question
Total Product =>
answer
total output
question
Marginal product
answer
change in total product as the use of one input is changed incrementally.
question
Increase marginal returns
answer
a firm incrementally increases its use of one input and the addition of output increases
question
diminishing marginal returns
answer
a firm incrementally increases the use of one input and the addition of out put decreases (total output increases)
question
negative marginal returns
answer
a firm incrementally increases the use of one input and the addition of output is negative (total output decreases)
question
what is the optimal input rule
answer
as long as the added input adds benefit continue to use it
question
when to continue to use an input?
answer
when VMPL is greater than or equal to numbers of wage and when VMPk is greater than or equal to rates of returns
question
increasing marginal returns describes where a firm increases its use of one input incrementally and the addition to output increases buy more than double. True or false? why
answer
False, increasing return to scale not marginal return to scale.
question
if the long-run average total cost curve slopes upward over some range of output, then the firm is experiencing economies of scale for that range of output. True or false?
answer
False, the curve must slope downward
question
Based on LRATC when will an business experience economies of scale (increasing return to scale)
answer
int eh short run, beginning downward slope. producing double output
question
Based on LRATC when will business experience constant return to scales
answer
when it begins t reach peak efficiency. The bottom of the graph. produces same output as input
question
based on LRATC when will a business experience diseconomies of scale
answer
scale up production, costs rise upward, upward slope. producing single output
question
function assumes some degree of sustainability between inputs, not perfect substitutability.
answer
cobb-douglass production function
question
a cobb-douglass production function will produce at the optimal input of K and L when the slopes of the isocost and isoquant equal each other. True or False?
answer
True
question
a cobb-douglass production function will produce at the optimal output of K and L when the slopes of the isocost and isoquant equal each other. True or False?
answer
false, input not output
question
defines the combinations of inputs that yield the same level of output
answer
isoquant
question
AFC is what separates the AVC and ATC, and thus both increase and get really close but never touch. True or False
answer
True, never touch
question
Does ATC decrease or increase from short run to long run?
answer
decrease
question
one firm is able to produce two or more outputs at a lower ATC than if they were produced but multiple firms
answer
economies of scope
question
perfectly competitive market
answer
A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.
question
perfectly competitive market structure and monopolistic competition structures tend to have numerous firms in the industry and thus both experience 0 economic profit in the long run, the two differ in the fact that the demand curve for a P.C firm is downward sloping while the demand curve for a M.C industry is sloping downward.
answer
false, monopolistic market has a downward slope.
question
A perfect competition market has a __________ demand line
answer
horizontal
question
monopolistic competition
answer
many firms and and consumers in perfect competition. concentration measure are close to zero. rothschild indexes are greater than zero
question
oligopolistic competition
answer
occurs when only a few firms dominate a market
question
Examples of oligopolistic industries
answer
airlines, automobiles, aerospace
question
Examples of oligopolistic industries
answer
manage restaurants with multiple locations
question
Monopolies, oligopolies sell products that are heterogenous and the price is greater than the marginal revenue. True or false
answer
false, only oligopolies sell heterogenous products.
question
requirements of spot exchange:
answer
1. anonymous
2. no formal or legal relationship between buyer and seller
2. no formal or legal relationship between buyer and seller
question
advantages/disadvantages of spot exchange:
answer
good: fast, easy, good with standardized products
bad:not good with specialized products, supplier under investment bc purchases can easily change.
bad:not good with specialized products, supplier under investment bc purchases can easily change.
question
requirements of a contract:
answer
1. legal agreement
2. agreed upon terms
2. agreed upon terms
question
advantages/disadvantages of a contract:
answer
good: reduces uncertainty, avoid underinvestment, legal back up, good with specialized products, avoid hostage/holdup problems
bad: time consuming, expensive, impossible to anticipate all situations
bad: time consuming, expensive, impossible to anticipate all situations
question
Vertical Integration
answer
a firm decides to produce an input internally.
question
advantages/disadvantages of vertical integration:
answer
good: specialized investment, attractive when contracts are to expensive, less disputes
bad: outside of expertise, supplier is not disciplined, expensive
bad: outside of expertise, supplier is not disciplined, expensive
question
if a firm uses standardized inputs that are variable from various sources, this make it more likely for the purchasing firm to use spot exchange to obtain the input. True or False?
answer
true
question
The average fixed cost is U-shaped. True or false
answer
false, its L shaped
question
the average fixed cost is L-shaped. True or false
answer
True
question
What is the shape of a fixed cost curve?
answer
horizontal line
question
What is the problem with the principle-agent problem?
answer
Principle is trying to maximize profit, while agent is trying to maximize salary
question
one of the better way to deal with the principle-agent problem is to pay the employees a fixed salary. True or False
answer
False, fixed salary plus profit sharing
question
What happens if employees are strictly paid a fixed salary?
answer
sherking, goofing off
question
what happens when employees are strictly paid off profit sharings?
