ECO561 Week 3 …FREE…Quiz with Answers…
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1. A purely- or perfectly-competitive firm would be characterized by which of the following? Hint : The different types of firms include pure competition, pure monopoly, monopolistic competition, and oligopoly. A. Large number of firms, price taker, free entry and exit, and standardized product B. Large number of firms, price maker, free entry and exit, and a differentiated product C. Small number of firms, price maker, limited entry and exit, and a standardized product D. One firm, price maker, limited entry and exit, and a unique product
2. For a purely-competitive firm, price must be
Hint : In a purely competitive firm the revenue received for the first unit is the same as that of the last unit sold, which is the same as that which will be received for the next unit sold. A. equal to marginal revenue and average revenue
B. greater than marginal revenue and average revenue
C. greater than marginal revenue, and equal to average revenue D. less than both marginal revenue and average revenue
In the case of a purely competitive firm, as opposed to other market structures, a producer can provide as much as they want at the market price, so producers don't need to change the price for the product to sell additional units. In other words, the revenue received for the first unit is the same as that of the last unit sold, which is the same as the revenue for the next unit sold (marginal revenue). In addition, because the revenue received from each unit sold is the same—that is it doesn't change with additional sales—the average revenue is equal to the price, which is equal to the marginal revenue.
3. What will excessive or economic profits induce for a firm in any industry structure? Hint : Instead of thinking of all industry structures at the same time, consider a monopoly industry structure and check if the solution also applies to the other industry structures. A. entry into the market
B. exit from the market
C. equilibrium in the market
D. greater demand in the market
4. A pure-monopoly firm's demand curve is also the market demand curve. This kind of firm may successfully engage in price discrimination to increase its total profit if it Hint : Monopolists have the power to segregate in the market place because of specific characteristics that group. The monopolist is willing to charge a lower price than the profit maximization point. A. engages in rent-seeking behaviors to prevent possible price challenges from firms in other industries B. segregates its market into clearly definable groups of consumers with different elasticity of demand, and prevents buyers in one market segment from reselling to buyers in another market segment. C. determines that consumers are relatively sensitive to price changes along its envisioned range of price differentials (price elastic) D. determines that demand for its goods or services is relatively insensitive along its envisioned range of differential prices (price inelastic) 5. Oligopolies are characterized by a small number of firms where the top three firms hold the majority of the market. If in an oligopoly market, firm A is almost twice as big as firm B and firm C then C. firms A, B, and C will tend to use non-price strategies to maintain their profits or market share. While firms operating in an oligopolistic structure are interdependent—the actions of one affects the others—they may gravitate towards the same price point depending on their strategy, assuming they are setting prices without conferring or colluding. If the firms do not maintain the same price as their competitors, they must use nonprice strategies to maintain their profits or market share. Otherwise, as the other firms move to a lower price...
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