Exam 5: Competition and Monopoly: Virtues and Vices

Because a perfectly competitive firm supplies a negligible share of the market output, it has to take or accept the price that is determined in the market.

Because of easy entry into and exit from a market, perfectly competitive firms operate at the lowest possible cost, charge the lowest price that they can without going out of business, and earn no economic profit in the long run.

Figure 5.1 Cost and Demand Conditions of a Perfectly Competitive Firm -Refer to Figure 5.1. At the profit-maximizing output, the firm's total costs equal

Like a perfectly competitive firm, a monopoly will maximize total profits by operating where marginal revenue equals marginal cost, provided that price exceeds average variable cost.

The short-run supply curve of a perfectly competitive firm is the segment of its marginal cost curve that lies above the average total cost curve.

Figure 5.2 Cost and Demand Conditions of a Monopolist -Refer to Figure 5.2. At the profit-maximizing output, the monopolist's total revenue equals

All firms in all market structures produce where price equals marginal cost.

As a rule, a firm should shut down if

The shut-down rule tells us that a firm will shut down in the short run when

If economic profits are being realized in a perfectly competitive industry, some firms will enter. This will shift the industry

Perfect competition is quite rare in the United States.

Which of these markets best represents a perfectly competitive market?

A perfectly competitive market is characterized by insignificant barriers to entry or exit, many sellers and buyers, a standardized product produced by firms in the market, and perfect information among sellers and buyers.

At the point of long-run equilibrium for a perfectly competitive firm, price

Alcoa was able to monopolize the U.S. aluminum industry from the early 1990s to the end of World War II because it

If marginal cost exceeds marginal revenue for a perfectly competitive firm, it can maximize total profits by

A perfectly competitive firm will maximize total profit when

If a monopolist produces at that output level where marginal revenue exceeds marginal cost, to maximize profits the firm should

All of the following are characteristics of a perfectly competitive market except

A perfectly competitive firm differs from a monopoly in that the perfectly competitive firm's demand curve and marginal revenue curve are downward sloping rather than horizontal.