MicroECONomics Exam 3 (Final) - Assignment Essays %

question

Let q =

answer

Individual firm quantity

question

Let Q =

answer

Market quantity

question

Firms produce to make ______.

answer

Profit

question

What is the profit formula?

answer

Total Revenue - Total Costs

question

What is marginal revenue (MR)?

answer

Change in total revenue from adding one-unit in output

question

What are marginal costs?

answer

Change in total costs from extra unit

question

What is the rule of profit maximization?

answer

Produce until MR = MC

question

If MC > MR, a firm should:

answer

Not produce.

question

If MR > MC, a firm should:

answer

Produce more.

question

What is price-taking?

answer

Firms must sell at market price (sell as much as want, do not change price).

MR = Change in TR = Market Price

question

If the market price is fixed in the short run, what sets price?

answer

Industry supply & demand.

question

If the market price is fixed in the short run, what is the elasticity of firm demand?

answer

Perfectly Elastic (Horizontal)

question

How much should each firm produce (If the market price is fixed in the short run)?

answer

Until MR = MC

question

[(Pq) - (ATCq) = (P - ATC)*q] is equal to what?

answer

Profit.

question

What is "Average Profit"?

answer

(P - ATC)

question

If Profit > 0, then P is ______ than ATC

answer

greater

question

If Profit = 0, then P is ______ ATC

answer

Equal to.

question

What is another name for min ATC?

answer

Break-even price

question

If Profit < 0, then P is _____ than ATC

answer

Less.

question

When P < 0...

Produce at a loss if P is _____ than AVC

answer

Greater.

question

When P < 0...

Shut down if P is _____ than AVC

answer

Less.

question

What is the min AVC for q > 0?

answer

Shut-down Price.

question

In the short run...

Total Cost =

answer

(AVC*q) + TFC

question

In the short run...

Profit =

answer

(Price - AVC)*q - (TFC)

question

In the short run...

If P < AVC and produce, Profit is ______ than (-TFC)

answer

Less.

question

The min AVC for q > 0 can also be called the:

answer

Shut-down price.

question

In Pure/Perfect Competition, the theoretical market has 3 characteristics:

answer

1. Price-Takers
2. Identical Product
3. Costless Entry and Exit of Firms

question

Who are price-takers?

answer

All single buyers and sellers

question

What is meant by Identical Product?

answer

- Sellers produce exactly the same product
- Consumers know same

question

With Individual Demand and Supply, demand is:

answer

Perfectly Elastic

question

With Individual Demand and Supply... what is the short-run supply curve?

answer

Minimum Willingness To Accept

- MC curve above AVC

question

With Individual Demand and Supply... Market demand is:

answer

Downward sloping.

question

With Individual Demand and Supply... Market supply is:

answer

- Sum of quantities of each firm
- Upward Sloping

question

In the Long run, when do firms stop entering/exiting?

answer

When profit = 0.

question

Positive Profit =

answer

New Entrants.

question

Negative Profit =

answer

Firms Exit.

question

What is allocative efficiency?

answer

Max social surplus.

question

What is productive efficiency?

answer

Produce at min ATC.

question

What are the basic conditions of a monopoly?

answer

1. 1 seller; monopolist is "price maker".
2. No close substitutes.
3. Barriers to entry; others cannot enter.

question

In a monopoly, Industry demand does what?

answer

Slopes down.

(Only way to increase sales is to decrease price.)

question

True or False: Price cuts apply to all units?

answer

True.

question

MR is _______________ Price after 1st unit.

answer

Not equal to.

(MR < Price).

question

The following characteristics indicate that demand is:

- MR steeper slope than demand
- For linear curves; MR slope twice as steep
- True since MR slope of TR

answer

Downward sloping.

question

In a monopolist supply curve...

If profit max quantity ____________, can get different prices.

answer

Stays the same.

question

True or False: Monopolists have a unique supply curve:

answer

False

question

A monopolist is a _____ _____, they choose ___ where MR = MC if P is _______ than AVC>

answer

Price "maker"; q; Greater

question

When comparing a monopoly and a P.C., assume one owner buys all P.C. firms, keeps them all open but operates as a Monopolist, what happens?

answer

- Cost curves stay same.
- Monopoly industry quantity < P.C.
- Monopoly price > P.C.

question

Allocative Efficiency:

answer

- MB of consumption = MC of production
- Monopoly restrict output is dead weight loss.
- Do NOT have alloc., effic.

question

Productive Efficiency:

answer

- P.E.: Minimum ATC
- In LR PC → Produce min ATC
- Monopoly Output < P.C. → not at min ATC
- No productive efficiency
- Tech effic?

question

Monopoly leads to ___________ price and __________ industry quantity:

answer

higher; lower

question

Monopoly leads to:
Dead weight loss to society -- no _______________ efficiency.

answer

Allocative.

question

Monopoly leads to:
No ________________ efficiency & may not use the best technology.

answer

Productive.

question

If AC decreases over large output range, it is __________ expensive for 1 firm to produce.

