question
constant cost industry
answer
production is infinitely replicable == horizontal supply
question
increasing cost industry
answer
production CAN'T be replicated == upward sloping supply
question
decreasing cost industry
answer
one firm can generate benefits for other firms == decreasing supply
question
What type of efficiency in a Perfectly Competitive Market?
answer
Both Allocative efficiency and Productive efficiency
question
What type of demand do perfectly competitive firms have?
answer
HORIZONTAL DEMAND (one firm is too small to alter price --> you have to be a price taker!)
question
Equations for PROFIT
answer
PROFIT = total revenue - total cost
OR
PROFIT = (P-ATC)*Q
OR
PROFIT = (P-ATC)*Q
question
In a perfectly competitive market, what is PRICE equivalent to?
answer
Price = Average Revenue = Marginal Revenue
question
IN BOTH MARKETS, WHEN ARE profits maximized?!
answer
-when MR = MC
(marginal revenue MUST equal marginal cost!!!)
- maximizing the difference between TR and TC
(marginal revenue MUST equal marginal cost!!!)
- maximizing the difference between TR and TC
question
What unique factor in a PCM ONLY maximizes profit
answer
profit maximizing level of output is where P = MC (this is because P also = MR in a PCM!!)
question
in a PCM, if Price is greater than ATC...
answer
firm is making a PROFIT
question
in a PCM, if Price is equal to ATC...
answer
firm is BREAKING EVEN
question
in a PCM, if Price is less than ATC...
answer
firm is EXPERIENCING LOSS
question
In a short-run PCM, when do you STOP PRODUCTION?
answer
stop production when PRICE IS LESS THAN AVC
question
In a short-run PCM, when price is less than ATC, but above AVC, what is happening and what do you do?
answer
Your firm is experiencing LOSS! But you KEEP PRODUCING
question
what is long Run equilibrium in a PCM like?
answer
the continuous entry and exit of firms results in the TYPICAL FIRM BREAKING EVEN (its the little diamond pattern graph triangular movement!)
question
Effect of INCREASED DEMAND on a long run supply curve in a PCM
answer
-always return to break even!
- triangular diamond movement shifts UP
- triangular diamond movement shifts UP
question
Effect of DECREASED DEMAND on a long run supply curve in a PCM
answer
-always return to break even!
- triangular diamond movement shifts DOWNWARDS
- triangular diamond movement shifts DOWNWARDS
question
Technology
answer
the process used to produce a good or service
question
positive technology change
answer
ability to produce MORE output using the same input
question
negative technological change
answer
ability to produce LESS output using same input
question
The short run
answer
the time period in which at least one input is fixed
question
in the long run
answer
the time period in which all inputs can be varied
question
equation for total cost...
answer
Total Cost = Fixed Cost + Variable Cost
question
explicit costs
answer
a cost that involves spending money
question
implicit costs
answer
a non-monetary opportunity cost
question
marginal product of labor
answer
the change in output from hiring one additional unit of labor
question
law of diminishing returns
answer
the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline
question
Average product of labour
answer
the total output produced by a firm divided by the quantity of workers
question
where does MC intersect ATC and AVC?
answer
at their minimum points!!
question
long-run average cost curve
answer
a curve that shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed
question
diseconomies of scale
answer
long-run average cost INCREASES as we increase output
(Bad! spending more money == 'dis')
(Bad! spending more money == 'dis')
question
economies of scale
answer
long-run average cost DECREASES as we increase output
(Good!)
(Good!)
question
Why a firm experiences ECONOMIES of scale?
answer
- firm's technology
- specialization of workers
- able to purchase inputs at lower prices
- able to borrow money at lower interest rates
- specialization of workers
- able to purchase inputs at lower prices
- able to borrow money at lower interest rates
question
Why a firm experiences DISECONOMIES of scale?
answer
the firm gets too large to manage efficiently...
question
constant returns to scale
answer
long run average cost is unchanged by increase in output
question
characteristics of monopolies
answer
- many firms
- DIFFERENTIATED PRODUCTS
- no barriers to entry for new firms
- DIFFERENTIATED PRODUCTS
- no barriers to entry for new firms
question
what is the direction of a DEMAND curve in a monopoly
answer
downward sloping
question
what is the direction of a MARGINAL REVENUE curve in a monopoly
answer
downward sloping
question
In a monopoly, what is price equivalent to?
answer
average revenue!
question
output effect
answer
higher output raises revenue (GAINS)
question
price effect
answer
lower price reduces revenue (LOSS)
question
how to find Marginal Revenue with monopolistic price cuts graph?
answer
output effect-price effect = MR
OR
gain-loss=MR
OR
gain-loss=MR
question
Relationship between MR and Demand Curve in a monopoly?
answer
MR must be BELOW the demand curve, when demand is downwards sloping!!!
(- the MR is lower than the price!)
(- the MR is lower than the price!)
question
how does a monopoly maximize profit in the short run?
answer
MR=MC!!!!
question
Profits in the long run in a MONOPOLY
answer
in the long run of monopolistic demand, firms can only ever break even!
question
What type of efficiency does a MONOPOLY have?
answer
NEITHER allocative or productive efficiency!
- excess capacity disproves allocative efficiency (bc the firm could produce for cheaper, but it choses not to - instead picking the profit maximizing point)
- excess capacity disproves allocative efficiency (bc the firm could produce for cheaper, but it choses not to - instead picking the profit maximizing point)
question
excess capacity
answer
the difference between a firm's profit-maximizing quantity and the quantity that minimizes average cost
question
How does marketing matter in a monopoly?
answer
- Brand Management (maintain product differentiation)
- Advertising (increase demand, differentiate product)
- Defending a Brand Name (maintain differentiation and avoid association with generic brand!)
- Advertising (increase demand, differentiate product)
- Defending a Brand Name (maintain differentiation and avoid association with generic brand!)
question
What make a firm successful in a MONOPOLY?
answer
- ability to differentiate product
- production at a lower average cost
-- factors beyond a firms control that affect the market
-- value created relative to competition
-- chance events
- production at a lower average cost
-- factors beyond a firms control that affect the market
-- value created relative to competition
-- chance events
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