Assume that for a particular firm's output price = $80, marginal cost = $30, average total cost = $25. This information suggests that the firm in question has:

a. absolute market power 

b. no market power 

c. a fair degree of market power 

d. very little market power

Assume a perfectly competitive firm is producing 500 units of output, P = $7, ATC of the 500^th unit is $6, marginal cost of the 500^th unit = $7, and AVC of the 500^th unit = $5. Based on this information, the firm is:

A) incurring a loss of $500.
B) earning an economic profit of $1000.
C) earning an economic profit of $500.
D) incurring a loss of $1000.

All of the following are possible characteristics of a monopoly except:

1. the firm is a price taker.

In order to use lock-in as a competitive strategy, firm managers should be prepared to do all of the following except:

1. invest in a given base of customers by giving concessions initially.

2. avoid selling complementary products and access to the customer base.

3. use loyalty programs as part of an entrenchment strategy.

4. be the first to bring a new type of product to market.

As the level of competition in an industry increases, the price-cost margin approaches:

All of the following are characteristics of a perfectly competitive market except:

1. a large number of sellers.
2. perfectly elastic demand.
3. a homogeneous product.
4. barriers to entry.

Assume that goods X and Y are substitutes and are produced in perfectly competitive markets. If there is a decrease in the supply of good X, which of the following will happen in the market for good Y in the long run? Firms will enter, causing market price to fall.

Assume a perfectly competitive firm is producing 300 units of output, P = $10, ATC of the 300^th unit is $8, marginal cost of the 300^th unit = $10, and AVC of the 300^th unit = $6. Based on this information, the firm is:

a. earning an economic profit of $1,200.

b. incurring a loss of $1,200.

c. earning an economic profit of $600.

d. incurring a loss of $600.

Assume the firms in a perfectly competitive industry are initially in long-run equilibrium and the cost of labor increases. How will the market adjust over time? Firms will exit the market, causing price to rise until losses are eliminated. output until marginal revenue equals marginal cost.

Assume the managers of the two major firms in an industry agree to set the price of their output at a fixed level so as to discourage new entrants into the market. This would be considered a violation of the:

a. Sherman Act of 1890.

B. Clayton Act of 1914.

C. Federal Trade Commission Act of 1914.

D. Celler-Kefauver Act of 1950.

Assume a perfectly competitive firm is producing a level of output at which MR < MC. What will happen as the firm moves to its profit-maximizing equilibrium? Marginal cost will fall

Assume there is a decrease in the market demand for a good sold by price-taking firms that are initially producing the profit-maximizing level of output. How will the market adjust over time? P172

1. Firms will exit the market, causing price to rise until losses are eliminated.

2. Firms will exit the market, causing price to fall until positive profits are eliminated.

3. Firms will enter the market, causing price to fall until positive profits are eliminated.

4. Firms will enter the market, causing price to rise until losses are eliminated.

If an industry is characterized by economies of scale:

a. the costs of entry into the market are likely to be substantial.

B. barriers to entry are usually not very large.

C. long-run average costs of production increase as the quantity the firm produces increases

 d. capital requirements are small due to the efficiency of the large-scale operations.

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?

1. The firms' demand curves will become less elastic.
2. The demand curves faced by firms in the market will shift to the right.
3. More close substitutes will appear in the market.
4. Some firms will exit the market if they can't cover all of their fixed and variable costs.

All of the following are considered to be problems associated with the use of concentration ratios to measure market power except: P214

consideration of exports and imports generally causes concentration ratios to be overstated.

Assume goods X and Y are complements and are produced in perfectly competitive markets. All else constant, an increase in demand for good X would cause:

A) a decrease in the number of firms that produce good Y.

B) an increase in the number of firms that produce good Y.

C) no effect on the number of firms that produce either good. 

D) a decrease in the number of firms that produce good X

All of the following are cited as potential explanations for the decrease in demand for Kleenex-brand facial tissues except: P. 211

1. consumers switching to substitute products.
2. market entry by lower-priced private brands.
3. the failure of the producer of Kleenex tissues to develop any new and innovative products.

Assume it is announced that a large number of new competitors have entered the market for mountain bikes, each offering a different model. Based on this information, this industry is best characterized as:

a. an oligopoly.

B. a monopoly.

C. monopolistically competitive.

D. perfectly competitive.

In comparing monopoly to a perfectly competitive market, which of the following is false?

 Employment will be higher under monopoly.

Assume that at the current market price, a perfectly competitive firm's profit-maximizing level of output yields total revenues that are just equal to total costs. Which of the following statements applies to this firm?

1. The firm should increase its explicit costs to reduce its tax burden.

2. The firm should continue to operate in the short run to minimize losses, but shut down if things don't improve over the long run.

3. The firm is earning zero economic profit and should continue to operate.

4. The firm should shut down right now.

Suppose a monopolist is producing a level of output such that MR > MC. What should the firm do to maximize its profits?

1. The firm should hire less labor.
2. The firm should do nothing it wants to maximize the difference between MR and MC in order to maximize its profits.
3. The firm should increase price.
4. The firm should increase output.

The Clayton Act:

 outlaws price discrimination unless based on cost differences

Assume that when price is $20, quantity demanded is 9 units, and when price is $19, quantity demanded is 10 units. Based on this information, we can conclude that over the price range from $19 to $20, demand is price:

A) cannot be determined

B) elastic

C) inelastic

D) unit elastic

A firm encounters its "shutdown point" when: average variable cost equals price at the profit-maximizing level of output.

Assume the elasticity of supply for a particular good has been estimated to equal 1.8. In this case, a 10 percent increase in product price would cause the quantity supplied to: increase by 18 percent.