Econ Exam 3 😝 - Assignment Essays

question

Name the three kinds of markets

answer

Competitive market
Imperfect competition (monopolistic competition. Oligopoly.)
Monopoly

question

Firm

answer

An entity that produces/sells a good or service. The decisions are centralized.

question

The goal of the firm is

answer

maximize profit

question

Profit is

answer

total revenue minus total cost
TR - TC

question

Three questions every firm must consider

answer

1. What price do you charge?
2. What quantity do you produce?
3. When do you enter/exit the market?

question

Characters of a competitive market

answer

1. Many buyers and many sellers
2. Similar products (homogenous)
3. Firms can freely enter and exit the marker

question

In a competitive market, what price do you charge?

answer

To maximize profit, charge the market price.

question

In a competitive market, what quantity do you produce?

answer

Produce where marginal revenue = marginal cost

question

production function

answer

Represents the process of turning inputs into outputs.

q = f(inputs)

f is the production function
Inputs is labor, capital(machines. Buildings).

question

Marginal Product (MP)

answer

the change in quantity of output due to an increase in one of its inputs.

question

marginal product of labor

answer

MPL = change in quantity(output) / change in labor

question

Two properties of marginal product

answer

1. Typically there is an initial increase
2. There eventually is a decrease. (DMP)

question

The marginal product of labor shows...

answer

Diminishing marginal product

question

Diminishing marginal product

answer

the property whereby the marginal product of an input declines as the quantity of the input increases

question

Two types of production cost

answer

Explicit costs and implicit costs

question

explicit costs

answer

costs that require an outlay of money by the firm

question

implicit costs

answer

Costs that do not require an outlay of money by the firm (opportunity cost)

question

two types of profit

answer

accounting and economic

question

accounting profit

answer

total revenue - explicit costs

question

economic profit

answer

total revenue - (explicit costs + implicit costs)

question

Economic profit can never...

answer

Exceed accounting profit

question

Fixed Cost (FC)

answer

cost that does not vary with output (factory, machines. Salary workers).

question

Variable Cost (VC)

answer

cost that varies as output varies (raw materials. Utilities. Hourly workers.)

question

Total Cost (TC)

answer

total fixed costs plus total variable costs

question

Two questions to consider about costs

answer

1. On average how much does it cost to produce a unit of output? (average)
2. How do costs change if you produce an additional unit of output? (Marginal)

question

Average Fixed Cost (AFC)

answer

fixed cost divided by the quantity of output

question

Average Variable Cost (AVC)

answer

variable cost divided by the quantity of output

question

Average Total Cost (ATC)

answer

total costs divided by quantity of output

question

Marginal Cost (MC)

answer

the change in total costs divided by the change in quantity of output

question

AFC is ... (trend)

answer

Always declining as output increases

question

AVC is... (trend)

answer

Initially decreasing, but eventually increases because of DMP

question

ATC is... (trend)

answer

Influenced by both AFC + AVC
Initially decreases but eventually increases because of DMP

question

MC is... (trend)

answer

Initially decreases but eventually increases because DMP

question

Types of inputs

answer

fixed and variable

question

short run, at least one of your ____ is fixes

answer

inputs

question

fixed costs become what in the long run?

answer

variable costs

question

economics of scale

answer

when long-run average total cost declines as output increases

question

constants returns to scale

answer

When the long run ATC is constant as output increases

question

Disecomonies of scale

answer

When the LR ATC increases as output increases

question

Total Revenue (TR)

answer

Price x Quantity

question

Two questions when considering revenue

answer

1. On average what is the change in revenue received for a typical unit of output? (average)
2. What is the change in revenue if we increase production? (Marginal)

question

Average Revenue (AR)

answer

TR/q

question

heyo

answer

question

Marginal Revenue (MR)

answer

change in TR/change in Q

question

The quantity of output that maximizes profit satisfies the condition

answer

MR = MC

question

Specifically for competitive markets, price...

