A.

How does pure competition differ from other basic market models?

The other basic market models are pure monopoly, oligopoly, and monopolistic competition. These market models differ from each other on the basis of: (1) ___________________ ; (2) the type of product; (3) control over price; (4) ________________ ; and (5) nonprice competition.

( ___________________ ) is a market structure with a large number of independent firms selling a ( standardized, differentiated ) product. The individual firms are " price ____________" and have no control over price because they must accept the market price for the product. Nonprice competition is not present because firms are selling a (homogeneous, heterogeneous) product at the market price. The conditions of entry into (or exit from) this industry are easy.

( _____________________ ) is just the opposite of pure competition in many ways. First, there is only one firm, not many individual firms. Second, the firm produces a unique product for which there are ( no, some ) close substitutes, not a standardized product that can be produced by many firms. Third, the firm has considerable control over price, and operates as a "price __________ " rather than a "price taker." Fourth, there are extensive barriers to entry into the industry and some degree of nonprice competition such as ___________________________.

( _________________ ) is more similar to pure monopoly in its operation and therefore differs markedly from pure competition. Under this, there are a few large firms that dominate an industry rather than a large number of relatively small firms. The firms can produce a standardized or a differentiated product rather than just a standardized product. Oligopolistic firms have some degree of price making power, although it is limited by the mutual interdependence in the industry. The entry obstacles are high and nonprice competition is present with oligopolies producing (differentiated, undifferentiated) products.

( __________________________ ) is the market structure that is closest to pure competition, although it differs from pure competition in several respects. Under this, competitors sell ( standardized, differentiated ) products, and therefore use ( price, nonprice ) competition along with some limited price competition to sell products. There are many monopolistically competitive firms, in part because entry conditions tend to be relatively easy, but the number of firms is substantially less than the thousands found in pure competition where the entry conditions are easier.

Now find a correct market model (or structure) for each questions below:

A one-firm industry is known as___________________.

Economists would describe the U.S. automobile industry as _______________.

Agriculture is the most close approximate of _________________.

An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product is an example of _____________________.

How would you describe the demand curve for the purely competitive firm? For the industry?

The demand curve for the individual competitive firm is ( perfectly elastic, inelastic) . The firm can sell all the output it can produce at the competitive market price because each firm accounts for only a negligible share of the market. There is no reason for the firm to lower price to sell more, nor can the firm obtain a higher price by restricting output. But, market or industry demand curve is (vertical, upsloping, downsloping ). Consumers will only purchase greater output for the entire industry at a lower price, but less output can be sold to consumers at a higher price.

Why can't an individual firm raise its price by reducing output or lower its price to increase sales volume in a purely competitive market?

One of the key reasons that an individual firm can't raise prices or decrease prices to increase sales volume is the fact that firms in a purely competitive market are "price ____________". This occurs due to the large numbers of firms in the market. As a result, individual firms face (perfectly elastic, inelastic) demand. This means that a firm can produce as little or as much as it wants and still receive the same price. Thus, the firm ( can, cannot ) raise prices by restricting output or lower prices to sell a greater level of output.

What is the difference between average, total, and marginal revenue? What is the shape of the total and marginal revenue curves for the individual competitive firm?

( ___________________ ) is the amount of money the firm receives per unit of sale. ( ________________ ) is the market price times the quantity that the firm can sell. ( _________________ ) is the change in total revenue from selling one more unit of output. The marginal revenue (MR) curve for the individual competitive firm is a ( vertical, horizontal ) straight line because there is a constant change in total revenue from selling one more unit of output. The total revenue (TR) curve is a(n) ( downsloping, upsloping ) straight line. Market price is constant and multiplied by an increasing amount of quantity sold.

Why does price equal marginal revenue for the purely competitive firm? What is the relationship to the demand curve for the firm?

