Question 1

A(n) _____ gives an inventor a temporary monopoly on the use or sale of an invention.
A)patent
B)copyright
C)monopoly
D)externality

Accepted Answer

A patent gives an inventor the exclusive right to use or sell their invention for a certain period of time, typically 20 years from the date of filing. This provides the inventor with a temporary monopoly, allowing them to prevent others from making, using, or selling the invention without their permission. This encourages innovation and investment in research and development, as inventors can be confident that they will have the opportunity to profit from their discoveries.

Question 2

Obstacles that keep new firms out of a monopoly market are:
A)barriers to entry.
B)terms of sale.
C)labor market stipulations.
D)production controls.

Accepted Answer

Barriers to entry are the obstacles that make it difficult for new firms to enter the market and compete with existing firms. These barriers can be in the form of high startup costs, regulations, patents, or other factors that prevent new firms from entering the market. In a monopoly market, there is typically a high barrier to entry, which makes it difficult for new firms to enter and compete with the existing monopolist.

Question 3

The land you own has the only known source of macinannea root, needed to make a special anti-inflammatory itch lotion. In this case, your monopoly results from:
A)government restrictions.
B)location.
C)sunk costs.
D)ownership of scarce inputs.

Accepted Answer

Your monopoly results from the ownership of scarce inputs, as you own the only known source of macinannea root, which is essential for producing the lotion.

Question 4

If a product's usefulness increases with the number of users:
A)it is characterized by network externalities.
B)it is a natural monopoly.
C)it is a consortium enterprise.
D)the firm that produces it has an exclusive rights franchise.

Accepted Answer

Network externalities occur when the value of a product or service increases as more people use it. A classic example of a product with network externalities is a telephone. The more people who have phones, the more valuable the phone is to each user because they are able to communicate with more people. In this case, the usefulness of the product is directly related to the number of users, and therefore it is characterized by network externalities.

Question 5

Google is often cited as an example of a company that grew into a monopolist through:
A)ownership of a scarce resource.
B)patents.
C)network externalities.
D)economies of scale.

Accepted Answer

Google's growth into a monopolist was largely due to network externalities, meaning that Google's value increased as more people used it. As it became more popular, it became increasingly difficult for competitors to attract users away from Google's established network. While economies of scale also played a role in Google's growth, it was not the primary factor underlying its monopoly status. Ownership of a scarce resource and patents are not significant factors in Google's case.

Question 6

Barriers to entry are one reason that a monopoly:
A)earns an economic profit in the long run.
B)produces at a point where P < MC in the long run.
C)ensures that fixed costs are not relevant in the long run.
D)maximizes its profits by producing where P = MC.

Accepted Answer

Barriers to entry prevent potential competitors from entering the market and competing with the monopoly, allowing the monopoly to have control over prices and production levels. This in turn allows the monopoly to earn economic profit in the long run.

Question 7

(Figure: Profit Maximization for SoCalGas) Use Figure: Profit Maximization for SoCalGas. SoCalGas's unit profit is:

A)$5.
B)$12.
C)$15.
D)$20.

Accepted Answer

The unit profit is maximum at the quantity level where marginal cost equals marginal revenue, which is 9 therms in this case. At 9 therms, the unit profit is $12. At any other quantity level, the unit profit is less than $12. Therefore, the best choice is to produce and sell 9 therms to maximize profit.

Question 8

Suppose that Anna is a profit-maximizing monopolist who creates a new technology that reduces her marginal and average total costs by $40. If, as a result of this cost reduction, Anna changes her price in a profit-maximizing way, then Anna's total economic profit will:
A)fall.
B)remain unchanged.
C)rise.
D)It is not possible to make a determination from the information given.

Accepted Answer

With the reduction in costs, the profit-maximizing price that Anna can charge will also change. As a monopolist, Anna can charge a higher price than her marginal cost to maximize her profits. With lower marginal costs, Anna can charge a lower price and still earn a profit. This means that Anna will increase her quantity sold and increase her total economic profit. Therefore, Anna's total economic profit will rise.

Question 9

Alana operates a small hair salon in Dallas. If some salons leave the industry, Alana's _____ curve will shift to the _____.
A)marginal cost; left
B)marginal cost; right
C)demand; left
D)demand; right

Accepted Answer

If some salons leave the industry, it would lead to a decrease in the number of salons providing the service. This, in turn, would reduce the supply of hair salon services in the market. As a result, Alana's demand curve would shift to the right, indicating an increase in demand for her services. Therefore, the correct answer is D, demand; right.

Question 10

Consider a firm with market power. As firms exit the industry, one can see this as:
A)a shift to the right of each individual firm's demand curve.
B)a shift to the left of each individual firm's MC curve.
C)an upward shift upward of each individual firm's ATC curve.
D)a shift to the left of each individual firm's supply curve.

Accepted Answer

When firms exit the industry, the remaining firms face less competition, which typically increases the demand for their products. This is represented by a rightward shift in each individual firm's demand curve, as they can now capture a larger share of the market.

Question 11

Entry by firms into an industry is shown by:
A)a shift to the right of each individual firm's demand curve.
B)a shift to the left of each individual firm's demand curve.
C)an upward shift of each individual firm's ATC curve.
D)a shift to the left of each individual firm's supply curve.

Accepted Answer

When new firms enter an industry, the market supply increases, leading to a decrease in the market price. This results in a shift to the left of each existing firm's demand curve, as they now face more competition and a lower price for their product.

Question 12

The market for electrician services is initially in long-run equilibrium, but then there is a decrease in the market demand for electrician services. One expects that in the long run, the economic profits of typical firms will be:
A)typical of those earned by monopoly firms.
B)negative.
C)zero.
D)positive but less than the level typically earned by monopoly firms.

