- D. Monopolies charge a price that is greater than marginal cost. To maximize efficiency in a perfectly
competitive market, firms must have MR = MC. - B. A profit-maximizing firm will set its price above its marginal cost to create a profit.
- D. When perfectly competitive firms have excess product, they can sell the product and receive revenue at an
increasing constant rate. This remains true as long as the firm is selling excess. If the firm had no excess and tries
to increase its price to increase revenue at a constant rate, then the firm will suffer because of the availability of
perfect substitutes. - D. If the revenue for oranges increases despite an increase in price, the demand for oranges will be considered
inelastic. - C.Oligopolistic firms are interdependent of one another because of strategic competition. Firms speculate on
what their competitors’ next move is going to be, and they make their decisions based on their prediction. - C.Strategic competition is a characteristic of oligopolies. Firms speculate on their rivals’ next move.
- A.Perfectly competitive firms have no profit because they are price takers that sell a homogeneous product.
Any variation in price would eliminate growth. - C.Monopolies can benefit the most from price discrimination because they control pricing and output.
Monopolists can get away with charging different groups different prices because of the levels of elasticity
demand. - B.An increase in a legally mandated price floor would create a surplus in the long run.
- D. Prices are adjusted by supply and demand. If the forces of supply and demand fluctuate, market prices
fluctuate as well. Firms cannot adjust their own prices in a perfectly competitive market. - D. A perfectly competitive firm’s demand curve is perfectly elastic. There is one price, the “market price,” that
all quantities are purchased at.
13 C.The main similarity between a monopolistically competitive firm and a monopoly is that they both have a
downward-sloping demand curve. The law of demand applies to both markets, at separate price ranges. - C.If a perfectly competitive firm raises its price above the market price and stays there, in the long run the firm
will go out of business. The firm cannot afford to have its marginal revenue above its marginal costs. - E.Strategic competition is a characteristic of oligopolies. When an oligopoly makes a decision, it is usually
based on what its competitors are going to do in reaction to that decision. Oligopolies are dependent on one
another because of the strategic competition that is present among firms.
Part III: Microeconomics