In the long run, what costs do firms have to pay? correct answers Variable Costs (no fixed costs)
If you're incurring losses in the long run, will you live immediately or stay? Why correct answers Leave Immediately bc there are no fixed costs to recuperate
What are the different types of mono...
ECON 130- Exam #3 || All Correct.
In the long run, what costs do firms have to pay? correct answers Variable Costs (no fixed costs)
If you're incurring losses in the long run, will you live immediately or stay? Why correct answers
Leave Immediately bc there are no fixed costs to recuperate
What are the different types of monopolies? correct answers 1. Closed Monopoly
2. Natural Monopoly
3. Open Monopoly (don't think of it like this)
What is a closed monopoly? correct answers Occurs because there are barriers to entry into a
market (due to legal restrictions)
What is a natural monopoly? correct answers 1. Industry in which the long run average cost is
minimized when only one firm serves the market
***Occurs when market demand is less than the profit maximizing quantity on the Long Run
Average Cost Curve
What is an open monopoly? correct answers One firm acts as the lone supplier of a product, but
has no legal protections on their product (ex: patents, etc.)
In terms of price and quantity supplied, how do firms in perfect comp. & monopoly differ?
correct answers Firms in monopolies choose BOTH price (price makers) and quantity produced
Because monopolies are price makers, what needs to be included in their graph? correct answers
A demand curve
The demand curve for monopolies slope in what direction? correct answers Downward sloping
In a monopoly, what direction does the marginal revenue curve slope? correct answers
Downward sloping
Why is the MR curve for monopolies downward sloping? correct answers Bc they are price
makers as determined by the demand curve; so if quantity supplied increases, price has to
decrease (and thus revenue)
Which curve slopes steeper in a monopoly graph: demand curve or MR curve? Why? correct
answers MR curve (bc price decreases heavily with increased production)
What curve isn't drawn in a monopoly graph? correct answers Average Variable Cost (but theres
still ATC)
How do you determine quantity supplied in a monopoly graph? correct answers Set MR = MC,
and look at the corresponding value on the X axis
, How do you determine price in a monopoly graph? correct answers Set MR = MC, move
upwards until you hit the DEMAND curve, and look at the corresponding value on the y-axis
What is total revenue based on the monopoly graph? correct answers Rectangle made by price
(via demand curve) x Quantity Supplied
What is total cost based on the monopoly graph? correct answers Rectangle made by ATC x
Quantity Supplied
What is profit based on the monopoly graph? correct answers Space between rectangles made by
ATC x Quantity Supplied and Price x Quantity Supplied
What do monopolies do to increase profit? correct answers Reduce supply (availability) of the
good to increase price
Why can monopolies increase profit by decreasing quantity supplied? correct answers Bc price
of good is determined by demand curve not ATC, so at lower quantities price is higher
What are the disadvantages of monopolies for consumers? correct answers 1. Average Total Cost
isn't minimized (price follows demand curve)
2. Price is usually greater than ATC (leads to monopoly profit)
3. Deadweight loss because price > MC (price ppl are willing to pay is higher than cost needed to
produce the good)
What is monopolistic competition? correct answers Many firms selling differentiated products
Firms in monopolistic competition sell products that have what relationship to each other?
correct answers They are substitutes
Monopolistic competition is an example of what? correct answers An imperfectly competitive
maret
How is monopolistic competition similar to monopolies? correct answers Firms are PRICE
MAKERS = choose price, quantity of production, and maximize profit in the same fashion as
monopolies
How does monopolistic competition differ from monopolies? correct answers No BARRIERS
TO ENTRY
Because there are no barriers to entry in monopolistic competition, what happens when firms are
experiencing profits? correct answers More firms will enter the market thus lowering demand
(and profit) for the other firm's good bc they introduce a substitute
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