question
what is the relationship between the quantity of inputs a firm uses and the quantity of output it produces
answer
production function
question
what is an input whose quantity is fixed for a period of time and cannot be varied
answer
fixed input
question
what is an input whose quantity the firm can vary at any time
answer
variable input
question
what is the time period where all inputs can be varied
answer
long run
question
what is the time period in which at least one input is fixed
answer
short run
question
what shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input
answer
total product curve
question
what is the additional quantity of output that is produced by using one more unit of that input
answer
marginal product
question
what is the formula for marginal product of labor?
answer
change in quantity of output/change in quantity of labor
question
why does france have a much higher wheat yield compared to the united states?
answer
they receive price support from government in price floors
question
what is it called when an increase in the quantity of that input leads to a decline in the marginal product of that input
answer
diminishing returns to an input
question
what is a unit?
answer
doesn't matter as long as you're consistent
question
what is the type of cost that does not depend on the quantity of output produced ("If I produced nothing, what would it cost me?")
answer
fixed cost
question
what is the type of cost that depends on the quantity of output produced?
answer
variable cost
question
what is the formula for total cost?
answer
fixed cost + variable cost
question
the total cost curve becomes _______ as more output is produced
answer
steeper
question
why does the total cost curve become steeper as more output is produced?
answer
diminishing returns
question
what is the formula for marginal cost?
answer
change in total cost/change in quantity of output
question
what is the formula for average cost?
answer
total cost/quantity of output
question
what two effects result from average total cost?
answer
spreading effect and diminishing returns effect
question
what does the spreading effect do to the average cost?
answer
pushes it down
question
what does the diminishing returns effect do to the average cost?
answer
pushes it up
question
during the spreading effect, the larger the output, the greater the quantity of output,
answer
the more the fixed cost is spread out
question
during the diminishing returns effect, the larger the output, the greater
answer
the amount of variable input required to produce additional units
question
which way does average variable cost slope?
answer
upward
question
is average variable cost flatter or steeper than the marginal cost curve?
answer
flatter
question
average fixed cost is always ______ sloping because of the spreading effect
answer
downward
question
increasing returns to scale are also known as
answer
economies of scale
question
decreasing returns to scale are also known as
answer
diseconomies of scale
question
when long run average total cost declines as output increases, it is called
answer
increasing returns to scale
question
when long run average total cost increases as output increases, it is called
answer
decreasing returns to scale
question
what is a producer whose actions have no effect on the market price of the good it sells
answer
price-taking producer
question
what is a consumer whose actions have no effect on the market price of the good he or she buys
answer
price-taking consumer
question
what is a market in which all market participants are price takers (don't have control over price)
answer
perfectly competitive market
question
what is an industry in which producers are price-takers
answer
perfectly competitive industry
question
what are the three necessary conditions for perfect competition
answer
many producers (none of whom have a large market share), consumers regard the products of all producers as equivalent, free entry and exit
question
what is a standardized product?
answer
products that are the same in the eyes of consumers
question
what is marginal revenue
answer
how revenue changes when you sell more stuff
question
what is the formula for marginal revenue
answer
change in total revenue/change in output
question
what is it called that profit is maximized by producing the quantity of output at which the marginal cost of the last unit produced is equal to its marginal revenue
answer
optimal output rule
question
if TR>TC, the firm ______
answer
is profitable
question
if TR=TC, the firm ______
answer
breaks even
question
if TR<TC, the firm ______
answer
incurs a loss
question
in a perfectly competitive industry in a equilibrium, the value of marginal cost is
answer
the same for all firms
question
in a perfectly competitive industry with free entry and exit, each firm will have what kind of profits in the long run?
answer
zero economic profits
question
if the market price is below minimum average total cost for an extended period, firms will ____ the industry in the long run
answer
exit
question
if the market price is above minimum average total cost for an extended period, firms will _____ the industry in the long run
answer
enter
question
what are the 4 types of market structure
answer
perfect competition, monopoly, oligopoly, monopolistic competition
question
an industry controlled by a monopolist is known as a
answer
monopoly
question
a firm that is the only producer of a good that has no close subs is a
answer
monopolist
question
the ability of a monopolist to raise its price above the competitive level by reducing output is known as
answer
market power
question
marginal revenue must be _____ demand curve in a monopoly
answer
below
question
because a monopolist has market power, they will
answer
charge higher prices and produce less output
question
what generates profit for the monopolist in the short run and long run
answer
market power
question
profits of a monopoly will not persist in the long run unless there is
answer
a barrier to entry
question
what kind of monopoly exists when increasing returns to scale provide a large cost advantage to a single firm (aka society is "better off" with one supplier)
answer
natural monopoly
question
when does a natural monopoly arise
answer
when a single firm is able to serve the entire market demand at a lower cost than any combination of two or more smaller firms
question
what is price discrimination
answer
monopolists charging different customers different prices for the same good
question
perfect price discrimination =
answer
first degree price discrimination
question
second degree price discrimination =
answer
segmented groups
question
third degree price discrimination =
answer
segmenting customers by time or location
question
what type of competition is an oligopoly?
