question
Factors determining market structure
answer
the number and size of firms
interdependency of firms
product differentiation
knowledge of buys/sellers
entry and exit conditions
interdependency of firms
product differentiation
knowledge of buys/sellers
entry and exit conditions
question
Which characteristics describe perfect competition
answer
Many firms
Same product
Low entry and exit conditions
Price takers
Same product
Low entry and exit conditions
Price takers
question
Which characteristics describe a monopolistic competition
answer
Many firms
Differentiated product
Low barriers to entry
Price makers
Differentiated product
Low barriers to entry
Price makers
question
Which characteristics describe an oligopoly
answer
Few firms
Identical/differentiated products
Some barriers to entry
Identical/differentiated products
Some barriers to entry
question
Which characteristics describe a monopoly
answer
One Firm
Unique product
Many barriers to entry
Unique product
Many barriers to entry
question
Profit =
answer
TR - TC
question
TR =
answer
P x Q
question
MC =
answer
change in TC
-------------------
change in Q
-------------------
change in Q
question
MR =
answer
change in TR
------------------
change in Q
------------------
change in Q
question
In a perfectly competitive Firm, profit is maximized when
answer
the distance between the TC curve and TR curve is largest, or when the slope of the MR curve and MC curve are equal and D = MR = P = MC
question
In a perfectly competitive Firm, Profit is earned (graphically) when
answer
the ATC curve is below D = MR = P = MC
question
In a perfectly competitive Firm, profit is zero (graphically) when
answer
the ATC curve = D = MR = P = MC
question
In a perfectly competitive Firm, Profit is negative (graphically) when
answer
the ATC curve is above D = MR = P = MC
question
A firm should continue to operate in the short run, even if it is earning a negative profit, only if
answer
TR is greater than or equal to VC and P is greater than or equal to AVC
question
A firm should decide to shut down in the short run if
answer
TR is less than VC and P is less than AVC
question
Graphically, a Firm's short run supply curve is
answer
the portion of the MC curve above the AVC curve
question
How is an industry short run supply curve built?
answer
by aggregating Firm's shirt run supply curve horizontally
question
Marginal revenue for a monopoly =
answer
change in P
P + ------------------ Q
change in Q
P + ------------------ Q
change in Q
question
the inverse demand curve (MR) equation =
answer
a - 2bQ
question
A firm with market power that has a steep demand curve experiences
answer
a large price decrease given a small increase in quantity
question
A firm with market power experiences profit maximization when
answer
MR = MC, maximum price is found directly above this intersection
question
According to the lerner index, a value of 1 implies
answer
the firm can charge a high markup and its elasticity is inelastic
question
According to the lerner index, a value of 0 implies
answer
the firm cannot charge a high markup and its elasticity is elastic
question
The lerner index equation is
answer
P - MC 1
---------- = -- ------
p E*
---------- = -- ------
p E*
question
Rent seeking
answer
a firms attempts to gain government granted monopoly and therefor addition producer surplus
question
The two requirements that a firm must meet in order to engage in perfect price discrimination are
answer
The firm must have market power and the firm must prevent resale and arbitrage
question
3rd degree price discrimination (segmenting)
answer
the Firm's customers have different demand curves, the firm can directly identify specific groups of customers with different price sensitivities before purchase. senior citizen discounts
question
2nd degree price discrimination (indirect)
answer
the Firm's cannot directly identify which sutures have which type of demand before purchase, quantity discounts (low price for high quantity), versioning, coupons
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