The purely competitive firm is a "price-taker" in the market. The price it receives for its output is constant and does not vary across its range of output. ________ _________ is defined as the change in total revenue from selling one more unit of output. One more unit of output will be sold at a constant, market-determined price. Thus, price will be (greater than, equal to, less than) the marginal revenue (MR) for the firm. Also, the firm's demand curve will be perfectly elastic because no matter how much or how little the firm produces it will receive the same price per unit of output. So, demand (greater than, equal to, less than) price and marginal revenue (MR).

15. In a perfectly competitive market, consumer surplus typically is

A) undefined.

B) positive.

C) zero.

D) negative.

16. Which of the following statements is TRUE?

A) A monopolist always produces a higher level of output than would be produced if the market were competitive.

B) At the monopolist's equilibrium, resources are being efficiently allocated.

C) Monopolists raise the price and restrict production, compared to a competitive situation.

D) With a monopoly, the value to society of the last unit produced is less than it's production cost.

17. A monopolist is maximizing profit at an output rate of 1,000 units per month. At this output rate, the price that its customers are willing and able to pay is $8 per unit, average total cost is $5 per unit, and marginal cost is $6 per unit. It may be concluded that at this monthly output rate, marginal revenue is

A) $5 per unit, and the monopolist earns zero economic profits.

B) $6 per unit, and the monopolist earns economic profits of $3,000 per month.

C) $5 per unit, and the monopolist earns economic profits of $2,000 per month.

D) $6 per unit, and the monopolist earns economic losses of $1,000 per month.

18. Which of the following describes monopolistic competition?

A) P = MR = MC

B) There is only one seller in the industry

C) Advertising plays a key role

D) Homogenous products

19. Marginal cost pricing for an information product

A) would cause the firm to earn economic profits.

B) would allow the firm to break even.

C) would cause the firm to expand output to increase economic profits.

D) would cause the firm to experience economic losses.

20. If a firm produces an experience good, its mode of advertising will be

A) not to advertise.

B) direct advertising.

C) persuasive advertising.

D) none of the above.

21. There is no incentive for additional producers of an information product to enter the industry when the price charged for these products by each firm already in the industry is equal to

A) average total cost.

B) average fixed cost.

C) marginal cost.

D) average variable cost.

22. A monopolistic competitor in long-run equilibrium is like a perfect competitor in that

A) zero economic profits are made.

B) price is greater than marginal cost.

C) price equals marginal cost.

D) both produce at the minimum points of their average total cost curves.

24. The demand curve for a monopolistically competitive firm is

A) elastic because the products produced are homogeneous.

B) inelastic because of barriers to entry.

C) elastic because of product differentiation.

D) inelastic because of the profit maximizing behavior of the firm.

25. Which of the following statements is true about the economic profits earned by a monopolistic competitor firm in the long run?

A) Economic profits can be positive since firms have some degree of monopoly power.

B) Economic profits will tend towards zero since positive profits will attract new firms into the industry.

C) Economic profits will be positive since the firm has a downward sloping demand curve.

D) Economic profits can be negative since there is so much competition in the market.

26. A search good is a product

A) that an individual must consume before the quality can be established.

B) with qualities that consumers lack the expertise to assess without assistance.

C) with characteristics that enable an individual to evaluate the product's quality in advance of a purchase.

D) that emphasizes the features of its product.

B.

Answer the following questions.