answer
imperfect competition
question
according to HHI 1000 producers >
answer
very competitive
question
according to HHI 1800 producers >
answer
oligopoly
question
an oligopoly consisting of only two firms is called
answer
duopoly
question
what is it called when sellers cooperate to raise each others profits
answer
collusion
question
the strongest form of collusion is a
answer
cartel
question
what is the cournot model is when
answer
firms are restricted in how much they can produce and "divvy up" the market
question
the study of behavior in situations of interdependence is known as
answer
game theory
question
in a perfectly competitive industry in equilibrium, the value of marginal cost is
answer
the same for all firms
question
in a perfectly competitive industry, what are the economic profits in the long run?
answer
zero
question
what are antitrust policies
answer
efforts undertaken by the government to prevent industries from becoming or behaving like monopolies
question
what are two ways natural monopolies can be dealt with?
answer
public ownership, price regulation
question
what is a monopolist who charges all consumers the same price
answer
single price monopolist
question
what is a dominant strategy
answer
it is a players best action regardless of the action taken by the other player
question
what is another name for non-cooperative equilibrium
answer
nash equilibrium
question
what is the result when each player in a game chooses the action that maximizes his or her payoff given the actions of other players,
answer
noncooperative equilibrium
question
what is playing cooperatively at first, then doing whatever the other player did in the previous period
answer
tit for tat
question
when firms limit production and raise prices in a way that raises each others' profits, even though they have not made a formal agreement
answer
tacit collusion
question
when tacit collusion breaks down, there is a
answer
price war
question
what is an oligopolist trying to avoid in a kinked demand curve
answer
breakdown
question
what are the three qualities of a monopolistic competitve market
answer
many competing producers, each producer sells differentiated products, free entry and exit
question
firms in perfect competition are price setters or price takers
answer
price takers
question
what are the three types of product differentiation
answer
style or type, location, quality
question
firms in _______ do not have excess capacity
answer
monopolistic competition
question
which economic set up has the least amount of deadweight loss
answer
perfect competition
question
why do monopolies exist?
answer
control of a scarce resource, increasing returns to scale, technological superiority, network externality, government-created barrier
question
when the value of a good or service to an individual is greater when many other people use the good or service as well
answer
network externality
question
when a network externality does exist which firm benefits the most?
answer
it has the largest network of customers
question
one more unit is sold, increasing total revenue by the price at which the unit is sold
answer
quantity effect
question
in order to sell the last unit, the monopolist must cut the price on all units sold, decreasing total revenue
answer
price effect
question
zoe's bakery operates in a perfectly competitive industry. the variable costs increase and all of the cost curves shift leftward. the demand for zoe's pastries does not change. to maximize profits after the variable cost increase, zoe's bakery will ____ its price and ____ its level production
answer
do nothing to, decrease
question
at minimum-cost output, average total cost is equal to
answer
marginal cost
question
at output less than the minimum cost output, marginal cost is _______ average total cost and average total cost is _______
answer
less than, falling
question
at output greater than the minimum cost output, marginal cost is ________ average total cost and average total cost is _______
answer
greater than, rising
question
what is the most important source of oligopoly
answer
economies of scale
question
what is the largest HHI possible and what kind of industry is it
answer
10,000; monopoly
question
perfectly competitive firms will increase output up to the point that the marginal benefit of an additional unit of out is
answer
equal to the marginal cost
question
a monopolist responds to an increase in demand by _____ price and ______ output
answer
increasing, increasing
question
are monopolies efficient? why or why not?
answer
no, monopolies produce too little and charge too much
question
in order to engage in price discrimination a firm must be two things:
answer
price setter, and must be able to identify consumers whose elasticities differ
question
if a monopolist can engage in perfect price discrimination then:
a. it produces at the socially efficient level
b. consumer surplus is maximized
c. producer surplus is minimized
d. the government may impose fines on the monpolist
a. it produces at the socially efficient level
b. consumer surplus is maximized
c. producer surplus is minimized
d. the government may impose fines on the monpolist
answer
a
question
true or false: monopoly is inefficient because some consumer surplus is transferred to producer surplus
answer
false
question
when inputs increase by x amount, output increases by more than x amount it is called
answer
increasing returns to scale
question
long run equilibrium means what for average total cost and price
answer
atc is minimized and price equals atc
question
price for a firm under monopolistic competition is
answer
greater than marginal revenue
question
zoe's bakery determines that P<ATC and P>AVC. Zoe should do what?
answer
continue to operate although she is experiencing an economic loss
question
which of the following factors increases the likelihood that oligopolists collude?
a. there are a large number of firms in the indutry
b. a firm and its rivals are currently operating at maximum productive capactiy
c. one firm has significant cost advantage over its rivals
d. a firm and its rivals are currently operating at maximum productive capacity and one firm has a significant cost advantage over its rivals
a. there are a large number of firms in the indutry
b. a firm and its rivals are currently operating at maximum productive capactiy
c. one firm has significant cost advantage over its rivals
d. a firm and its rivals are currently operating at maximum productive capacity and one firm has a significant cost advantage over its rivals
answer
b
question
a firm's decision to produce or not should be based on ______ profit
answer
economic
question
how was market power in the united states gained in the latter part of the nineteenth century
answer
forming trusts
question
the first part of a kinked demand curve shows the
answer
price increase
question
the second part of a kinked demand curve shoes the
answer
price decrease
question
for price takers, the optimal quantity of output what does the price equal?
answer
mc
question
in a perfectly competitive industry, the market demand curve is usually
answer
downward sloping
question
the restaurant industry is characterized by excess capacity. this means that
answer
the profit maximizing level is less than the level that minimizes atc
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