1) In the long run, the perfectly competitive outcome will be efficient. True or
ID: 1143258 • Letter: 1
Question
1) In the long run, the perfectly competitive outcome will be efficient.
True or False
2) For the monopolist, it is true that MR=P.
True or False
3) The monopolist sets the highest price possible in order to maximize profits.
True or False
4) In the short run, the monopolist always earns a higher profit than a perfectly competitve firm
True or False
5) If a monopolist is earning a profit, they should expect firms to enter the market and compete with them.
True or False
6) If firms in a perfectly competitive market are earning a loss (negative profit), you would expect firms to leave the market in the long run.
True or False
7) How do economists measure the desirability of the market outcome with respect to consumers and producers?
a, Deadweight loss
b. Consumer and producer surplus, respectively
c. The price taker assumption, the ability of firms to enter a market, and homogeneous goods
d. how much profit a firm is able to make
8) When economists talk about the "efficiency" of a market outcome, they mean welfare maximization. That is, they are referring to a situation where
a. The ability for firms to enter or leave a market.
b. Both consumer surplus and producer surplus are as they could both possibly be.
c. Marginal costs are decreasing.
d. The sum of consumer and producer surplus is as large as it could possibly be.
10) Without government interference, a market will always produce the efficient outcome, regardless of market structure.
True or False
Solve for the market output and corresponding price.
a. Q=50, P=50
b. Q=25, P=75
c. Q=75, P=25
d. Q=50, P=25
12)
After having solved for market price, determine the firm's profit maximizing level of output and the corresponding profit.
a. Q=50, Profit=0
b. Q=25, Profit= - 30,000
c. Q=25, Profit=0
d. Q=50, Profit=50
13)
Judging from the profitability of the firm, do you think this market outcome is sustainable in the long run? That is, do you expect firms to enter the market, leave the market, or leave the market?
a. Firms will enter the market.
b. Firms will leave the market.
c. Firms will neither leave nor enter the market.
d. There could be barriers to entry
Will this market outcome be sustainable? That is, do you expect firms to leave the market, enter the market, or neither?
a. Firms will enter the market.
b. Firms will leave the market.
c. Firms will neither leave nor enter the market.
d. There could be barriers to entry
If you were to graph these curves, we would have average total cost doing the following:
a. Decreasing until the point of maximum effeciency, and then increasing again
b. Always decreasing
c. Decreasing and then increasing
d. A straight line
Solve for equilibrium output, price, average total cost, and profit.
a. Q=12, P=13, ATC=1, Profit=144
b. Q=12, P=13, ATC=12, Profit=12
c. Q=12, P=1, ATC=1, Profit=0
d. Q=24, P=1, ATC=1, Profit=0
Compared to the efficient solution, this monopolist outome
a. Has a higher price and lower output than the perfectly competitive solution.
b. Has a lower price and lower output than the perfectly competitive solution.
c. Has the same price but lower output than the perfectly competitive solution.
d. Has a higher price but the same output than the perfectly competitive solution.
Suppose the government wanted to regulate the monopoly so that it produced an output and charge a price as close to the perfectly competitive outcome as possible, but in such as way so that the monopoly does not make a loss. In this scenario, the monopolist would produce a quantity and charge a price such that
a. Q=24, P=1
b. Q=12, P=13
c. Q=12, P=1
d. Q=24, P=24
Explanation / Answer
1) In the long run, the perfectly competitive outcome will be efficient. This is true because in the long-run the profit-maximising condition are;
Price=Average cost
It means firm is charging the price equal to the average cost of production and so the firm earn zero economic profit in the long-run.
Hence it is True.
2) For the monopolist, it is true that MR=P.
No, a monopolist always charges price greater than the MR. This is because a monopolist always reduces prices for selling more quantity of outputs.
Hence this is false.
3) The monopolist sets the highest price possible in order to maximize profits.
Yes, it is true that a monopolist always sets the highest price possible for maximising profits because he is single seller of the goods and he is free to decide the price, so he always try to set as high as possible the price of the good.
Hence True.
4) In the short run, the monopolist always earns a higher profit than a perfectly competitve firm.
The monopolist earns higher profit because the profit is maximised for the monopolist when MR=MC but for the competitive firm the profit is maximised when Price=MC.
For monopolist MR<P
For competitive firm P=MR
Hence this is true.
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