Q36B. One reason why the quantity of a good demanded increases when its price falls is that the - aj price decline shifts the supply curve to the left c) lower price shifts the demand curve to the right bj lower price shifts the demand curve to the left d) lower price increases real incomes of buyers, enabling them to buy more Q37. In the simple circular flow model: a) households are suppliers of resources bj businesses are suppliers of final products cj households are demanders of final products d. Households receive rent, wages, interest, and profits e) all the above Q38. If economic profit becomes significantly positive for a competitive firm because that firm has a uniquely gifted worker, then- a. that economic profit can last indefinitely b. Government regulation rather than competition is needed to curb the excessive profit. c. The profit will disappear as other firms bid up the price of the gifted workers d. The laborer will feel exploited and will leave the industry after which the economic profit disappears. Q39. The firm in a perfectly competitive market is a price taker. This designation as a price taker assumes that - a. The firm has some, but not complete, control over its product price b. Too many buyers and sellers in the market that any individual firm cannot affect the market price c. Each firm produces a heterogeneous product d. There is easy entry into or exit from the market place 040. Monopolistic competition differs from perfect competition primarily because- a. in monopolistic competition, firms can differentiate their products. b. in monopolistic competition, entry into the industry is blocked. c. in perfect competition, firms can differentiate their products to a certain extent. d. there are huge barriers to entry in monopolistic competition Q41. Economies of scale are defined as 042. Fill in the blank with letters "A, B, C, andlor D" that corresponds to the best answer for the following questions using choices (a) Perfect competitor / competition; (b) Monopolist / monopoly; (c) Monopolistic competitor / competition; [dd) Oligopolistic / oligopoly 42A. A firm in an industry with many sellers selling a differentiated product would be a 426. A firm that faces the entire demand curve of an industry would be - - Is the small number of sellers 42C. The crucial factor in - is product differentiation. 420. The crucial factor in - 42E. Under - --and there are no profits In the long run. 42F. A firm with many sellers and an identical product is 42G. A company making a profit in the long run would be a - - or 42H. If there are many firms in the industry, we are talking about either - because of economies of scale. 421. The most efficient producer is the - - and equilibrium quantity Q43. When there is a downward shift In supply, equilibrium price - Q44. If a firm has a break-even point of 20,900 units and the contribution margin on the firm's specific product is $3.90 per unit, what would this firm's EBIT (operating profit) be at sales of 30,000 units?Q. Study this graph and answer questions 26 and 27 below. MC ATC Priceif per unit) ANC 9 10 Quantity Q26. Refer to the graph above. What price will the monopolist charge in order to maximize profit? (units per day) a $5 b. $10 C. $3 d. $4 Q27. Refer to the graph above: at the profit-maximizing price and output, the total revenue is-. e$7 a.$18 b. 516 C. $10 d. $7 G. 521 Q28. Which three of the following characteristics apply to oligopoly? a. Each firm faces a horizontal demand curve. b. Each firm faces a downward sloping demand curve. C. The Industry is often characterized by extensive non-price competition. d. Many small firms account for a high percentage of industry output. d. A few large firms account for a high percentage of industry output. Q29. To achieve more market power, firms can- a. Lobby the government to eliminate barriers to entry. b. Reduce their costs of production. C. Raise their profit margin on prices. d. Advertise that they charge low prices. e. Differentiate their products from the products of their rivals. Q30. Public disclosure supports competition by.- a. concentrating information in the hands of the government. b. converting private businesses into government agencies. c. providing buyers and sellers with information. d. revealing competitive trade secrets. Q31. Instead of being employed at a printing company at a salary of $25,900 per year, Magda starts her own printing firm. Rather than renting a building that she owns to someone else for $10,000 per year, she uses it as the location for her company. Her costs for workers, materials, advertising, and energy during her first year are $125,000. If the total revenue from her printing company is $155,000, what is Magda's total economic profit? .... Q32. Which of the following is not a determinant of a consumer's demand for a commodity? a. Income b. Population C. Prices of related good's d. Tastes e. Al the above Q33, One difference between perfect competition and monopolistic competition is that: a. In perfect competition, the products are slightly differentiated between tres. There are a smaller number of firms in perfectly competitive industries. C Monopolistic competition has barriers to entry, whereas perfect competition has none. d. Firms in monopolistic competition have some degree of market power. There are a larger number of firms in monopolistic competition. Q34. If consumer income declines, then the demand for- a normal goods will increase b. inferior goods will increase. c. substitute goods will increase d. complementary goods will increase. 035. The relationship between quantity supplied and price is -- and the relationship between quantity demanded and price is-. bj inverse, direct chinverse, inverse d) direct, direct a) direct, inverse 036A. "When the price of a product rises, consumers shift their purchases to other products whose prices are now relatively lower." This statement describes -. c) the substitution effect d) the law of supply e] the income effect aj an inferior good bj the rationing function of prices