Microecon Exam 3 Review - Assignment Essays

question

Industrial Organization

answer

the study of how firms' decisions about prices and quantities depend on the market conditions they face

question

What is the purpose of firms?

answer

to maximize profit

question

Explicit costs are

answer

actual monetary payments for resources purchased.

question

Implicit costs are

answer

the opportunity cost of the means of production

question

accounting profit

answer

total revenue minus total explicit cost (TR - EC)

question

economic profit

answer

total revenue minus total cost, including both explicit and implicit costs (TR - (EC + IC))

question

Fixed costs

answer

Costs that do not vary with the quantity of output produced

question

variable costs

answer

costs that vary with the quantity of output produced

question

production function

answer

the relationship between quantity of inputs used to make a good and the quantity of output of that good

question

What are the aspects of a competitive firm?

answer

price takers, identical products are sold, there are many sellers, and there is free entry and exit, and demand is a horizontal line (price)

question

For a competitive firm, price is equal to

answer

the average revenue which is equal to the marginal revenue

question

In a competitive firm, what is our profit maximizing quantity, & how do we determine it?

answer

The quantity is where marginal cost is equal to marginal revenue

question

The firm's short-run decision to shutdown is based on if

answer

total revenue is less than variable costs, or if price is less than average variable costs (TR < VC) or (P < AVC)

question

The firm's long-run decision to exit the market is if

answer

total revenue is less than total costs, or price is less than average total cost (TR < TC = P < ATC)

question

The firm's long-run decision to enter the market is if

answer

total revenue is greater than total costs, or price is greater than average total costs (TR > TC = P > ATC)

question

the only stable equilibrium is when

answer

minimum ATC is equal to the price, or when prof it is 0

question

in a competitive market, profit can only experience profits or losses in the short run. how do you measure profit?

answer

if price is greater than (or above the curve of) the average total cost, then profit = TR - TC = (P - ATC) x Q

question

in a competitive market, profit can only experience profits or losses in the short run. how do you measure losses?

answer

if price is less than the (or below the curve of the) average total cost, then loss = TC - TR = (ATC - P) x Q = negative profit

question

Efficient scale in a competitive market is

answer

the point where marginal cost and the lowest point of average total cost intersect

question

monopolies are caused by

answer

barriers to entry, which keeps market power

question

The barriers to entry in a monopoly are

answer

Monopoly resources, government regulation, and natural monopoly

question

What are the aspects of a monopoly?

answer

price makers, and one seller, downward sloping demand

question

monopolies tend to

answer

charge prices that exceeds marginal cost

question

in a monopoly, high price

answer

reduces the quantity purchased

question

monopoly resources

answer

a key resource required for production and is owned by a single firm

question

government regulation

answer

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

question

in a monopoly, at what quantity do we produce to maximize profit?

answer

MR = MC

question

How can you calculate profit in a monopoly?

answer

TR - TC = (P-ATC) x Q

question

where is the deadweight loss in a monopoly?

answer

the triangle between the demand curve and mc curve

question

We have deadweight loss in a monopoly when

answer

The quantity is not at equilibrium

question

price discrimination

answer

a rational strategy to increase profit

question

In an imperfect competition market,

answer

between perfect competition and monopoly, oligopoly, and monopolistic competition

question

in an oligopoly

answer

there are few sellers and they offer similar products

question

monopolistic competition looks like ___ in short run, ____ in the long run

answer

monopoly, perfect competition

question

in monopolistic competition

answer

there are many sellers, different products (not price takers and downward sloping demand curve), free entry and exit

question

the economic profit of monopolistic competition in the long run

answer

is zero economic profit

question

profit maximization in short run equilibrium for a monopolistic competition

answer

is similar to a monopoly. quantity is where MR = MC, and price is on the demand curve.

question

a monopolistic competition profits if

answer

price is greater than ATC

question

a monopolistic competition has losses if

answer

P is less than ATC

question

what are the critiques of advertising?

answer

we're manipulating people's tastes, so it's not informational advertising it's psychological

question

oligopoly definition

answer

a form of imperfect competition and only a few forms work together

question

oligopoly characteristics

answer

few sellers that offer similar or identical products

question

for a small group of sellers, oligopolists

answer

best off cooperating in order to act like a monopolist

question

in mash equilibrium

answer

economic actors interact with one another, each choose their best strategy, given the strategies that all other actors have chosen

question

Prisoner's Dilemma

answer

a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial

question

controversies over antitrust policy

answer

1. resale price maintenance
2. predatory pricing
3. tying

question

resale price maintenance

answer

an agreement between a manufacturer and a distributor on the price at which a product will be resold

question

predatory pricing

answer

selling a product below cost to drive competitors out of the market

question

tying

answer

A form of price discrimination in which one good, called the base good, is tied to a second good called the variable good

