Imperfect Competition Review

What is the firm’s profit-maximizing quantity of output?

• Q1

• Q2

• Q3

• Q4

• Q5

What price will the firm charge?

• P1

• P2

• P3

• P4

• P5

The graph shows the cost and revenue curves for a monopoly that produces teddy bears. The letters in the graph represent the enclosed areas.

If the monopolist charges a single price for teddy bears, which of the following describes an accurate outcome?

• The consumer surplus equals area (a), the producer surplus equals area (c), and the deadweight loss equals area (b+d+e).

• The consumer surplus equals area (b), the producer surplus equals area (c+d), and the deadweight loss equals area (d+e).

• The consumer surplus equals area (a+b) the producer surplus equals area (c), and the deadweight loss equals area (e+f).

• Consumer surplus equals area (a+b), producer surplus equals area (c+d), and deadweight loss equals area (e).

• The consumer surplus equals area (a), the producer surplus equals area (c+f), and the deadweight loss equals (b+d+e).

If the monopolist engages in perfect price discrimination, which of the following will happen?

• Consumer surplus will remain the same (a+b) and producer surplus will increase by area (e).

• Both consumer surplus and producer surplus will decrease by area (a+b+c+d), and the deadweight loss will remain constant.

• Consumer surplus will increase by area (e), producer surplus will decrease by area (e), and the deadweight loss will be zero

• Consumer surplus and deadweight loss will be zero because all the surplus will be transferred to producer surplus.

• Both consumer surplus and producer surplus will increase because output produced will increase to Q2.

One difference between monopolistic competition and oligopoly is that firms in monopolistic competition are assumed to

• cooperate in setting price and outputcooperate in setting price and output

• act independently in setting price and output

• be interdependent

• face high barriers to entry

• sell differentiated products

Which of the following explains why imperfectly competitive markets are inefficient?

• Total costs increase as output increases.

• Price is greater than marginal cost.

• Firms do not earn zero economic profit.

• Firms incur high start-up costs when setting up their factories.

• Firms use relatively more capital than labor to produce goods or services.

Which of the following is true in imperfectly competitive markets?

• Firms produce standardized or identical products.

• Firms enjoy economies of scale in production.

• Firms produce output at constant marginal cost.

• Firms must lower their product prices to sell additional units.

• New firms can easily enter or exit the market.

Which of the following is true of a natural monopoly?

• The average total cost is constant throughout the entire effective demand.

• Marginal cost decreases throughout the entire effective demand.

• The average total cost initially decreases and then increases throughout the entire effective demand.

• The marginal cost initially increases and then decreases throughout the entire effective demand.

• The average total cost decreases throughout the entire effective demand.

A firm with market power engages in price discrimination in order to

• cover the cost of serving each consumer

• increase its profits

• charge a lower price

• produce the allocatively efficient quantity

• increase consumer surplus

For the monopolistically competitive firm represented by the graph above, the allocatively efficient quantity of output is

• Q1

• Q2

• Q3

• Q4

• Q5