answer

P = MC (produce at MC)

question

Another profit equation

answer

Profit = (P - ATC) * q

question

Two types of production stops

answer

Shutdown decision (short run. Still pay fixed costs)
Exit decision (long run. All costs are variable)

question

Sunk costs are

answer

costs that have already been incurred and cannot be recovered

question

Shutdown if (short run):

answer

TR/q < VC/q
P<AVC

question

The SR supply curve for the competitive firm is

answer

The MC curve

question

In the long run, exit If

answer

TR < TC
P < ATC

question

In the long run, economic profit...

answer

Will be 0 because firms enter and exit freely.
And price will be equal to the ATC

question

The efficient scale is when

answer

The quantity that minimizes ATC in the long run (where costs are the lowest is the most efficient).

P = MR. ATC intersects it all at q and MC

question

long-run supply curve

answer

Is almost perfectly elastic

question

Three things about monopoly

answer

1. A sole seller of a product with no close substitutes
2. Firm not a price taker they are price setters
3. Marker power

question

Causes of monopoly

answer

Some barrier to entry
1. Monopoly resources
2. Government created monopoly
3. Natural monopoly's

question

monopoly resources

answer

A key resource is owned by a single firm

Rare

question

Government created monopolies

answer

the government gives a single firm the exclusive right to produce some good or services

Incentivize research

question

natural monopolies

answer

a single firm can produce output at a lower cost than can a large number of producers

Economy of scale

question

types of monopolies (price)

answer

Single price monopoly
Price discriminating monopoly

question

single-price monopoly

answer

charges the same price to all customers

question

price-discriminating monopoly

answer

The firm is able to differentiate between buyers and charge different prices.

question

In a single price monopoly, the firm faces...

answer

the entire market demand. It acts as a constraint on the monopoly (and on price).

question

In a single price monopoly, the quantity and price decisions...

answer

are made jointly

question

Marginal revenue in a single price monopoly

answer

- MR is less than price
- MR is decreasing as q increases.
- MR is decreasing faster than price.

question

price effect

answer

the amount of profit that falls when one more quantity is produced and price goes down (because price goes down for everything).

question

output effect

answer

the amount revenue increases when one more unit is sold at a lower price.

question

That quantity that maximizes profit for the monopolist satisfies....

answer

MR = MC

question

profit on the graph...

answer

is above ATC but below the price line.

question

do monopolists sell the efficient amount?

answer

question

Do monopolists make a profit?

answer

Yes, because other firms don't enter the market.

question

Government responses to monopoly

answer

- Anti-trust(monopoly) policy
- price regulation

question

Are monopolies bad?

answer

There is a tradeoff:
economies of scale versus DWL
innovation vs. DWL

question

Rent-seeking is

answer

- trying to gain market power through political power
- using the legal system to create barriers to entry
- bootleggin + baptist arguments

question

What is monopolistic competition?

answer

many companies selling similar but not identical products

question

Characteristics of monopolistic competition

answer

1. Many firms
2. Product differentiation
3. Free entry and exit

question

Who has market power in Monopolstic Competition?

answer

all firms have a little bit of market power

question

the demand curve for monopolistic competition is

answer

downward sloping

question

In monopolistic competition quantity and price decisions are made...

answer

jointly

question

In monopolstic competition, choose a quantity to maximize profit that satisfies...

answer

MR = MC

question

in Mono-comp, MR is and is not...

answer

is (acts likes) the MR from a monopoly
and is not price

question

Monopolistic markup

answer

is the space between MC and price (their profit)

question

In mono- comp, the q is

answer

quantity just for this firms product, not the entire market.

question

In mono-comp, there is DWL from

answer

unrealized gains from trade

question

long run equilibrium in monopolistic competition

answer

Potential firms see the SR profit and enter. Existing firms loose customers. Demand decreases, price declines to ATC, profit goes to 0.

The demand curve shifting downwards until it is tangent to the ATC cost.

