study questions for Econ Exam III

study questions for Econ Exam III - A payoff matrix(a shows...

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A payoff matrix (a) shows the gains or losses involved in various strategies given possible reactions by rivals. (b) shows the potential profits or losses arising from a given price. (c) ranks profitable strategies in descending order. (d) shows the gains or losses associated with various strategies given independence among firms. (e) shows the costs associated with alternate pricing strategies. Suppose the U.S. has an absolute advantage over Mexico in grape production. This implies that, during a specified period, the U.S. (a) can produce more grapes than Mexico with a given amount of resources. (b) can grow better grapes than Mexico. (c) can produce more grapes than Mexico. (d) consumes more grapes per capita than Mexico. (e) specializes in grape production. Marginal revenue for a monopolist (a) increases as output increases, because demand is inelastic. (b) increases as price decreases, because more people are willing and able to purchase the good at a lower price.
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(c) decreases as price decreases, because each unit of the good is being sold for a lower price. (d) is constant and equal to price. The monopolist's profit-maximizing level of output is determined by the equality of (a) marginal revenue and marginal cost. (b) marginal revenue and average cost. (c) price and marginal revenue. (d) price and marginal cost. (e) total revenue and total cost.
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Monopoly A pure monopoly is a single seller of a product that has no close substitutes. In a market in which a profitable monopoly firm sells a product, a barrier to entry must prevent additional sellers from entering to compete for sales. Monopolies often arise among larger firms possessing cost or technological advantages that aren't enjoyed by smaller firms. A natural monopoly is a firm that attains its position as the single seller in a market by virtue of cost advantages. A monopolist's demand curve is the market demand curve. Monopolists can expect to sell more by lowering the price of their product. When they increase the price of their product, they can expect to sell less. Unlike a perfectly competitive firm, a monopolist can't sell all it wishes at a given price. The price the monopolist receives depends on the amount of its product that it makes available. Marginal revenue is the extra revenue a monopolist receives for selling additional output. For any amount sold, the marginal revenue received by a monopolist is less than the price it receives for its product. A monopolist maximizes profits by setting the price that allows it to sell the amount of its product for which marginal revenue equals marginal cost over any period. Marginal revenue is positive only when demand for the monopolist's product is elastic. A monopoly firm never sells in a market in which demand for its product is inelastic, because sales in such a market will decrease, rather than increase, revenue. The price set by a profit-maximizing monopoly firm exceeds the
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This note was uploaded on 09/08/2011 for the course ECON 2002 taught by Professor Kogut during the Spring '11 term at University of Louisiana at Monroe.

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study questions for Econ Exam III - A payoff matrix(a shows...

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