Question

In: Economics

1. In perfect competition... a. each firm is a large part of the industry b. the...

1. In perfect competition...

a. each firm is a large part of the industry

b. the price equals the marginal revenue

c.a firm profit maximizes where total revenue equals total variable cost

d. firms use advertising to differentiate products

2. In monopoly...

a. the marginal revenue is greater than the average revenue

b. abnormal profits can be earned in the long run

c. firms are allocatively efficient

d. firms produce where average costs equal marginal costs

3. When a firm charges a different price for the same product this is called:

a. Price discrimination

b. Price differentiation

c. Price determination

d. Price distinction

3. If a business is charging different prices depending on demand conditions, it will have the highest price when the price elasticity of demand is:

a. - 2

b. - 5

c. - 0.8

d. - 0.01

4. Which of the following is NOT a barrier to entry?

a. patents

b. the need for a licence to operate

c. low economies of scale

d. well established brands

Solutions

Expert Solution

1.Ans: b) the price equals the marginal revenue

Explanation:

Under perfect competition , the industry is the price maker whereas the firm is the price taker. It means there is an unique price in the market . Firms are not able to change the market price. They can sell or produce as much as they can at the prevailing market price.

So under perfect competition , Price = Marginal Revenue = Average Revenue ( P = MR = AR)

2.Ans: b) abnormal profits can be earned in the long run

3.Ans: a) Price discrimination

Explanation:

When a firm charges a different price for the same product this is called  price discrimination.

3.Ans: d)  - 0.01

Explanation:

If a business is charging different prices depending on demand conditions, it will have the highest price when the price elasticity of demand is inelastic.

4.Ans: c) low economies of scale

Explanation:

High economies of scale is a barrier to entry.

All other above given options are a barrier to entry.


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