Chapter 7 - Assignment Essays

question

Monopolistically competitive firms

answer

*not productively efficient in the long run
*produce where MR=MC
*charge consumers on demand curve on MR=MC output
*different from other companies in industry
*demand curve is downwards sloping
*some control over price
*easy market entry and exit
*close substitutes
*the closer the substitutes the more elastic the demand curve
*consumers are responsive to price changes

question

Long-run equilibrium

answer

*firm realizes normal profits
*removes incentives for firms to enter or exit market

question

Oligopoly barriers

answer

*pricing strategy
*patents
*significant cost of capital
*economies of scale that may allow only a small number of firms to operate in a market
*control of the resources needed to produce output

question

Oligopolistic firms rely on decisions of other firms, deeming oligopoly firms

answer

mutually interdependent

question

Oligopoly

answer

*producers who behave strategically when making decisions related to the features, prices and advertising of their products
*a few large producers, producers are price makers
*extensive entry barriers
*either standardized or differentiated products

question

Nash equilibrium

answer

an outcome in which, unless the players can collude, neither player has an incentive to change strategy

question

Collusion

answer

situation in which individuals, firms, or any group of actors coordinate their actions to achieve a desired outcome

question

Prisoner's dilemma

answer

each player will peruse a dominant strategy and, as a result, be worse off than if they had not

question

Dominant Strategy

answer

situation in which a particular strategy yields the highest payoff, regardless of the other player's strategy

question

Profit

answer

*price
*quantity of output
*average total cost

question

Economic profit creates

answer

incentives for firms to enter a market

question

Perfect competition

answer

*easy entry and exit
*producers are price takers (no control over prices)
*standardized product
*large number of buyers and sellers

question

Mutual interdependence

answer

*situation in which the strategy followed by one producer will likely affect the profits behavior of another producer.
*studied using game theory

question

Game Theory

answer

used to study and analyze oligopoly strategies

question

Productive efficiency

answer

produce output at lowest possible total cost per unit of production

question

Allocative efficiency

answer

producing goods and services that consumers most want where MB=MC

question

Product differentiation

answer

strategy of distinguishing one firm's product from the competing products of other firms

question

Graph:
normal profit

answer

when MR=MC at the minimum ATC on the demand curve

question

Graph:
economic profit

answer

when MR is above minimum ATC on the demand curve

question

Graph:
loss

answer

when MR is below minimum ATC on demand curve

question

Graph: profit per unit

answer

MR=MC on demand - ATC

question

Profit per unit

answer

(Price-ATC). ATC=AFC+AVC; AFC=TFC/Q

question

Total Profit

answer

(Price-ATC) x Q.
ATC=AFC+AVC;
AFC=TFC/Q

question

Economic profit

answer

TR minus explicit and implicit cost of production

1 of 24

question

Monopolistically competitive firms

answer

question

Long-run equilibrium

answer

*firm realizes normal profits
*removes incentives for firms to enter or exit market

question

Oligopoly barriers

answer

*pricing strategy
*patents
*significant cost of capital
*economies of scale that may allow only a small number of firms to operate in a market
*control of the resources needed to produce output

question

Oligopolistic firms rely on decisions of other firms, deeming oligopoly firms

answer

mutually interdependent

question

Oligopoly

answer

question

Nash equilibrium

answer

an outcome in which, unless the players can collude, neither player has an incentive to change strategy

question

Collusion

answer

situation in which individuals, firms, or any group of actors coordinate their actions to achieve a desired outcome

question

Prisoner's dilemma

answer

each player will peruse a dominant strategy and, as a result, be worse off than if they had not

question

Dominant Strategy

answer

situation in which a particular strategy yields the highest payoff, regardless of the other player's strategy

question

Profit

answer

*price
*quantity of output
*average total cost

question

Economic profit creates

answer

incentives for firms to enter a market

question

Perfect competition

answer

*easy entry and exit
*producers are price takers (no control over prices)
*standardized product
*large number of buyers and sellers

question

Mutual interdependence

answer

*situation in which the strategy followed by one producer will likely affect the profits behavior of another producer.
*studied using game theory

question

Game Theory

answer

used to study and analyze oligopoly strategies

question

Productive efficiency

answer

produce output at lowest possible total cost per unit of production

question

Allocative efficiency

answer

producing goods and services that consumers most want where MB=MC

question

Product differentiation

answer

strategy of distinguishing one firm's product from the competing products of other firms

question

Graph:
normal profit

answer

when MR=MC at the minimum ATC on the demand curve

question

Graph:
economic profit

answer

when MR is above minimum ATC on the demand curve

question

Graph:
loss

answer

when MR is below minimum ATC on demand curve

question

Graph: profit per unit

answer

MR=MC on demand - ATC

question

Profit per unit

answer

(Price-ATC). ATC=AFC+AVC; AFC=TFC/Q

question

Total Profit

answer

(Price-ATC) x Q.
ATC=AFC+AVC;
AFC=TFC/Q

question

Economic profit

answer

TR minus explicit and implicit cost of production

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