output would lead to good Z being in a monopolistically competitive market.
c) There would be a barrier to entry, and Zeta would have a monopoly on good Z.
d) Only a few firms would produce good Z, so there would be an oligopoly.
e) Zeta must have decreasing returns to scale and operate as natural monopoly in producing good Z.

c) There would be a barrier to entry, and Zeta would have a monopoly on good Z.

Which of the following statements concerning a natural monopoly is true?
a) Average total cost is always less than marginal cost in the long run.
b) At the allocatively efficient level of output, monopoly profit and deadweight loss are both equal to zero.
c) If the monopolist chooses to produce the quantity at which price is equal to average costs, it would earn a normal profit.
d) The monopolist can earn positive economic profits by producing the allocatively efficient output in the short run.
e) Production efficiency could be improved if another firm were to enter and compete with the single monopolist.

d) The monopolist can earn positive economic profits by producing the allocatively efficient output in the short run.

- not a) bc MC would be lower; MC has to intersect w ATC, never does in a natural monopoly bc the ATC is declining
- not b) bc can have a little bit of economic profit; not necessarily at zero at all
- not c) bc not necessarily true
-not e) bc productive efficiency wouldn't improve, that connection (productive efficiency + firms entering/exiting) doesn't exist

Assume a profit-maximizing monopolist is able to price discriminate, dividing its consumers into two distinct groups charging each a different price. Based on this information, which of the following is true?
a) The monopolist would earn greater profit charging each consumer the same price, not charging two different prices.
b) The price discrimination can only be successful if one group can resell the product but the other group cannot.
c) The group with the more elastic demand will pay the lower price.
d) The consumers with less willingness to pay will pay the higher price.
e) The group with greater production costs will pay a lower price.

c) The group with the more elastic demand will pay the lower price.

Which of the following is true of monopolistically competitive firms in long-run equilibrium?
a) Firms can earn positive economic profits.
b) Firms face a perfectly elastic demand curve.
c) Price equals marginal cost, which equals marginal revenue.
d) Price will always be above average total cost.
e) Marginal revenue equals marginal cost, and price equals average total cost.

e) Marginal revenue equals marginal cost, and price equals average total cost.

Which of the following is true for a firm in long-run equilibrium in monopolistic competition?
a) Given barriers to entry, the firm earns economic profits in long-run equilibrium.
b) The firm is productively efficient, producing at the minimum of long-run average total cost.
c) Price equals marginal revenue and marginal cost.
d) There is neither allocative nor productive efficiency.
e) Price is greater than average total cost in long-run equilibrium.

d) There is neither allocative nor productive efficiency.

In which of the following market structures is firm interdependence and strategic behavior most commonly observed?
a) Monopoly protected by a patent
b) Short-run perfect competition
c) Monopsony
d) Oligopoly
e) Monopolistic competition

d) Oligopoly

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