P=ATC
profit = 0

question

the efficient scale (LR mono comp)

answer

is where ATC is minimized in the LR

question

Price discrimination

answer

the ability to change different price to different consumers for the same product.

to charge a price that is closer to a buyers WTP.
need market power.

question

2 requirements for price discrimination

answer

1. be able to separate buyers based on WTP
2. prevent arbitrage (buying low + selling high)

question

first degree price discrimination

answer

(perfect price discrimination)
occurs when a firm charges each buyer exactly his or her willingness to pay

it's efficient because no DWL - but consumer surplus is 0

question

Imperfect Price Discrimination

answer

Groups of consumers are charged different prices

question

second degree price discrimination

answer

groups buyers into categories based on characteristics of the purchase.

question

third degree price discrimination

answer

group buyers into categories based on characteristics of the buyer.

question

Specific types of price discrimination include:

answer

Tying
Bundling

question

Tying is

answer

in order to use one good, you must also purchase a second good by the same company

reveals WTP through use of variable good

question

Bundling

answer

purchases must be made together, in a bundle

question

Goals (*)

answer

all: to max profit

question

# of firms (*)

answer

perfect: many
mono-comp: many
mono: one

question

products (*)

answer

perfect: identical
mono-comp: differentiated
mono: unique

question

barriers to entry? (*)

answer

perfect: no
mono-comp: no
mono: yes

question

price takers? (*)

answer

perfect: yes
mono-comp: no
mono: no

question

MR (*)

answer

perfect: MR=P(MR)
mono-comp: MR<P
mono: MR<P

question

LR profit (*)

answer

perfect: no
mono-comp: no
mono: yes (because barriers to entry)

question

Maximization rule? (*)

answer

perfect: MR=MC
mono-comp: MR=Mc
mono: MR=MC

question

markup? (*)

answer

perfect: no
mono-comp: yes
mono: yes

question

SR profit (*)

answer

perfect: yes
mono-comp: yes
mono: yes

question

efficient? (*)

answer

perfect: yes
mono-comp: no
mono: no

question

minimize ATC? (*)

answer

perfect: yes
mono-comp: no
mono: no

1 of 108

question

Name the three kinds of markets

answer

Competitive market
Imperfect competition (monopolistic competition. Oligopoly.)
Monopoly

question

Firm

answer

An entity that produces/sells a good or service. The decisions are centralized.

question

The goal of the firm is

answer

maximize profit

question

Profit is

answer

total revenue minus total cost
TR - TC

question

Three questions every firm must consider

answer

1. What price do you charge?
2. What quantity do you produce?
3. When do you enter/exit the market?

question

Characters of a competitive market

answer

1. Many buyers and many sellers
2. Similar products (homogenous)
3. Firms can freely enter and exit the marker

question

In a competitive market, what price do you charge?

answer

To maximize profit, charge the market price.

question

In a competitive market, what quantity do you produce?

answer

Produce where marginal revenue = marginal cost

question

production function

answer

Represents the process of turning inputs into outputs.

q = f(inputs)

f is the production function
Inputs is labor, capital(machines. Buildings).

question

Marginal Product (MP)

answer

the change in quantity of output due to an increase in one of its inputs.

question

marginal product of labor

answer

MPL = change in quantity(output) / change in labor

question

Two properties of marginal product

answer

1. Typically there is an initial increase
2. There eventually is a decrease. (DMP)

question

The marginal product of labor shows...

answer

Diminishing marginal product

question

Diminishing marginal product

answer

the property whereby the marginal product of an input declines as the quantity of the input increases

question

Two types of production cost

answer

Explicit costs and implicit costs

question

explicit costs

answer

costs that require an outlay of money by the firm

question

implicit costs

answer

Costs that do not require an outlay of money by the firm (opportunity cost)

question

two types of profit

answer

accounting and economic

question

accounting profit

answer

total revenue - explicit costs

question

economic profit

answer

total revenue - (explicit costs + implicit costs)

question

Economic profit can never...