answer

Less.

question

In a monopoly, when does DWL occur?

answer

After an increase in price.

question

What is price discrimination?

answer

Charging different people/firms different prices.

question

What is the goal of price discrimination?

answer

Maximize profit by transferring CS to PS.

question

What are the different types of Price Discrimination?

answer

1. First Degree (Perfect)
2. Second Degree (Multi-part Pricing)
3. Third Degree (Group Pricing)

question

What degree of price discrimination is it if:

Firms charge max WTP per unit if WTP > MC

answer

First Degree

question

What degree of price discrimination is it if:

Price depends on quantity bought

answer

Second Degree

question

What degree of price discrimination is it if:

Charge same price to all in same group but different price across groups

answer

Third Degree

question

What are the In-Betweeners?

answer

Monopolistic Competition and Oligopoly (In between extremes of Perfect Competition and Monopoly).

question

What are the basic conditions of Monopolistic Competition?

answer

1. Large # sellers, small industry shares

2. Independent action - my pricing does not influence other firm's pricing.

3. Demand influenced by entry and exit but not by pricing and output decisions of other firms.
(E.g. gas stations, chain fast food).

4. Differentiated products - small amount of control over price

5. Easy entry and exit - may be advertising costs, etc., that limit entry

question

Advertising makes __________________ more of a factor than _______.

answer

Differentiation; price.

question

If advertising is successful, firms get _____ ______________, demand _________ and is ______ elastic.

answer

New customers; increases; less.

question

In monopolistic competition, demand slopes:

answer

Down.

question

In monopolistic competition, MR = MC (max profits) if P is ___________ than min AVC.

answer

Greater.

question

In the long run of monopolistic competition, entry shifts demand ________, and exit shifts it ________.

answer

Downward; upward.

question

In monopolistic competition, quantity is ____________ than P.C. and price is ____________.

answer

Lower; higher.

question

In monopolistic competition, what kind of efficiency is there?

answer

No allocative, and no productive efficiency.

question

In monopolistic competition, small amount DWL =

answer

"Cost" to society for differentiation.

question

What are the basic conditions of oligopoly?

answer

1. Rivalry
- Behavior effects other firms' behavior
- Can be modeled with game theory

question

What is the game theory?

answer

Study of how people behave in strategic situations

question

What are the solution concepts of the game theory?

answer

- Nash Equilibrium
- Cooperative

question

What is the Nash Equilibrium concept?

answer

- No incentive to unilaterally deviate; a.k.a. neither player can do better by switching one-at-a-time
- May be zero Nash, one Nash, or more than one Nash

question

What is the cooperative concept?

answer

- Players receive highest sum of payoffs
- Nash and Cooperative may or may not be the same strategy

1 of 75

question

Let q =

answer

Individual firm quantity

question

Let Q =

answer

Market quantity

question

Firms produce to make ______.

answer

Profit

question

What is the profit formula?

answer

Total Revenue - Total Costs

question

What is marginal revenue (MR)?

answer

Change in total revenue from adding one-unit in output

question

What are marginal costs?

answer

Change in total costs from extra unit

question

What is the rule of profit maximization?

answer

Produce until MR = MC

question

If MC > MR, a firm should:

answer

Not produce.

question

If MR > MC, a firm should:

answer

Produce more.

question

What is price-taking?

answer

Firms must sell at market price (sell as much as want, do not change price).

MR = Change in TR = Market Price

question

If the market price is fixed in the short run, what sets price?

answer

Industry supply & demand.

question

If the market price is fixed in the short run, what is the elasticity of firm demand?

answer

Perfectly Elastic (Horizontal)

question

How much should each firm produce (If the market price is fixed in the short run)?

answer

Until MR = MC

question

[(Pq) - (ATCq) = (P - ATC)*q] is equal to what?

answer

Profit.

question

What is "Average Profit"?

answer

(P - ATC)

question

If Profit > 0, then P is ______ than ATC

answer

greater

question

If Profit = 0, then P is ______ ATC

answer

Equal to.

question

What is another name for min ATC?

answer

Break-even price

question

If Profit < 0, then P is _____ than ATC

answer

Less.

question

When P < 0...

Produce at a loss if P is _____ than AVC

answer

Greater.

question

When P < 0...

Shut down if P is _____ than AVC

answer

Less.

question

What is the min AVC for q > 0?

answer

Shut-down Price.

question

In the short run...

Total Cost =

answer

(AVC*q) + TFC

question

In the short run...

Profit =

answer

(Price - AVC)*q - (TFC)

question

In the short run...

