Market Power Review

Based on the shape on the ATC curve, we can conclude that this firm is operating in what type of market?

• Natural Monopoly

• Monopoly

• Oligopoly

• Perfect competition

In the fictitious town of Silverton the underground (Metro) transport system is run by the local authority. The Metro's costs and revenues are as shown in the diagram. The Silverton Municipality has voted to price rides at a level that just earns normal profit. Using the diagram, identify the price charged that earns normal profit, and the corresponding quantity or rides sold.

• P1, Q3

• P2, Q2

• P1, Q1

• P3, Q3

In the diagram, which curves will shift and which curves will have a movement along them, as a firm in monopolistic competition moves from the short run to the long run?

• MR and AR will shift downward, upward shift of AC, downward movement along MC.

• MR and AR will shift downward, downward movement along AC and MC.

• MR and AR will shift upward, upward movement along AC an MC.

• MR and AR will shift downward, upward shift of MC, downward movement along AC.

What is always equal to the average revenue?

• Total revenue (TR)

• Marginal revenue (MR)

• Average total cost (ATC)

• Price (P)

What is true about the MR curve in a perfectly competitive market?

• It is perfectly inelastic.

• It is zero.

• It is equal to AR.

• It depends on the nature of the good.

In what kind of oligopoly do firms choose not to collaborate to set the price?

• Non-collusive

• Tacit collusion

• Formal collusion

• Cartel

When is a market allocatively efficient?

• P = MC

• MC = MR

• MR = O

• AR = ATC

When, in theory, will a firm maximise profit in the short-run?

• P = MC

• MR = MC

• MR = 0

• AR = ATC

In this diagram of a perfectly competitive firm, which is the price that will earn the firm normal profit in the long run?

• P1

• P2

• P3

• P4

In the long run, firms in monopolistic competition can ________

• Make both a normal and supernormal profit

• Make only a supernormal profit

• Make only a normal profit

• Only make losses