answer

Exceed accounting profit

question

Fixed Cost (FC)

answer

cost that does not vary with output (factory, machines. Salary workers).

question

Variable Cost (VC)

answer

cost that varies as output varies (raw materials. Utilities. Hourly workers.)

question

Total Cost (TC)

answer

total fixed costs plus total variable costs

question

Two questions to consider about costs

answer

1. On average how much does it cost to produce a unit of output? (average)
2. How do costs change if you produce an additional unit of output? (Marginal)

question

Average Fixed Cost (AFC)

answer

fixed cost divided by the quantity of output

question

Average Variable Cost (AVC)

answer

variable cost divided by the quantity of output

question

Average Total Cost (ATC)

answer

total costs divided by quantity of output

question

Marginal Cost (MC)

answer

the change in total costs divided by the change in quantity of output

question

AFC is ... (trend)

answer

Always declining as output increases

question

AVC is... (trend)

answer

Initially decreasing, but eventually increases because of DMP

question

ATC is... (trend)

answer

Influenced by both AFC + AVC
Initially decreases but eventually increases because of DMP

question

MC is... (trend)

answer

Initially decreases but eventually increases because DMP

question

Types of inputs

answer

fixed and variable

question

short run, at least one of your ____ is fixes

answer

inputs

question

fixed costs become what in the long run?

answer

variable costs

question

economics of scale

answer

when long-run average total cost declines as output increases

question

constants returns to scale

answer

When the long run ATC is constant as output increases

question

Disecomonies of scale

answer

When the LR ATC increases as output increases

question

Total Revenue (TR)

answer

Price x Quantity

question

Two questions when considering revenue

answer

1. On average what is the change in revenue received for a typical unit of output? (average)
2. What is the change in revenue if we increase production? (Marginal)

question

Average Revenue (AR)

answer

TR/q

question

heyo

answer

question

Marginal Revenue (MR)

answer

change in TR/change in Q

question

The quantity of output that maximizes profit satisfies the condition

answer

MR = MC

question

Specifically for competitive markets, price...

answer

P = MC (produce at MC)

question

Another profit equation

answer

Profit = (P - ATC) * q

question

Two types of production stops

answer

Shutdown decision (short run. Still pay fixed costs)
Exit decision (long run. All costs are variable)

question

Sunk costs are

answer

costs that have already been incurred and cannot be recovered

question

Shutdown if (short run):

answer

TR/q < VC/q
P<AVC

question

The SR supply curve for the competitive firm is

answer

The MC curve

question

In the long run, exit If

answer

TR < TC
P < ATC

question

In the long run, economic profit...

answer

Will be 0 because firms enter and exit freely.
And price will be equal to the ATC

question

The efficient scale is when

answer

The quantity that minimizes ATC in the long run (where costs are the lowest is the most efficient).

P = MR. ATC intersects it all at q and MC

question

long-run supply curve

answer

Is almost perfectly elastic

question

Three things about monopoly

answer

1. A sole seller of a product with no close substitutes
2. Firm not a price taker they are price setters
3. Marker power

question

Causes of monopoly

answer

Some barrier to entry
1. Monopoly resources
2. Government created monopoly
3. Natural monopoly's

question

monopoly resources

answer

A key resource is owned by a single firm

Rare

question

Government created monopolies

answer

the government gives a single firm the exclusive right to produce some good or services

Incentivize research

question

natural monopolies

answer

a single firm can produce output at a lower cost than can a large number of producers

Economy of scale

question

types of monopolies (price)

answer

Single price monopoly
Price discriminating monopoly

question

single-price monopoly

answer

charges the same price to all customers

question

price-discriminating monopoly

answer

The firm is able to differentiate between buyers and charge different prices.

question

In a single price monopoly, the firm faces...

answer

the entire market demand. It acts as a constraint on the monopoly (and on price).

question

In a single price monopoly, the quantity and price decisions...