If P < AVC and produce, Profit is ______ than (-TFC)

answer

Less.

question

The min AVC for q > 0 can also be called the:

answer

Shut-down price.

question

In Pure/Perfect Competition, the theoretical market has 3 characteristics:

answer

1. Price-Takers
2. Identical Product
3. Costless Entry and Exit of Firms

question

Who are price-takers?

answer

All single buyers and sellers

question

What is meant by Identical Product?

answer

- Sellers produce exactly the same product
- Consumers know same

question

With Individual Demand and Supply, demand is:

answer

Perfectly Elastic

question

With Individual Demand and Supply... what is the short-run supply curve?

answer

Minimum Willingness To Accept

- MC curve above AVC

question

With Individual Demand and Supply... Market demand is:

answer

Downward sloping.

question

With Individual Demand and Supply... Market supply is:

answer

- Sum of quantities of each firm
- Upward Sloping

question

In the Long run, when do firms stop entering/exiting?

answer

When profit = 0.

question

Positive Profit =

answer

New Entrants.

question

Negative Profit =

answer

Firms Exit.

question

What is allocative efficiency?

answer

Max social surplus.

question

What is productive efficiency?

answer

Produce at min ATC.

question

What are the basic conditions of a monopoly?

answer

1. 1 seller; monopolist is "price maker".
2. No close substitutes.
3. Barriers to entry; others cannot enter.

question

In a monopoly, Industry demand does what?

answer

Slopes down.

(Only way to increase sales is to decrease price.)

question

True or False: Price cuts apply to all units?

answer

True.

question

MR is _______________ Price after 1st unit.

answer

Not equal to.

(MR < Price).

question

The following characteristics indicate that demand is:

- MR steeper slope than demand
- For linear curves; MR slope twice as steep
- True since MR slope of TR

answer

Downward sloping.

question

In a monopolist supply curve...

If profit max quantity ____________, can get different prices.

answer

Stays the same.

question

True or False: Monopolists have a unique supply curve:

answer

False

question

A monopolist is a _____ _____, they choose ___ where MR = MC if P is _______ than AVC>

answer

Price "maker"; q; Greater

question

When comparing a monopoly and a P.C., assume one owner buys all P.C. firms, keeps them all open but operates as a Monopolist, what happens?

answer

- Cost curves stay same.
- Monopoly industry quantity < P.C.
- Monopoly price > P.C.

question

Allocative Efficiency:

answer

- MB of consumption = MC of production
- Monopoly restrict output is dead weight loss.
- Do NOT have alloc., effic.

question

Productive Efficiency:

answer

- P.E.: Minimum ATC
- In LR PC → Produce min ATC
- Monopoly Output < P.C. → not at min ATC
- No productive efficiency
- Tech effic?

question

Monopoly leads to ___________ price and __________ industry quantity:

answer

higher; lower

question

Monopoly leads to:
Dead weight loss to society -- no _______________ efficiency.

answer

Allocative.

question

Monopoly leads to:
No ________________ efficiency & may not use the best technology.

answer

Productive.

question

If AC decreases over large output range, it is __________ expensive for 1 firm to produce.

answer

Less.

question

In a monopoly, when does DWL occur?

answer

After an increase in price.

question

What is price discrimination?

answer

Charging different people/firms different prices.

question

What is the goal of price discrimination?

answer

Maximize profit by transferring CS to PS.

question

What are the different types of Price Discrimination?

answer

1. First Degree (Perfect)
2. Second Degree (Multi-part Pricing)
3. Third Degree (Group Pricing)

question

What degree of price discrimination is it if:

Firms charge max WTP per unit if WTP > MC

answer

First Degree

question

What degree of price discrimination is it if:

Price depends on quantity bought

answer

Second Degree

question

What degree of price discrimination is it if:

Charge same price to all in same group but different price across groups

answer

Third Degree

question

What are the In-Betweeners?

answer

Monopolistic Competition and Oligopoly (In between extremes of Perfect Competition and Monopoly).

question

What are the basic conditions of Monopolistic Competition?

answer

question

Advertising makes __________________ more of a factor than _______.

answer

Differentiation; price.

question

If advertising is successful, firms get _____ ______________, demand _________ and is ______ elastic.

answer

New customers; increases; less.

question

In monopolistic competition, demand slopes:

answer

Down.

question

In monopolistic competition, MR = MC (max profits) if P is ___________ than min AVC.

answer

Greater.

question

In the long run of monopolistic competition, entry shifts demand ________, and exit shifts it ________.

answer

Downward; upward.

question

In monopolistic competition, quantity is ____________ than P.C. and price is ____________.

answer

Lower; higher.

question

In monopolistic competition, what kind of efficiency is there?

answer

No allocative, and no productive efficiency.

question

In monopolistic competition, small amount DWL =

answer

"Cost" to society for differentiation.

question

What are the basic conditions of oligopoly?

answer

1. Rivalry
- Behavior effects other firms' behavior
- Can be modeled with game theory

question

What is the game theory?

answer

Study of how people behave in strategic situations

question

What are the solution concepts of the game theory?

answer

- Nash Equilibrium
- Cooperative

question

What is the Nash Equilibrium concept?

answer

- No incentive to unilaterally deviate; a.k.a. neither player can do better by switching one-at-a-time
- May be zero Nash, one Nash, or more than one Nash

question

What is the cooperative concept?

answer

- Players receive highest sum of payoffs
- Nash and Cooperative may or may not be the same strategy

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