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Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Sylvia Sidney. The lease has five years remaining and requires a monthly payment of $4,000. The lease
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is a fixed cost of operating the tattoo parlor.
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Marginal revenue is
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the change in total revenue divided by the change in the quantity of output
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Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run. Which of the following is one reason fun this?
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Firms in these industries sell identical products.
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To maximize profit, a perfectly competitive firm
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should produce the quantity of out put that results in the greatest difference between total revenue and total cost.
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letters are used to represent the terms used to answer this question: price(P), quantity of output(Q), Total cost(TC) and average total cost(ATC). WHich of the following equations is equal to a firm's profit?
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(P*Q)-TC
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Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?
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Allocative efficiency is achieved in the short run and long run. Productive efficiency is achieved only in the long run.
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If a typical firm in a perfectly competitive industry is earning profits, then
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new firms will enter in the long run causing market supply to increase, market price to fall and profits to decrease.
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A constant-cost industry is an industry in which
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average costs remain constant as the industry expands output
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Which of the following arguments could be made as evidence that the market is perfectly competitive?
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As more farmers began selling their products at farmers markets, the increase in supply has driven down prices to the point where they just cover the cost of production.
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A monopolisticlly competitive firm that earns an accounting profit in the short run
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could earn an economic profit, break even, or suffer an economic loss in the short run.
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Which of the following characteristics is common to monopolistic competition and perfect competition?
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Entry barriers into the industry are low.
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Your restaurant is doing brisk and you attribute it locally grown produce. What is likely to happen to your business in the long run?
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Your success will invite others to open competing restaurants and ultimately your profits will be driven to zero.
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To maximize their profits and defend those profits from competitors, monopolistically competitive firms must
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differentiate their products
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Which of the following is the best example of a firm that is that competes in a monopolistically competitive market?
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a movie theater
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because the monopolistically competitive firm faces a ____________ demand curve for its products, it ________ the price of its output.
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Downward-sloping, can influence
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Which of the following is true for a firm with a downwards sloping demand curve for its product?
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Price equals average revenue but is greater than marginal revenue.
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Which of the following describe a difference between the marginal revenue and demand curves of a perfectly competitive firm and and a monopalistically competitive firm?
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The perfectly competitive firms marginal revenue and demand curves are the same; the marginal revenue revenue curve of a monopolistically competitive firm lies below its demand curve.
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In long run equilibrium, compared to a perfectly competitive market, a monopalisticaly competitive industry produces a _________ level of output and charges a ________ price.
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lower;higher
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which of the following is important in determining the extent of competition in an industry?
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the minimum efficient scale of production relative to market demand
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the value of the four-firm concentration ratio that many economists consider indicative of the existence of an oligopoly in a particular industry is
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anything greater than 40%
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All of the following are ways that existing firms can deter the entry of new firms into an industry except
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threatening to raise prices
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in a decision tree, the difference between a decision node and a terminal node is that
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at a decision node, a decision must be made while a terminal node shows the payoff
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the justification for occupational licensing laws is that they protect the public from incompetent practitioners, but the laws also result in
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higher prices and restrictions on the number of people who can enter the professions affected by the laws
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All of the following are characteristics of game theory
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strategies that players employ to attain their objectives, rules that determine what actions are allowable, and payoffs that are the result of the interaction among players strategies
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a consequence of the quota that has been imposed on the importation of sugar into the US is
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competition in the US sugar market is reduced
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A four-firm concentration ratio measures
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the extent to which industry sales are concentrated among the four largest firms in the industry
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One reason why, in the last four decades, the number of new auto makers in the world has been very small compared to the past is that
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new producers cant match the economies of scale of existing auto makers.
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in an oligopoly market
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ones firms pricing decision affects all the other firms.
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Because of the shortcoming of concentration ratios, some economists prefer another measure of competition called
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the herfindahl-hirschman index
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Few firms in the united states are monopolies because
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when firms earn profits, other firms will enter its market.
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Which characteristics are shared by oligopolist and monopolist
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a market structure with barriers to entry and firms can reap long run profits
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Unlike other firms, a monopolist's demand curve
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is the same as the market demand curve
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The google search engine has a market share of ______ in the US and ____ in europe.
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70% ; 90%
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A characteristic that is shared by perfectly competitive firms and a monopoly.
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Each maximize profit by producing a quantity for which marginal revenue equals marginal cost
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firms that face a downward-sloping demand curves for their output in the product market are called
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price makers
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In the US, government policies with respect to monopolies and collusion are embodied in
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antitrust laws
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in a natural monopoly, throughout the range of market demand
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marginal cost is below average total cost and pulls average total cost downwards
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Which of the following about a monopoly is false?
