Microeconomics Test #3 Coffman

perfectly elastic, or flat

Because the price they receive for each additional unit sold is constant, meaning that marginal revenue is constant and equal to the demand curve.

relatively inelastic, or steep

there are no close substitutes and the marginal revenue will also be downward sloping

downward sloping, in between perfectly elastic and inelastic

The firm has some market power over its slightly differentiated product, however it won't be as inelastic as the demand curve faced by a monopolist because there are many close substitute.

MR=MC

The market clearing price is established by the forces of supply and demand at the intersection of D and the short run supply curve S. Even though each individual firm has no control or effect on the price of its product in a competitive industry, the interaction of all producers and buyers determines the price at which a product is sold.

If a firms AC are greater then its AR the firm is experiencing losses; if a firms AR is greater then its AC the firm is experiencing losses.

The difference between the costs of a good or service and its selling price.

Misallocation of resources

Monopolies and monopolistic competitions

1. Lots of buyers and sellers
2. Product is homogeneous arose firms
3. All actors have all access to all information regarding the market
4. Any firm can leave or enter the industry without any serious impediments

1. The individual is the industry
2. No barriers to entry or exit

1. Many buyers and sellers
2. No barriers to entry or exit
3. product is differentiable but there are many close substitutes
4. There is an incentive for advertising and marketing

1. There are few dominant sellers of a good or service
2. Products are similar if not identical
3. Individual sellers react to changes in the price, quantity, quality, of a competitors product

When there is a single seller/supplier for a good or service

There are a large number of substitutes and the greater the differentiation the greater the pricing power.

Somewhere between 1 and an extremely large number. Each firm has a very small market share of the total market, but 100% of the market for their own product.

They are price seekers

Zero

They have incentive to advertise up until the point where addition costs equal addition net revenue.

additional costs, but potentially additional revenue

Productive and allocative efficiency, we are not producing too much or too little of anything.

Neither. Monopolies end up producing less of a good or service that a society would like and you will be paying a higher price for it, this is a misallocation of resources.

We end up in-between. Quantity will be less than under perfect competition, but not as bad as under monopoly. Price will be higher than under perfect competition, but not as high as under monopoly.

TR=TC

The price that covers AVC. It occurs just below the intersection of the MC curve and the AVC curve.

you are covering variable costs in the short run

you are experiencing losses but can continue

you are experiencing shutdown in the short-run

A portion of the marginal cost curve at and above the minimum point of the average variable cost curve.

The locus of points showing the minimum prices at which given quantities will be forthcoming

A market supply curve showing the relationship between prices and quantities after firms have been allowed the time to enter into or exit from the industry, depending on whether there have been positive or negative economic profits.

An industry whose total output can be increasing without an increase in long-run per-unit costs. Its long-run supply curve is horizontal.

An industry in which an increase in industry output is accompanied by an increase in long-run industry supply curve slopes upward.

An industry in which an increase in output leads to a reduction in long-run per-unit costs, such that the long-run industry supply curve slopes downward.

1. Ownership of a resource
2. Economics of scale (natural monopolies)
3. Legal barriers

1. Licensing: permission to do something
2. Patents: entail enforcement costs for that firm
3. Tariffs: tax on imports
4. Regulations: safety, quality, and environmental

If a firm has an inefficient way of producing a good or service, it will experience higher costs, and thus losses. Firms that experience losses will leave the market, leaving only firms who have found the most efficient way to produce the good or service.

In the long-run, firms experience zero economic profits. This means that there are just the right number of firms in the market for a good or service, and that we are not experiencing over or under production of that good or service.

Selling a given product at more than one price, with the price difference being unrelated to differences in marginal cost.

1. Downward sloping demand curve
2. Having to distinguish customers based on their willingness to pay
3. Have to be able to benefit arbitrage

1. higher price
2. lower quantity
3. price is greater than marginal cost
4. if quantity is too low you are not achieving allocative efficiency

By the price being higher than the average total cost

Because differentness adds value to their product.

you can protect it with patents, trademarks, and copyrights

profits

may evaporate and profits may disappear

1. economics of scale
2. barriers to entry
3. mergers and acquisitions

Adding together the top 4 firms and determining the level of concentration.

The sum of the squared percentage sales shares of all firms in an industry

1. Collude: conspire together
2. Compete: firms will make decisions that are best for them, based on what they expect other firms to do

Less output then under perfect competition, but more than under a monopoly. Higher price than under perfect competition, but lesser price under a monopoly; when price is greater then marginal cost there is a misallocation of resources.

Sells more units at the going price, increases profits

As production and supply increase price falls and prompts diminish

Produce more

don't produce as much

Group of producers who set prices and quotas to prevent competition

1. small number of firms
2. firms have similar products
3. actions of all members are easily observable
4. there is stability in the market

1. They drive up prices and send a signal to new entrants
2. cheating

The study of how actors behave in strategic situations

Any decision making rule, "always pick heads"

strategies that always yield the highest benefit, regardless of what other players do, a dominant strategy will yield the most benefit for the player using it.

not necessarily arrive at an outcome that is jointly optimal

The outcome changes based on the decisions both players make during the game. The outcome will also be different if the game is cooperative or noncooperative.