Accepted Answer

In the long run, the decrease in market demand for electrician services will cause a decrease in the equilibrium price of the services. As a result, firms will experience a decrease in economic profits. In the long run, typical firms will adjust their production levels until they are earning zero economic profits, which is known as the long-run equilibrium. Therefore, the best answer is C.

Question 13

Super Snackin Services is in long-run equilibrium, and then there is an increase in the market demand for snacks. One expects that:
A)in the long run, new firms will enter the market.
B)there will be a short-run increase in the number of firms, but in the long run, the number of firms will return to the original level.
C)firms will leave the market in the long run.
D)firms will shut down, but they will not leave the industry in the long run.

Accepted Answer

An increase in market demand for snacks indicates a shift in the demand curve to the right. In the short run, the existing firms, including Super Snackin Services, will increase their output and earn higher profits. However, in the long run, new firms will enter the market to take advantage of the higher profits. This increase in the number of firms will lead to a rightward shift of the industry supply curve, which will lower the price of snacks and reduce profits for all firms. The long-run equilibrium will be at a lower price and a higher level of output than before the increase in demand, with more firms in the industry.

Question 14

Super Snackin Services is in long-run equilibrium, and then there is a decrease in the market demand for snacks. One expects that:
A)prices will fall in the short run, and new firms will enter the market in the long run.
B)prices will rise in the short run, and new firms will enter the market in the long run.
C)prices will fall in the short run, and firms will leave the market in the long run.
D)prices will rise in the short run, and firms will leave the market in the long run.

Accepted Answer

Since there is a decrease in market demand, there will be excess supply in the short run, leading to a decrease in price. However, since the market is in long-run equilibrium, the decrease in demand will lead to some firms exiting the market, which will eventually restore the equilibrium price. This means that while prices fall in the short run, they will remain low in the long run due to fewer firms in the market. Therefore, option C is the best choice.

Question 15

(Figure: Market for Designer Clothing) Use Figure: Market for Designer Clothing. In the long run, firms will:

A)enter this market until all firms earn zero economic profit.
B)exit this market until all remaining firms earn zero profit.
C)enter this market, leading to excess profit for all the firms.
D)exit this market, leading to excess profit for all the remaining firms.

Accepted Answer

In the long run, firms will enter this market until all firms earn zero economic profit because in a competitive market, excess profits will attract new entrants, which will increase the supply of designer clothing and push down prices until profits return to zero. This process will continue until there are no more profitable opportunities to enter the market. Therefore, option A is the correct choice.

Question 16

(Figure: Monopolistic Competition in the Market for Specialty Watches) Use Figure: Monopolistic Competition in the Market for Specialty Watches. The figure represents a monopolistically competitive firm. In the long run firms will:

A)enter this market until all firms earn a zero economic profit.
B)exit this market until all remaining firms earn a zero economic profit.
C)enter this market, leading to excess profit for all of the firms.
D)exit this market, leading to excess profit for all of the remaining firms.

Accepted Answer

In the long run, the monopolistically competitive firm will earn zero economic profit due to the entry of new firms and the exit of existing firms. As more firms enter the market, the demand facing each individual firm will decrease, leading to a decrease in its market power and the price it can charge. This will eventually lead to zero profit for all firms in the long run. Therefore, firms will exit this market until all remaining firms earn a zero economic profit.

Question 17

In the small Caribbean nation of Jamaica, large barriers to entry in the sugar industry explain why the two sugar producers in the country:
A)can earn an economic profit in the long run.
B)must produce at the minimum average total cost in the long run.
C)have no fixed costs in the long run.
D)must produce a level of output such that MR = MC to maximize their profit.

Accepted Answer

Large barriers to entry prevent new competitors from entering the market, allowing the existing producers to maintain economic profits in the long run.

Quiz 15: Entry, Exit, and Long-Run Profitability

A(n) _____ gives an inventor a temporary monopoly on the use or sale of an invention.

Obstacles that keep new firms out of a monopoly market are:

The land you own has the only known source of macinannea root, needed to make a special anti-inflammatory itch lotion. In this case, your monopoly results from:

If a product's usefulness increases with the number of users:

Google is often cited as an example of a company that grew into a monopolist through:

Barriers to entry are one reason that a monopoly:

(Figure: Profit Maximization for SoCalGas) Use Figure: Profit Maximization for SoCalGas. SoCalGas's unit profit is:

Suppose that Anna is a profit-maximizing monopolist who creates a new technology that reduces her marginal and average total costs by $40. If, as a result of this cost reduction, Anna changes her price in a profit-maximizing way, then Anna's total economic profit will:

Alana operates a small hair salon in Dallas. If some salons leave the industry, Alana's _ curve will shift to the _.

Consider a firm with market power. As firms exit the industry, one can see this as:

Entry by firms into an industry is shown by:

The market for electrician services is initially in long-run equilibrium, but then there is a decrease in the market demand for electrician services. One expects that in the long run, the economic profits of typical firms will be:

Super Snackin Services is in long-run equilibrium, and then there is an increase in the market demand for snacks. One expects that:

Super Snackin Services is in long-run equilibrium, and then there is a decrease in the market demand for snacks. One expects that:

(Figure: Market for Designer Clothing) Use Figure: Market for Designer Clothing. In the long run, firms will:

(Figure: Monopolistic Competition in the Market for Specialty Watches) Use Figure: Monopolistic Competition in the Market for Specialty Watches. The figure represents a monopolistically competitive firm. In the long run firms will:

In the small Caribbean nation of Jamaica, large barriers to entry in the sugar industry explain why the two sugar producers in the country: