Richard raises Rhode Island Red chickens. Consumers, when buying chicken in the supermarket, view all other types of chickens as perfect substitutes for the Rhode Island Red. There are no barriers to entry in the chicken industry and, as a result, there are many, many chicken producers. An economist knows that
a. if Richard raises his price, he differentiates his chickens from the others on the market
b. the demand curve Richard faces is horizontal
c. if Richard lowers his price, he differentiates his chickens from the others on the market
d. Richard can increase brand loyalty and market share by advertising
e. Richard's relevant market is not chicken
B
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The basic formula for the price elasticity of demand is
A. absolute decline in price/absolute increase in quantity demanded. B. percentage change in price/percentage change in quantity demanded. C. absolute decline in quantity demanded/absolute increase in price. D. percentage change in quantity demanded/percentage change in price.
If there is an inverse relationship between two variables, the graph of this relationship
A) will be a horizontal line. B) will be downward-sloping. C) might be horizontal. D) will be upward-sloping.
How does the long-run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?
A) A firm in monopolistic competition will charge a price higher than the average cost of production but a firm in perfect competition charges a price equal to the average cost of production. B) A firm in monopolistic competition will earn economic profits but a firm in perfect competition earns zero profit. C) A firm in monopolistic competition produces an allocatively efficient output level while a firm in perfect competition produces a productively efficient output level. D) A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible.
Consider a game of the "Jack and Jill" type in which a market is a duopoly and each firm decides to produce either a "high" quantity of output or a "low" quantity of output. If the two firms successfully reach and maintain the cooperative outcome of the game, then
a. both the combined profit of the firms and total surplus are maximized. b. the combined profit of the firms is maximized but total surplus is not maximized. c. the combined profit of the firms is not maximized but total surplus is maximized. d. neither the combined profit of the firms nor total surplus is maximized.