Microeconomics Chapters 9–10 Take-Home Quiz: Mark Your Answe

Page 1microeconomics Ch 9 10 Take Home Quizmark Your Answers On A Sc

Microeconomics: CH 9-10 Take home quiz. Mark your answers on a Scantron BEFORE class. Bring your Scantron to Class On Monday, November 26. Be sure to be on time, late Scantron forms will be penalized. Scantron forms coming in after we complete the review in class cannot be accepted for points.

1. Perfect competition is a model of the market that assumes all of the following EXCEPT: A) a large number of firms. B) firms face downward-sloping demand curves. C) firms produce identical goods. D) many buyers.

2. Which of the following is true in a perfectly competitive market? A) One unit of a good or service cannot be differentiated from any other on any basis. B) Brand preferences exist but are very slight. C) Barriers to entry are relatively strong. D) Information is costly.

3. Marginal revenue: A) is the slope of the average revenue curve. B) equals the market price in perfect competition. C) is the change in quantity divided by the change in total revenue. D) is the price divided by the changes in quantity.

4. A firm's total output times the price at which it sells that output is: A) net revenue. B) total revenue. C) average revenue. D) marginal revenue.

5. In perfect competition: A) price and marginal cost are the same. B) price and marginal revenue are the same. C) price and total revenue are the same. D) total revenue and total variable cost are the same.

Use the following to answer questions 6-9: The exhibit shows cost curves for a firm operating in a perfectly competitive market.

6. (Exhibit: Profit Maximizing) The exhibit shows cost curves for a firm operating in a perfectly competitive market. Curve M is the _______ curve. A) ATC B) MR C) MC D) AVC

7. (Exhibit: Profit Maximizing) The exhibit shows cost curves for a firm operating in a perfectly competitive market. Curve N is the _______ curve. A) ATC B) MR C) MC D) AVC

8. (Exhibit: Profit Maximizing) The exhibit shows cost curves for a firm operating in a perfectly competitive market. If the market price is P3, the firm will produce quantity _______ and _______ in the short run. A) q2; make a profit B) q1; break even C) q2; incur a loss D) q4; incur a loss

9. (Exhibit: Profit Maximizing) The exhibit shows cost curves for a firm operating in a perfectly competitive market. If the market price is P4: A) firms will leave the industry and the price will fall in the long run. B) there will be economic profits in the short run and firms will enter the industry in the long run driving the market price lower. C) the market supply curve will shift to the left and price will fall in the long run. D) the firm will continue producing q3 and will continue to make economic profits in the long run.

Use the following to answer questions 10-11: (Exhibit: A Perfectly Competitive Firm in the Short Run) The lowest price that will yield zero economic profits is indicated by the price or cost labeled: A) G. B) F. C) E. D) N.

11. (Exhibit: A Perfectly Competitive Firm in the Short Run) The firm will produce in the short run if the price is at least the price labeled: A) F. B) E. C) N. D) P.

Use the following to answer questions 12-13: (Exhibit: Short-Run Costs) At the given price, the most profitable level of output occurs at quantity: A) N. B) P. C) S. D) T.

13. (Exhibit: Short-Run Costs) This firm's supply curve begins at quantity: A) Q. B) R. C) S. D) T.

14. A) positive. B) zero. C) negative. D) indeterminate.

15. Accountants use only _______ costs in their computations of short-run total cost. A) opportunity B) implicit C) explicit costs D) variable

16. A monopoly is likely to _______ and _______ than otherwise equivalent competitive firms. A) produce more; charge more B) produce less; charge more C) produce more; charge less D) produce less; charge less

17. A monopoly is a market characterized by: A) a product with no close substitutes. B) a single buyer and several sellers. C) a large number of small firms. D) a small number of large firms.

18. The power a firm has to set is own price is called: A) competition. B) discrimination. C) legislative control. D) monopoly power.

19. A monopoly: A) takes the market price as given. B) determines its own price, given its demand curve. C) achieves nearly the same resource allocation efficiency as perfect competition, because it competes in the general marketplace for dollars. D) is characterized by A and B.

20. A natural monopoly exists whenever a single firm: A) is owned and operated by the federal or local government. B) is investor owned but granted the exclusive right by the government to operate in a market. C) confronts economies of scale over the entire range of production that is relevant to its market. D) has gained control over a strategic input of an important production process.

Use the following to answer question 21: (Exhibit: Computing Monopoly Profit) The profit-maximizing price is _______ and will generate total economic profit of _______ . A) P2; EF B) P3; the rectangle P1P2FG C) P3; the rectangle P2P3EF D) P2; EF Do not pick D

22. If a monopolist is producing a quantity that generates MC

Use the following to answer question 23: (Exhibit: Computing Monopoly Profit) Total economic profit at the profit-maximizing level of output is: A) EF. B) EF times Q. C) price minus average total cost times the quantity where MR = MC. D) described by B and C.

24. (Exhibit: Demand, Elasticity, and Total Revenue) At point A on the demand curve in Panel (a), the price elasticity of demand is: A) greater than -1. B) equal to -1. C) less than -1. D) none of the above.

Paper For Above instruction

Microeconomics provides essential insights into how markets operate and how individual agents, such as consumers and firms, behave within different market structures. Among these, perfect competition and monopoly are two fundamental market models that illustrate contrasting economic dynamics, efficiencies, and implications for consumers and producers. This paper explores the characteristics, behaviors, and implications of perfect competition and monopoly, analyzing their effects on market efficiency, consumer welfare, and resource allocation, supported by scholarly references and economic theories.