1 of 49

question

Industrial Organization

answer

the study of how firms' decisions about prices and quantities depend on the market conditions they face

question

What is the purpose of firms?

answer

to maximize profit

question

Explicit costs are

answer

actual monetary payments for resources purchased.

question

Implicit costs are

answer

the opportunity cost of the means of production

question

accounting profit

answer

total revenue minus total explicit cost (TR - EC)

question

economic profit

answer

total revenue minus total cost, including both explicit and implicit costs (TR - (EC + IC))

question

Fixed costs

answer

Costs that do not vary with the quantity of output produced

question

variable costs

answer

costs that vary with the quantity of output produced

question

production function

answer

the relationship between quantity of inputs used to make a good and the quantity of output of that good

question

What are the aspects of a competitive firm?

answer

price takers, identical products are sold, there are many sellers, and there is free entry and exit, and demand is a horizontal line (price)

question

For a competitive firm, price is equal to

answer

the average revenue which is equal to the marginal revenue

question

In a competitive firm, what is our profit maximizing quantity, & how do we determine it?

answer

The quantity is where marginal cost is equal to marginal revenue

question

The firm's short-run decision to shutdown is based on if

answer

total revenue is less than variable costs, or if price is less than average variable costs (TR < VC) or (P < AVC)

question

The firm's long-run decision to exit the market is if

answer

total revenue is less than total costs, or price is less than average total cost (TR < TC = P < ATC)

question

The firm's long-run decision to enter the market is if

answer

total revenue is greater than total costs, or price is greater than average total costs (TR > TC = P > ATC)

question

the only stable equilibrium is when

answer

minimum ATC is equal to the price, or when prof it is 0

question

in a competitive market, profit can only experience profits or losses in the short run. how do you measure profit?

answer

if price is greater than (or above the curve of) the average total cost, then profit = TR - TC = (P - ATC) x Q

question

in a competitive market, profit can only experience profits or losses in the short run. how do you measure losses?

answer

if price is less than the (or below the curve of the) average total cost, then loss = TC - TR = (ATC - P) x Q = negative profit

question

Efficient scale in a competitive market is

answer

the point where marginal cost and the lowest point of average total cost intersect

question

monopolies are caused by

answer

barriers to entry, which keeps market power

question

The barriers to entry in a monopoly are

answer

Monopoly resources, government regulation, and natural monopoly

question

What are the aspects of a monopoly?

answer

price makers, and one seller, downward sloping demand

question

monopolies tend to

answer

charge prices that exceeds marginal cost

question

in a monopoly, high price

answer

reduces the quantity purchased

question

monopoly resources

answer

a key resource required for production and is owned by a single firm

question

government regulation

answer

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

question

in a monopoly, at what quantity do we produce to maximize profit?

answer

MR = MC

question

How can you calculate profit in a monopoly?

answer

TR - TC = (P-ATC) x Q

question

where is the deadweight loss in a monopoly?

answer

the triangle between the demand curve and mc curve

question

We have deadweight loss in a monopoly when

answer

The quantity is not at equilibrium

question

price discrimination

answer

a rational strategy to increase profit

question

In an imperfect competition market,

answer

between perfect competition and monopoly, oligopoly, and monopolistic competition

question

in an oligopoly

answer

there are few sellers and they offer similar products

question

monopolistic competition looks like ___ in short run, ____ in the long run

answer

monopoly, perfect competition

question

in monopolistic competition

answer

there are many sellers, different products (not price takers and downward sloping demand curve), free entry and exit

question

the economic profit of monopolistic competition in the long run

answer

is zero economic profit

question

profit maximization in short run equilibrium for a monopolistic competition

answer

is similar to a monopoly. quantity is where MR = MC, and price is on the demand curve.

question

a monopolistic competition profits if

answer

price is greater than ATC

question

a monopolistic competition has losses if

answer

P is less than ATC

question

what are the critiques of advertising?

answer

we're manipulating people's tastes, so it's not informational advertising it's psychological

question

oligopoly definition

answer

a form of imperfect competition and only a few forms work together

question

oligopoly characteristics

answer

few sellers that offer similar or identical products

question

for a small group of sellers, oligopolists

answer

best off cooperating in order to act like a monopolist

question

in mash equilibrium

answer

economic actors interact with one another, each choose their best strategy, given the strategies that all other actors have chosen

question

Prisoner's Dilemma

answer

a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial

question

controversies over antitrust policy

answer

1. resale price maintenance
2. predatory pricing
3. tying

question

resale price maintenance

answer

an agreement between a manufacturer and a distributor on the price at which a product will be resold

question

predatory pricing

answer

selling a product below cost to drive competitors out of the market

question

tying

answer

A form of price discrimination in which one good, called the base good, is tied to a second good called the variable good

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