answer
the employee is not motivated
question
How do you get employees to do what owner/manager wants them to do?
answer
incentives
commission
ownership
profit-sharing
advancement/promotion
commission
ownership
profit-sharing
advancement/promotion
question
What creates trust issues between employee and employers?
answer
micromanagement
question
What are examples of micromanagement (6)
answer
camera
time clock
computer monitoring
customer feedback
output check
secret shopper
time clock
computer monitoring
customer feedback
output check
secret shopper
question
merger of two or more firms producing different parts for the same good
answer
vertical integration
question
two or more firms merge that produce different outputs
answer
conglomerate
question
Who closely monitors merger activity, especially horizontal merging activities?
answer
federal trade commission
question
HHI less than 1,500
answer
unconcentrated market
question
HHI is 1,500-2,500
answer
moderately concentrated market
question
If a merger is produced, and HHI will change less than 100, then
answer
no action is taken by DOJ
question
what increase in HHI causes a automatic investigation?
answer
change in 200 r more points
question
Suppose the HHI is moderately concentrated and and a horizontal merger is being considered. Specifically, the merger will cause the HHI to increase by 390. Will the DOJ approve of this merger as is? Under what exception would the DOJ most likely approve the merger?
answer
A. Yes. One of the firms is close to going bankrupt
B. No. It might be that the merge makes it cheaper for a firm to produce the output at a lower cost.
C. Yes. The merge will cause economies of scale
D. No. the merge will cause one fo the firms to enjoy higher profits
B. No. It might be that the merge makes it cheaper for a firm to produce the output at a lower cost.
C. Yes. The merge will cause economies of scale
D. No. the merge will cause one fo the firms to enjoy higher profits
question
The closer the four firm ratio is to ______, the less concentrated and the closer it is to one the _____ concentrated.
answer
zero; one
question
AVC= ?
answer
variable cost/quantity
question
Given TC= 100+6Q-3Q^2+.1Q^3, does the AVC=VC
answer
no
question
marginal cost=
answer
change in total cost / change in quantity
question
where does average cost intersect marginal cost?
answer
at minimal
question
marginal product of labor=
answer
change in quantity/change in labor
question
If MPL/W > MPK/R
answer
use more labor
question
if MPL/W < MPK/R
answer
use more capital
question
if MPL/W = MPK/R
answer
use either labor or capital
question
provides a measure of the sensitivity to price of the product group as a whole relative to the sensitivity of the quantity demand of a single firm to change its price
answer
rothschild
question
when the rothschild is closer to one?
answer
the firms demand curve has the same sensitivity to price as market demand curve.
question
when and industry is composed of many firms , each producing similar products, the rothschild index will be close to one? true or false
answer
false, it will be closer to zero
question
In a given industry the C4=.90, HHI=5,550, R=0.1, L=.94. Based on these given numbers what types of market structure is this? What can be said of the power it has over price, and what can be said about the Rothschild index?
answer
Oligopoly; power over price is strong; rothschild will vary
question
Describe the values of the lerner index
answer
closer to zero= consumer pays price firm pays to produce
closer to one= firm mark up price
closer to one= firm mark up price
question
the slope of a total variable cost is marginal cost? True or false
answer
true
question
c4=close to zero
HHI= close to zero
R=close to zero
L=0
HHI= close to zero
R=close to zero
L=0
answer
perfect competition
ex: small cotton farms
ex: small cotton farms
question
c4= close to zero
HHI= close to zero
R= small
L=small
HHI= close to zero
R= small
L=small
answer
monopolistic competition
ex: baker, fast food
ex: baker, fast food
question
c4= large value could be 1
HHI- large
R=varies
L=large and approaches 1
HHI- large
R=varies
L=large and approaches 1
answer
oligopoly
ex: oil companies automobile manufacturer
ex: oil companies automobile manufacturer
question
c4=1
HHI=10,000
R=1
L=1
HHI=10,000
R=1
L=1
answer
monopoly
question
Where does the MC curve intersect the AVC and ATC curves?
answer
at their minimum
question
Lerner Index=
answer
(price-marginal cost)/price
question
If a firm sells its output at price of $25 and the marginal cost=$19, calculate the Lerner Index. In addition, the firm's price elasticity of demand is -9 and the price elasticity of demand for overall market is -2. Calculate the Rothschild index. Based on the Lerner Index and Rothschild, what type of market structure does this most likely represent?
answer
Lerner Index=0.24
Rothschild= 0.22
monopolistic competition
Rothschild= 0.22
monopolistic competition
question
Rothschild=
answer
Price of elasticity of market/Price elasticity of firm
question
Five firms from an industry and have the following sales of $4.5, $9, $13, $3.7, $13 million. Calculate the HHI
answer
2,427 moderately concentrated
question
MC=MR=
answer
P(1+1/Ed)
question
assume a monopoly has marginal costs of $10,000 and price elasticity of demand= -2, find the profit maximizing price.
answer
$20,000
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