Understanding Perfect Competition

Perfect competition is a theoretical market structure characterized by many small firms and consumers, homogeneous products, free entry and exit, and perfect information. This model assumes that individual firms are price takers, meaning they accept the market price determined by the intersection of aggregate supply and demand. According to Mankiw (2014), perfect competition leads to an optimal allocation of resources because firms produce where price equals marginal cost (P=MC), ensuring maximal efficiency and consumer welfare. In this environment, the demand curve facing an individual firm is perfectly elastic, reflecting the firm's inability to influence market prices (Krugman & Wells, 2018).

One defining feature of perfect competition is the absence of product differentiation; all firms produce identical goods, making consumers indifferent among suppliers. As a result, firms compete solely on price, leading to minimal profits in the long run due to free entry and exit, restoring zero economic profits (Case & Fair, 2014). Moreover, since information is assumed to be free and complete, consumers and producers make rational decisions that maximize their utility and profits, respectively (Frank & Bernanke, 2019).

Characteristics and Behavior of Firms in Perfect Competition

In the short run, firms can earn positive or negative economic profits depending on market conditions, but in the long run, economic profits are driven to zero as new firms enter or exit the market. The firm's marginal revenue (MR) in perfect competition equals the market price (P), leading to the condition that profit maximization occurs where MR=MC (Mankiw, 2014). The supply curve for the individual firm is the portion of the marginal cost curve above the average variable cost (AVC). These conditions promote productive efficiency, where firms produce at the lowest possible cost, and allocative efficiency, where the produced quantity aligns with consumer preferences.

However, critics argue that perfect competition is an idealized model rarely observed in reality due to barriers to entry, product differentiation, and information asymmetries (Krugman & Wells, 2018). Nevertheless, some markets, such as agricultural products, approximate these conditions, providing useful benchmarks for evaluating real-world market outcomes (Case & Fair, 2014).

Monopoly: Characteristics and Market Power

Contrary to perfect competition, a monopoly exists when a single firm is the sole provider of a product with no close substitutes. This market structure grants the firm significant market power, allowing it to influence prices (Baker, 2020). Natural monopolies arise when economies of scale are substantial over the relevant range of production, making single-firm dominance more efficient than multiple competitors (Stiglitz, 2019). A monopoly faces the market demand curve directly, leading to the ability to set prices above marginal cost to maximize profits (Tirole, 1988).

The key feature of monopoly is the downward-sloping demand curve, which implies that monopolists must lower their prices to sell additional units, causing marginal revenue to be less than the price (Perloff, 2012). Monopolies may lead to allocative inefficiency, deadweight loss, and higher prices, negatively impacting consumer welfare (Frank et al., 2018). Nonetheless, monopolies can also generate significant profits that incentivize innovation and technological advancements, though at the potential expense of economic efficiency (Baker, 2020).

Market Power and Its Implications

The degree of a firm's market power is measured by its ability to set prices above marginal costs, commonly referred to as monopoly power. Firms with extensive market power can raise prices and restrict output, leading to reduced consumer surplus. Governments often regulate monopolies to mitigate these negative effects, sometimes granting them exclusive rights via licenses or patents to encourage innovation (Stiglitz, 2019).

In natural monopolies, economies of scale justify the existence of a single dominant firm because duplicative costs would be inefficient. Regulatory agencies like the Federal Trade Commission (FTC) and the European Commission oversee such markets to prevent abuse of monopoly power while allowing firms to recoup their investments (Perloff, 2012).

Comparison and Policy Considerations

The efficiency comparison between perfect competition and monopoly highlights significant policy challenges. While perfect competition guarantees allocative and productive efficiency, monopoly markets distort these outcomes, leading to deadweight loss. Policy interventions include antitrust laws, regulation, and promoting market contestability to foster competitive outcomes (Krugman & Wells, 2018).

For instance, regulatory bodies may enforce price caps, break up large firms, or encourage entry to curb monopoly power. Conversely, in cases of natural monopolies, regulation might involve setting fair prices, rate-of-return regulation, or council-approved pricing schemes to balance consumer interests with firms’ incentives to invest (Stiglitz, 2019).

Conclusion

Understanding the dynamics of perfect competition and monopoly elucidates fundamental concepts of market efficiency, consumer welfare, and the role of government intervention. Although perfect competition provides an ideal benchmark, real markets often deviate due to barriers, information asymmetries, and market power. Monopolies, while potentially beneficial for innovation, pose significant challenges for economic efficiency and consumer welfare. Policymakers must carefully evaluate these differences to promote optimal market outcomes that balance efficiency, innovation, and consumer interests.

References

• Baker, J. (2020). Monopoly and Market Power. Oxford University Press.
• Case, K. E., & Fair, R. C. (2014). Principles of Economics (10th ed.). Pearson.
• Frank, R., & Bernanke, B. (2019). Principles of Economics (7th ed.). McGraw-Hill Education.
• Krugman, P., & Wells, R. (2018). Economics (5th ed.). Worth Publishers.
• Mankiw, N. G. (2014). Principles of Economics (7th ed.). Cengage Learning.
• Perloff, J. M. (2012). Microeconomics (7th ed.). Pearson.
• Stiglitz, J. E. (2019). Economics of the Public Sector. W. W. Norton & Company.
• Tirole, J. (1988). The Theory of Industrial Organization. MIT Press.
• Krugman, P., & Wells, R. (2018). Economics (5th ed.). Worth Publishers.
• Frank, R., & Bernanke, B. (2019). Principles of Economics. McGraw-Hill Education.