question
Accounting Profit =
answer
total revenue - explicit costs
question
Economic Profit =
answer
total revenue - total opportunity cost (explicit + implicit)
question
What happens when production reaches the diminishing marginal returns?
answer
the marginal cost of production will increase
question
True or False:
The marginal cost curve will always eventually slop upward due to the law of diminishing marginal returns.
The marginal cost curve will always eventually slop upward due to the law of diminishing marginal returns.
answer
true
question
At what point will marginal cost curve always intersects the ATC and AVC curve?
answer
the lowest point
question
What are the 2 characteristic of a perfect competition?
answer
1.) a lack of market power
2.) the demand curve is horizontal (perfectly elastic)
2.) the demand curve is horizontal (perfectly elastic)
question
What does a perfect competition have to adjust to achieve profit-maximization?
answer
production
question
True or False:
For a perfect competitor MR=price
For a perfect competitor MR=price
answer
true
question
What happens in a perfect competition when price exceeds ATC?
answer
economic profit is earned
question
What happens in a perfect competition when the price is below ATC, but still exceed AVC?
answer
loss is minimized by producing where MR=MC
question
What is the shut down point in a perfect competition?
answer
price is below AVC
question
Why is perfect competition the ideal market structure?
answer
because it results in the quantity of output where price equals marginal cost and this is where marginal social benefit equals marginal social cost
question
What is an advantage to perfect competition?
answer
production and distribution decisions can be made by individuals thus maximizing individual freedom
question
What are the 5 legal barriers?
answer
1.) public franchise
2.) patent
3.) copyright
4.) license restriction
5.) trade restriction
2.) patent
3.) copyright
4.) license restriction
5.) trade restriction
question
What are the 3 barriers to entry?
answer
1) legal barriers
2.) economies of scale
3.) exclusive ownership of an essential resource
2.) economies of scale
3.) exclusive ownership of an essential resource
question
True or False:
Monopoly has no market power.
Monopoly has no market power.
answer
false
question
True or False:
Monopoly faces a downward sloping demand curve.
Monopoly faces a downward sloping demand curve.
answer
true
question
True or False:
Compared to perfect competition, monopoly results in less output at a higher price.
Compared to perfect competition, monopoly results in less output at a higher price.
answer
true
question
Why is a monopoly inefficient?
answer
because it results in a quantity of output where price exceed marginal cost, and thus where MSB>MSC
question
Monopoly can result in what socially wasteful activity?
answer
rent seeking
question
What are the 2 things monopoly producers tend to be?
answer
1.) less responsive to consumer demand
2.) less diligent to minimize cost of porduction
2.) less diligent to minimize cost of porduction
question
What does price discrimination allows a firm to do?
answer
increase its profit by gaining some of the consumers surplus
question
What does product differentiation do for monopolistic competition?
answer
1.) increase the firm's market power
2.) increase the demand curve for the firm's product
2.) increase the demand curve for the firm's product
question
A monopolistic competitor faces a downward sloping demand curve, what the does the degree of the slope largely depend on?
answer
product differentiation
question
True or False:
Compared to perfect competition, monopolistic competition results in more output at a lower price.
Compared to perfect competition, monopolistic competition results in more output at a lower price.
answer
false
question
Why is monopolistic competition inefficient?
answer
the same as monopoly, it results in a quantity of output where price exceed marginal cost, and thus where MSB>MSC
question
What is oligopoly a usually a result of?
answer
barriers to entry, especially economies of scale
question
What are the 3 theories of oligopoly?
answer
1.) kinked demand curve theory
2.) unkinked demand curve theory
3.) cartel theory
2.) unkinked demand curve theory
3.) cartel theory
question
In the kinked demand curve theory, what does the kink in the demand curve result in?
answer
a gap in the marginal revenue curve, thus a change in MC result in on change in price or quanity
question
True or False:
A cartel sets output and prices for the industry, as would a monopoly, and allocates productions to member firms.
A cartel sets output and prices for the industry, as would a monopoly, and allocates productions to member firms.
answer
true
question
Why are cartels difficult to maintain?
answer
1.) noncartel competition
2.) tendencies of cartel members to "cheat" on their agreement
2.) tendencies of cartel members to "cheat" on their agreement
question
True or False:
Oligopoly is efficient.
Oligopoly is efficient.
answer
false
question
True or False:
At its profit-maximizing quantity, a monopolistic competitor produces a quantity of output where price exceeds marginal cost.
At its profit-maximizing quantity, a monopolistic competitor produces a quantity of output where price exceeds marginal cost.
answer
true
question
True or False:
Life a perfect competitors, monopolistic competitors have many sellers.
Life a perfect competitors, monopolistic competitors have many sellers.
answer
true
question
If, at a certain level of output, marginal cost is greater than the average total cost:
answer
average total cost is increasing
question
If the minimum efficient scale in an industry is relatively small, there are likely to be:
answer
many small producers in the industry
question
ABC company, a perfect competitor, is currently producing 5,000 units of output annually. At this quantity of output, ABC's marginal revenue is $7 and its marginal cost is $10. To maximize profits, ABC should:
answer
maintain same selling price, decrease quantity produced
question
If a perfect competitor produces the quantity of output that equates marginal revenue with marginal cost, when price is less than average variable cost, it:
answer
incurs a loss greater tan fixed cost
question
A monopoly may emerge naturally when:
answer
economies of scale are substantial relative to market demand for output
question
XYZ Co. makes coupons available so that some of its consumers pay $3 while other pay $3.50:
answer
XYZ is practicing price discrimination, attempting to increase its profits, trying to gains some of the some consumer's surplus
question
True or False:
A monopolistic competitor tends to earn zero economic profit in the long run.
A monopolistic competitor tends to earn zero economic profit in the long run.
answer
true
question
An oligopoly produces a quantity of output that is:
answer
MR=MC, price exceeds marginal cost, and less than the economically efficient quantity of output
question
Assuming a market originally in equilibrium, a decrease in consumer preference for the good would lead to:
answer
price decrease, quantity decrease
question
The additional utility received from consuming and additional unit of a good:
answer
marginal utility
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