Monopoly and Competition Economics Quiz

A monopoly firm faces a relatively steep demand curve because it has significant barriers to entering or exiting the market. These barriers prevent new firms from entering and competing with the monopoly, giving it more control over prices.

The long-run supply curve of a perfectly competitive firm coincides with its marginal cost curve above the average variable cost. This is because, in the long run, firms can adjust their inputs and outputs to minimize costs, and they will only produce if the price is at least enough to cover their variable costs.

A natural monopoly typically has very high fixed costs, which are costs that don't change based on the output level. This means that producing a vast volume of output can spread the fixed costs over a greater number of units, leading to lower costs per unit and economies of scale. It's the fixed costs, not variable costs, that drive economies of scale in a natural monopoly.

Monopolistically competitive firms do not typically engage in price discrimination. This is because they lack the market power to charge different prices to different customers for the same product.

Though there are no significant barriers to entry in monopolistic competition, exiting the market can be more difficult due to factors such as sunk costs, brand loyalty, and specialized equipment.

For every firm, average revenue is equal to the total revenue divided by the quantity sold. Marginal revenue, meanwhile, represents the change in total revenue from selling one additional unit. These two measures are not always equal for firms that are not perfectly competitive.

Perfect price discrimination is a theoretical scenario where a firm charges each customer their maximum willingness to pay, known as their reservation price. In this ideal scenario, the producer captures all consumer surplus.

Price discrimination is legal in some situations, but it's subject to regulations. For instance, airlines often charge different fares based on the booking time or class, but it must be justified by cost differences and avoid being anti-competitive.

A pricing strategy where sellers charge different prices to different consumers based on their willingness to pay. This can be done by offering discounts to specific groups, or by charging more for premium features.

A type of price discrimination where sellers charge different prices based on the quantity of a good or service consumed. The price per unit decreases with increasing volume.

A type of price discrimination where sellers charge different prices to different groups of consumers based on their ability or willingness to pay.

A market structure where many firms sell differentiated products that are similar but not perfect substitutes. There is freedom of entry and exit, and firms have some market power to control price over their specific product.

A market structure where there is only one seller of a unique product with no close substitutes. The firm has complete control over price and faces no competition.

A market structure where there are many buyers and sellers of a homogenous product. Firms have no market power and are price takers. There is freedom of entry and exit.

The situation where a firm can influence the market price of its product by changing its output. This is a characteristic of firms with market power.

The additional revenue earned from selling one more unit of a good or service.

The additional cost incurred from producing one more unit of a good or service.

The situation where a firm's total revenue is greater than its total cost.

The point at which marginal revenue equals marginal cost. This is where a firm maximizes its profit.

A firm's ability to set a price for its product above its marginal cost. This is a characteristic of firms with market power.

A firm's ability to sell more of its product without having to lower its price. This is a characteristic of firms with market power.

The relationship between the price of a product and the quantity demanded by consumers. The price elasticity of demand is a measure of how sensitive the quantity demanded is to changes in price.

The relationship between the price of a product and the quantity supplied by sellers. The price elasticity of supply is a measure of how sensitive the quantity supplied is to changes in price.

A monopolist will raise price and reduce output when the marginal revenue from selling one more unit is less than the cost of producing that unit.

A perfectly competitive firm, in the long run, reaches equilibrium when the price is equal to both the average cost of production and the marginal cost of production.

The firm's ability to limit entry by other firms into the market.

The marginal revenue (MR) of the sixth unit is the change in total revenue when the quantity sold increases from 5 to 6 units. This is the change in total revenue (from $55 to $60) divided by the change in quantity (from 5 to 6).

If the price of a good is higher when the quantity demanded is lower, and lower when the quantity demanded is higher, the demand curve is downward sloping.

A firm can achieve positive profits in the long run if its cost of production is lower than the price it can charge.

A firm charging a price greater than its marginal cost is earning a profit margin on each unit sold.