1. A profit-maximizing firm picks the quantity of output at which ______ equals ______.
2. Arrows up or down: At a firm’s current level of output, marginal revenue exceeds the marginal cost. The firm should ______ its output and ______ its price.
3. The entry of a second firm shifts the firm-specific demand curve of the first firm to the ______ (left/right).
4. Arrows up or down: The entry of a third firm into a market with two original firm’s ______ the market price ______, the average production cost ______, the quantity produced per firm, and ______ profit of each original firm.
5. Arrows up or down: Changes in regulatory policy in the 1980s ______ the price of trucking services and ______ the profits of trucking firms.
6. When grocery stores introduced their own light-bulb brands, the price of General Electric light-bulbs ______ (increased/decreased.
7. Bidding for Bookstore Licenses. Paige initially has the only license to operate a bookstore in Bookville. She charges a price of $9 per book, has an average cost of $4 per book, and sells 1,001 books per year. When Paige s license expires, the city decides to auction two bookstore licenses to the highest bidders. Suppose the relevant variables (price, average cost, and output per firm) take on only integer values no fraction or decimals.
a. Suppose Paige is optimistic and imagines the best possible outcome with a two-firm market. What is the maximum amount she is willing to pay for one of the two licenses?
b. Suppose Paige is pessimistic and imagines the worst possible outcome with a two-firm market. What is the maximum amount she is willing to pay for one of the two licenses?
8. Draw the Light-bulb Graph. Consider the Name Brands versus Store Brands Application. Use a graph to show that the entry of store-brand light-bulbs decreased the profit-maximizing price of General Electric light-bulbs from $3.50 to $2.00.
9. Beware the Too-Easy Answer. Your city initially restricts the number of pizzerias to one. The existing monopolist sells 3,000 pizzas per day. A pizzeria reaches the horizontal portion of its long-run average cost curve at an output of about 1,000 pizzas per day. Suppose the city eliminates the entry restrictions. Predict the equilibrium number of pizzerias. Beware of the TEC (too easy to be correct) answer.
10. Equilibrium? In your city, there are currently three firms providing oil changes. For each firm, there is a fixed cost of $80 per day and a marginal cost of $12 per oil change. Each firm currently maximizes its profit by providing 10 oil changes per day.
a. For each firm, marginal revenue = $ ______.
b. This is a monopolistically competitive equilibrium if ______ equals $ ______.