Explain why individual firms in competitive markets face more elastic demand curves than the market as a whole. What will be an ideal response? ANSWER In a competitive market, if an individual firm increases its price it will lose all of its customers, as consumers simply buy from another firm. However, if the price […]
The introduction of satellite television systems would cause the Lerner Index for cable television to A) become smaller. B) increase. C) change in accordance to the increase in market power of cable TV providers. D) be unchanged. ANSWER A
If a firm makes zero economic profit, then the firm A) has no incentive to stay in the industry. B) is better off exiting the industry. C) is indifferent between staying and exiting the industry. D) will shut down. ANSWER C
If the demand curve a monopolist faces is perfectly elastic, then the ratio of the firm’s price to the marginal cost is A) 0. B) 1. C) 2. D) None of the abovethe answer cannot be determined. ANSWER B
A small business owner earns $60,000 in revenue annually. The explicit annual costs equal $10,000. The owner could work for someone else and earn $25,000 annually. The owner’s accounting profit is ________ and owner’s economic profit is ________. A) $20,000; $5,000 B) $50,000; $25,000 C) $25,000; -$5,000 D) $45,000; -$5,000 ANSWER B
A market is perfectly competitive even if firms have the ability to set their own price as long as the price difference reflects differences in the product. Indicate whether the statement is true or false ANSWER False. If the market is perfectly competitive, there are no differences in the product.
Many auction sites, such as eBay, provide a reputation score by which previous customers can rate a seller. Which of the following characteristics of a competitive market is this policy trying to emulate? A) There is freedom of entry and exit. B) There are very low transaction costs. C) There are only one or two […]
A monopoly does not have a supply curve. Indicate whether the statement is true or false ANSWER True . A supply curve shows how much quantity a firm wishes to sell at any given price. First, the monopoly does not take price as given. The monopoly determines price based on the shape and position […]
All else equal, a smaller elasticity of the supply curve to the other firms leads to a ________ individual firm’s residual elasticity of demand. A) less elastic B) unit elastic C) more elastic D) zero ANSWER A
In a competitive market, one would expect to see A) no advertising. B) false advertising. C) advertising only in the Sunday papers. D) minimal advertising. ANSWER A