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A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly.
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The ability of a firm to charge a price greater than marginal cost is called
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Market power
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If a firms average total cost is less than price where MR=MC,
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the firm should continue to produce the output it is producing.
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According to the department of justice merger guidelines, a proposed merger between two firms may be challenges if the post-merger herfindahl-hirschman index
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lies between 1000 and 1800 and the merger raises the index by more than 100 points
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perfect competition
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Many firms compete with identical products, low barriers to entry, and the only way to compete is on price;
Perfectly elastic demand curves for each firm;
A firm will continue to expand production until marginal revenue equals marginal cost, which maximizes profit or where MR = MC;
Economic loss occurs when marginal revenue is less than marginal cost;
Firm can't make economic profit in long-run;
Long-run equilibrium output is where marginal revenue equals marginal cost equals average total cost ;
An increase/decrease in market demand will increase/decrease both equilibrium price and quantity;
Short-run supply curve is the marginal cost curve above the average variable cost
Perfectly elastic demand curves for each firm;
A firm will continue to expand production until marginal revenue equals marginal cost, which maximizes profit or where MR = MC;
Economic loss occurs when marginal revenue is less than marginal cost;
Firm can't make economic profit in long-run;
Long-run equilibrium output is where marginal revenue equals marginal cost equals average total cost ;
An increase/decrease in market demand will increase/decrease both equilibrium price and quantity;
Short-run supply curve is the marginal cost curve above the average variable cost
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price taker
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a buyer or seller that is unable to affect the market price
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The demand curve for a perfectly competitive firm is
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horizontal line
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In perfectly competitive market price is determined by the intersection of
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market supply and market demand
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In perfectly competitive market price=
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average revenue=marginal revenue
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Profit is maximized when
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MR = MC
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n perfectly competitive markets you keep on producing as long as
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MR>MC
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Profit is maximized where vertical distance between TR and TC
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is the greatest
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profit per unit
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price minus average total cost
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Total Profit
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(P-ATC) x Q
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loss minimization
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MR=MC
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P>ATC
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making a profit
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P=ATC
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firm breaks even
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P<ATC
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making a loss
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sunk cost
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a cost that has already been paid and cannot be recovered
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long-run competitive equilibrium
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the situation in which the entry and exit of firms has resulted in the typical firm breaking even
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constant cost industry
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an industry in which expansion by the entry of new firms has no effect on the prices firms in the industry must pay for resources and thus no effect on production costs
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increasing cost industry
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an industry that faces higher per-unit production costs as industry output expands in the long run; the long run industry supply curve slopes upward
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decreasing cost industry
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An industry in which expansion through the entry of firms lowers the prices that firms in the industry must pay for resources and therefore decreases their production costs.
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productive efficiency
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a situation in which a good or service is produced at the lowest possible cost
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allocative efficiency
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A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it
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monopolistic competition
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a market structure in which many companies sell products that are similar but not identical and are no barriers to entry
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Monopolisticly competitive firms face
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a downward sloping demand curve
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key to earn economic profit
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create a differentiating product
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Marketing
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the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large
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brand management
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the actions of a firm intended to maintain the differentiation of a product over time
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Oligopoly
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a state of limited competition, in which a market is shared by a small number of producers or sellers and high barriers to entry
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oligopolistic competition
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market consists of only a few large sellers selling similar product
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Advertising
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used by oligopoly and monopolist competitive markets
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game theory
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Evaluates alternate strategies when outcome depends not only on each individual's strategy but also that of others.
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non-price competition
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a way to attract customers through style, service, or location, but not a lower price
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collusion
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secret agreement or cooperation
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price leadership
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a form of implicit collusion in which one firm in an oligopoly announces a price change and the other firms in the industry match the change
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pure monopoly
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A market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which nonprice competition may or may not be found.
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Crony Capitalism
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A system in which close friends of a political leader are either legally or illegally given business advantages in return for their political support.
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market share
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a company's product sales as a percentage of total sales for that industry
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A barrier to entry is:
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An obstacle that makes it difficult for new firms to enter a market.
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antitrust laws
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laws aimed at eliminating collusion and promoting competition among firms
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Sherman Antitrust Act
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First federal action against monopolies, it was signed into law by Harrison and was extensively used by Theodore Roosevelt for trust-busting. However, it was initially misused against labor unions
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Horizontal Integration
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Absorption into a single firm of several firms involved in the same level of production and sharing resources at that level
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Vertical Integration
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Practice where a single entity controls the entire process of a product, from the raw materials to distribution
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Deregulation
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The lifting of government restrictions on business, industry, and professional activities.
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price discrimination
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the business practice of selling the same good at different prices to different customers
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