Question 1

The presence of a competitive fringe ______a dominant firm's markup.

Accepted Answer

The presence of a competitive fringe decreases a dominant firm's markup. The competitive fringe limits the ability of the dominant firm to raise prices and allows consumers to choose substitute products from the fringe firms, putting pressure on the dominant firm to keep prices low.

Question 2

If Fruit Toddler Treats controls 90 percent of the organic fruit popsicle market and the remaining 10 percent includes many other, smaller competing firms, Fruit Toddler Treats is a firm and the remaining firms are _______.

Accepted Answer

Fruit Toddler Treats is the dominant firm because it controls the majority of the market, while the smaller firms make up the competitive fringe.

Question 3

At a price of $3.00, the total quantity demanded of a product is 125,000 units and the competitive fringe produces 20,000 units. What is the dominant firm's residual demand at a price of $3.00?

Accepted Answer

Total market demand = 125,000 units
Competitive fringe demand = 20,000 units
Dominant firm's demand = Total market demand - Competitive fringe demand
Dominant firm's demand = 125,000 - 20,000 = 105,000 units
Therefore, the dominant firm's residual demand at a price of $3.00 is 105,000 units.

Question 4

A dominant firm's demand curve is______the market demand curve at all points where the competitive fringe's production is _______.

Accepted Answer

A dominant firm's demand curve is identical to the market demand curve at all points where the competitive fringe's production is equal to zero. This is because, in the absence of production from the competitive fringe, the dominant firm faces the entire market demand alone.

Question 5

If at its current production level, a dominant firm's marginal cost is $4 and its residual marginal revenue is $3, which of the following statements is true?

Accepted Answer

The dominant firm is producing where MR=MC, which is at a quantity where MR is less than the price. This means that the firm is not able to capture the full value of its production, and producing more would only result in further losses. Thus, the firm should decrease production to minimize losses and maximize profit.

Question 6

For a dominant firm, the residual demand is the ______minus quantity supplied by the______ .

Accepted Answer

Residual demand is the demand that is left over for the dominant firm after subtracting the quantity demanded of other firms in the market, known as the competitive fringe. Therefore, the residual demand is the market demand minus the quantity supplied by the competitive fringe.

Question 7

If at its current production level, a dominant firm's marginal cost is $5.50 and its residual marginal revenue is $5.50, which of the following statements is true?

Accepted Answer

If the dominant firm's marginal cost is equal to its marginal revenue, then it is producing the optimal level of output and maximizing its profits. Therefore, it does not need to increase or decrease production to maximize profit.

Question 8

At a price of $2.00, the total quantity demanded of a product is 30,000 units and the competitive fringe produces 12,000 units. What is the dominant firm's residual demand at a price of $2.00?

Accepted Answer

Total market demand = 30,000 units
Competitive fringe produces = 12,000 units
Dominant firm's demand = Total demand - Competitive fringe demand
Dominant firm's demand = 30,000 - 12,000
Dominant firm's residual demand = 18,000 units.

Question 9

If Frozen Super Paws Treats controls 89 percent of the market for frozen ice cream treats for dogs and the remaining 11 percent includes many other, smaller competing firms, Frozen Super Paws Treats is a ______firm.

Accepted Answer

Frozen Super Paws Treats controls a large majority of the market share, making them a dominant firm. They have the power to influence prices and competition in the market.

Question 10

If Magic Wipes controls 83 percent of the sanitary wipes market and the remaining 17 percent includes many other, smaller competing firms, Magic Wipes is a _______ firm and the remaining firms are ______ _.

Accepted Answer

Magic Wipes is a dominant firm because it controls a large share of the market, while the remaining firms are part of the competitive fringe because they are smaller and have a smaller market share compared to Magic Wipes.

Question 11

At a price of $1.50, the total quantity demanded of a product is 80,000 units and the competitive fringe produces 15,000 units. What is the dominant firm's residual demand at a price of $1.50?

Accepted Answer

The dominant firm's residual demand is calculated by subtracting the quantity supplied by the competitive fringe from the total quantity demanded at a given price. At a price of $1.50, the total quantity demanded is 80,000 units, and the competitive fringe produces 15,000 units. Therefore, the dominant firm's residual demand is 80,000 - 15,000 = 65,000 units.

Question 12

The dominant firm's demand curve is the residual demand curve until it reaches the price at which it intersects the______ .

Accepted Answer

The dominant firm's demand curve is the residual demand curve because it reflects the demand for the dominant firm's output after accounting for the output of its smaller competitors. The residual demand curve intersects with the market demand curve at the point where the dominant firm's output is zero. Therefore, the dominant firm's demand curve is the residual demand curve until it reaches the price at which it intersects the market demand curve.

Question 13

If Best LED controls 87 percent of the LED light bulb market and the remaining 13 percent includes many other, smaller competing firms, Best LED is a ______ _ firm and the remaining firms are______.

Accepted Answer

Best LED, with 87 percent market share, is a dominant firm, while the many smaller firms sharing the remaining 13 percent constitute the competitive fringe.

Question 14

If Happy Avocados controls 91 percent of the market for ready- made guacamole dip and the remaining 9 percent of the market includes many other, smaller competing firms, Happy Avocados is a______ firm.

Accepted Answer

Happy Avocados controls a significant majority of the market share, making them a dominant firm. They do not have complete control over the market, as there are still smaller firms competing with them, but their market share is significant enough to make them a dominant player.

Question 15

To maximize profit, a dominant firm sets ______equal to ______.

Accepted Answer

A dominant firm maximizes profit by setting its residual marginal revenue equal to its marginal cost. This approach allows the firm to determine the most profitable quantity to produce by considering the market demand that remains after accounting for the output of other firms in the market.

Question 16

If at its current production level, a dominant firm's marginal cost is $3 and its residual marginal revenue is $3, which of the following statements is true?

Accepted Answer

At the current production level, the dominant firm's marginal cost is equal to its residual marginal revenue. This suggests that the firm is already producing at its profit-maximizing level of output. Therefore, option B is correct.

Question 17

If at its current production level, a dominant firm's marginal cost is $2 and its residual marginal revenue is $3, which of the following statements is true?

Accepted Answer

Since the marginal revenue is greater than the marginal cost, the dominant firm can increase its profit by producing more. Therefore, it should increase production to maximize profit.

Question 18

The ______and the _______ represent a dominant firm's demand and marginal revenue.

Accepted Answer

The residual demand curve and the residual marginal revenue curve represent a dominant firm's demand and marginal revenue, as they reflect the demand and revenue after accounting for the output of other firms in the market.

Question 19

At a price of $4.00, the total quantity demanded of a product is 95,000 units and the competitive fringe produces 15,000 units. What is the dominant firm's residual demand at a price of $4.00?

Accepted Answer

The dominant firm's residual demand is calculated by subtracting the quantity produced by the competitive fringe from the total quantity demanded at a given price. At a price of $4.00, with a total demand of 95,000 units and the competitive fringe producing 15,000 units, the residual demand for the dominant firm is 95,000 - 15,000 = 80,000 units.

Question 20

At any quantity, the price elasticity of demand is _______ on the residual demand curve than on the market demand curve. This means any change in price will lead to a _______ change in the quantity demanded for the dominant firm compared to the change in quantity demanded in the market.

Accepted Answer

The price elasticity of demand on the residual demand curve is larger because the dominant firm faces the market demand minus the supply of other firms. This makes its demand more sensitive to price changes, leading to a larger change in quantity demanded for the dominant firm compared to the overall market when prices change.

Quiz 6: Monopoly and Monopolistic Competition