____ 22. What happens to the long-run equilibrium in the competitive market? a.
ID: 1167357 • Letter: #
Question
____ 22. What happens to the long-run equilibrium in the competitive market?
a.
In long-run equilibrium, marginal firms make a positive economic profit.
b.
To maximize profit, firms should produce at a level of output where price equals marginal revenue.
c.
The amount of gold in the world is limited; therefore, the gold jewellery market probably has a long-run supply curve that is upward sloping.
d.
Long-run supply curves are typically less elastic than short-run supply curves.
____ 23. When a firm’s average-total-cost curve continually declines, what is the firm considered?
a.
a government-created monopoly
b.
a natural monopoly
c.
a revenue monopoly
d.
a subsidized monopoly
____ 24. When does a natural monopoly arise?
a.
when there are constant returns to scale over the relevant range of output
b.
when there are economies of scale over the relevant range of output
c.
when one firm owns a key natural resource
d.
when the government gives a single firm the exclusive right to produce a particular good or service
____ 25. How do competitive firms and monopolists differ?
a.
A competitive firm cannot choose its level of output; a monopolist chooses its level of output.
b.
A competitive firm’s short-run profit is always zero; a monopolist can have a positive short-run profit.
c.
A competitive firm’s marginal-revenue curve is horizontal; a monopolist’s marginal-revenue curve is downward sloping.
d.
A competitive firm sets price equal to marginal cost; a monopolist sets price equal to marginal revenue.
Table 15-1
Quantity
Price
Total
Revenue
Average
Revenue
Marginal
Revenue
1
$35
$35
2
$64
$32
$29
3
$29
4
$17
5
$23
$11
6
$120
7
$17
–$1
8
–$7
9
$99
$11
–$13
____ 26. Refer to Table 15-1. What is the marginal revenue for the monopolist for the sixth unit sold?
a.
$3
b.
$5
c.
$8
d.
$11
____ 27. Which of the following statements best characterizes a monopoly market?
a.
It generally maximizes total economic well-being.
b.
It generally minimizes consumer surplus.
c.
It generally fails to maximize total economic well-being.
d.
It generally fails to maximize producer surplus.
Scenario 15-1
Consider the market for water in a small town in the Old West. Assume that the only source of water is the underground aquifer that lies directly below the town. Wells are used to supply water to the entire town.
____ 29. Refer to Scenario 15-1. If dozens of residents have their own wells, which of the following statements most adequately describes the behaviour of sellers of water?
a.
Since water is a necessity of life, there will be no decline in the quantity of water consumed, regardless of how high the price is raised.
b.
Sellers will be able to charge a premium for the water.
c.
The price of a litre of water will exceed its marginal cost.
d.
The price of a litre of water will be driven to equal its marginal cost.
____ 30. If a social planner were running a monopoly, that planner could achieve an efficient outcome by charging the price that is determined by what graphical point?
a.
the minimum point on the average-total-cost curve
b.
the minimum point on the average-variable-cost curve
c.
the intersection of the marginal-cost curve and the demand curve
d.
the intersection of the marginal-cost curve and the marginal-revenue curve
a.
In long-run equilibrium, marginal firms make a positive economic profit.
b.
To maximize profit, firms should produce at a level of output where price equals marginal revenue.
c.
The amount of gold in the world is limited; therefore, the gold jewellery market probably has a long-run supply curve that is upward sloping.
d.
Long-run supply curves are typically less elastic than short-run supply curves.
Explanation / Answer
(22) (b)
In long run competitive equilibrium, Price = MR = Marginal cost = Average total cost, therefore profits is zero.
(23) (b)
A continuously declining ATC curve means that average cost falls with increase in output, which leads to economies of scale, allowing the firm to become a natural monopoly.
(24) (b)
(25) (c)
A competitive firm is a price taker and its demand curve equals MR curve, which is horizontal at the level of market price. But a monopolist is a price setter and faces a downward sloping demand curve, therefore MR curve is downward sloping too.
NOTE: As per Chegg Answering Policy, first 4 questions are answered.
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