answer

are made jointly

question

Marginal revenue in a single price monopoly

answer

- MR is less than price
- MR is decreasing as q increases.
- MR is decreasing faster than price.

question

price effect

answer

the amount of profit that falls when one more quantity is produced and price goes down (because price goes down for everything).

question

output effect

answer

the amount revenue increases when one more unit is sold at a lower price.

question

That quantity that maximizes profit for the monopolist satisfies....

answer

MR = MC

question

profit on the graph...

answer

is above ATC but below the price line.

question

do monopolists sell the efficient amount?

answer

question

Do monopolists make a profit?

answer

Yes, because other firms don't enter the market.

question

Government responses to monopoly

answer

- Anti-trust(monopoly) policy
- price regulation

question

Are monopolies bad?

answer

There is a tradeoff:
economies of scale versus DWL
innovation vs. DWL

question

Rent-seeking is

answer

- trying to gain market power through political power
- using the legal system to create barriers to entry
- bootleggin + baptist arguments

question

What is monopolistic competition?

answer

many companies selling similar but not identical products

question

Characteristics of monopolistic competition

answer

1. Many firms
2. Product differentiation
3. Free entry and exit

question

Who has market power in Monopolstic Competition?

answer

all firms have a little bit of market power

question

the demand curve for monopolistic competition is

answer

downward sloping

question

In monopolistic competition quantity and price decisions are made...

answer

jointly

question

In monopolstic competition, choose a quantity to maximize profit that satisfies...

answer

MR = MC

question

in Mono-comp, MR is and is not...

answer

is (acts likes) the MR from a monopoly
and is not price

question

Monopolistic markup

answer

is the space between MC and price (their profit)

question

In mono- comp, the q is

answer

quantity just for this firms product, not the entire market.

question

In mono-comp, there is DWL from

answer

unrealized gains from trade

question

long run equilibrium in monopolistic competition

answer

question

the efficient scale (LR mono comp)

answer

is where ATC is minimized in the LR

question

Price discrimination

answer

the ability to change different price to different consumers for the same product.

to charge a price that is closer to a buyers WTP.
need market power.

question

2 requirements for price discrimination

answer

1. be able to separate buyers based on WTP
2. prevent arbitrage (buying low + selling high)

question

first degree price discrimination

answer

(perfect price discrimination)
occurs when a firm charges each buyer exactly his or her willingness to pay

it's efficient because no DWL - but consumer surplus is 0

question

Imperfect Price Discrimination

answer

Groups of consumers are charged different prices

question

second degree price discrimination

answer

groups buyers into categories based on characteristics of the purchase.

question

third degree price discrimination

answer

group buyers into categories based on characteristics of the buyer.

question

Specific types of price discrimination include:

answer

Tying
Bundling

question

Tying is

answer

in order to use one good, you must also purchase a second good by the same company

reveals WTP through use of variable good

question

Bundling

answer

purchases must be made together, in a bundle

question

Goals (*)

answer

all: to max profit

question

# of firms (*)

answer

perfect: many
mono-comp: many
mono: one

question

products (*)

answer

perfect: identical
mono-comp: differentiated
mono: unique

question

barriers to entry? (*)

answer

perfect: no
mono-comp: no
mono: yes

question

price takers? (*)

answer

perfect: yes
mono-comp: no
mono: no

question

MR (*)

answer

perfect: MR=P(MR)
mono-comp: MR<P
mono: MR<P

question

LR profit (*)

answer

perfect: no
mono-comp: no
mono: yes (because barriers to entry)

question

Maximization rule? (*)

answer

perfect: MR=MC
mono-comp: MR=Mc
mono: MR=MC

question

markup? (*)

answer

perfect: no
mono-comp: yes
mono: yes

question

SR profit (*)

answer

perfect: yes
mono-comp: yes
mono: yes

question

efficient? (*)

answer

perfect: yes
mono-comp: no
mono: no

question

minimize ATC? (*)

answer

perfect: yes
mono-comp: no
mono: no

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order