Unit Three: The Firm - Assignment Essays

question

Perfect Competition

answer

An industry market structure characterized by a very large number of firms selling a homogeneous product. Firms have essentially no market power.

question

Hypothetical

answer

Perfect competition in our current market structure is mostly ____________

question

Homogeneous Product

answer

This characteristic of a perfect competition states that there is no way to differentiate the product of one seller from another. There are not even brand names

question

Many Sellers

answer

This characteristic of a perfect competition states that no one firm is large enough to have any market power at all, and because of this, they have no ability to set their own price

question

Perfect Information

answer

This characteristic of a perfect competition states that there is no uncertainty in the market. Information such as market price, quantity produced, and cost to produce flows freely so consumers and firms know everything about each other.

question

Instantaneous Entry/Exit

answer

This characteristic of a perfect competition states that there would be no barriers to enter or leave the market. For instance, there would be low start up costs, little government regulation, and no benefit or cost savings of becoming a large producer

question

Monopoly

answer

An industry market structure characterized by one firm supplying a unique product to the entire market. Barriers prevent entry into the market

question

Differentiated Product

answer

A characteristic of a monopoly that states the monopolistic firm sells a unique product that no other company provides

question

One Seller

answer

A characteristic of a monopoly that states there is only one firm selling the unique product. This also means that they determine the price

question

Imperfect Information

answer

This characteristic of a monopoly states that there is not a free flow of information between consumer and firm.

question

Barriers To Entry

answer

A characteristic of a monopoly. These are something that prevents other companies from entering the market and competing with the monopoly.

question

High Start Up Costs

answer

One of the barriers to entry for a monopoly. This one is described as needing a significant amount of money to enter the market.

question

Government Created Monopolies

answer

Patents or copyrights create these. For example, pharmaceutical companies can exclusively sell new drugs until the patent expires. Another variant of a barrier to entry for a monopoly

question

Control Over Key Resource

answer

A barrier to entry for a monopoly where a company has control over a resource, and it is difficult or impossible to find

question

Predatory Pricing

answer

The pricing of goods or services at such a low level that other suppliers cannot compete and are forced to leave the market.

question

Worse

answer

The closer we are to a monopoly, the _________ it will be for consumers

question

Inputs

answer

Factors of productions are also known as ________

question

Outputs

answer

Goods and services are also known as ___________

question

Monopolistic Competition

answer

An industry market structure characterized by a large number of firms selling similar products

question

False

answer

True or False: A monopoly and a monopolistic competition are the same thing.

question

Differentiated Product

answer

A characteristic of a monopolistic competition market, where while products are similar firms will do everything they can to differentiate their product from competitors.

question

Many Firms

answer

A characteristic of a monopolistic competition market that states there are multiple firms selling a similar product

question

Some

answer

In a monopolistic competition, the many firms have _______ control over market price, meaning they have the ability to choose what price they want to charge, but they do have to be careful

question

Imperfect Information

answer

A characteristic of a monopolistic competition where information is not perfectly shared between the firm and the consumer

question

Inefficiencies

answer

A characteristic of a monopolistic competition market is that it will have __________ such as:
- Having to produce at the lowest cost possible due to vast competition
- Little to no control over prices they are charging

question

Differentiation

answer

In a monopolistic competition, the name of the game is ______________. Making your product better than the competition, or more well known through advertising.

question

Production Cost

answer

Differentiation in a monopolistic competition drives up __________ __________. One example is increasing advertising to make your product more well known.

question

Short Run

answer

In the ________ _______, firms in a monopolistic competition behave more like monopolists, becasue they are trying to differentiate their product and establish market power

question

Short Run

answer

In the ________ ___________, monopolistic competitors will set prices and produce the quantity that will maximize their profit, just as a monopolist would do, because they have the power to do so.

question

Long Run

answer

In the _______ ______, monopolistic competitors face a lot of competition, because barriers to entry are low and it is easy to get in and out of the market.

question

Oligopoly

answer

An industry market structure characterized by a few firms selling similar products

question

Few Firms

answer

A characteristic of an oligopoly that states there is more than one firm but fewer than a monopolistic or perfect competition market

question

Barriers to Entry

answer

In an oligopoly, there are significant _________ ___ ________, such as exclusive access to resources and patents

question

Profit

answer

Like all firms, oligopolies set output and prices to maximize their ________

question

answer

Oligopolies produce ________ than monopolies

question

Less

answer

Oligopolies produce _________ than perfect or monopolistic competitors

question

Lower

answer

Oligopolies have _______ prices than monopolies

question

Higher

answer

Oligopolies have _______ prices than perfect competitors

question

Collusion

answer

An attempt by firms to agree on prices and number of units produced

question

Oligopolies

answer

_____________ often partake in collusion

question

Prisoner's Dilemma

answer

A model used to illustrate why collusion tends to break down. It is a model that simplifies why oligopolies tend to collude with one another.

question

Cartel

answer

A group of colluding firms

question

Antitrust

answer

__________ laws outlaw cartels (in business)

question

Profit

answer

_________ = TR - TC

question

Accounting Profit

answer

Total revenue minus total cost, where total cost includes only explicit costs

question

answer

Price x Quantity Sold

question

answer

Cost per Unit x Quantity Produced

question

Opportunity Costs

answer

The sacrifices made by choosing one value or opportunity over another

question

Economic Profit

answer

TR - TC (where TC includes all opportunity costs)

question

Opportunity Cost

answer

__________ ___________ = Accounting Profit - Economic Profit

question

Fixed Input

answer

A factor of production or input that cannot be changed in the short run

question

Variable Input

answer

A factor of production or input that depends upon the level of production

question

Short Run

answer

Defined not in terms of three months, six months, or a year but rather defined as having at lease one fixed input or cost

question

Long Run

answer

In the ______ ______ all inputs and costs are variable

question

Production of Function

answer

The mathematical relationship between inputs and outputs. In the context of economics of the firm, cost/profits can be determined through cost/profit functions

question

Utility Function

answer

Used to determine how consumers can maximize their utility within a budget constraint

question

Total Revenue

answer

The amount received from sales of the good or service produced

question

Marginal Revenue

answer

The additional revenue resulting from the increase of product sales by one unit

question

Marginal Revenue

answer

= Change in Total Revenue / Change in Quantity

question

Perfect Competitor

answer

Marginal revenue and price are the same thing for a __________ __________

question

Output Effect

answer

The revenue received from selling additional units of a good or service

question

Price Effect

answer

In order to sell additional units, competitive firms must lower their price. This represents the loss in revenue resulting from this price drop

question

answer

= Output Effect - Price Effect

question

Increases

answer

If output effect > price effect, total revenue _________

question

Decreases

answer

If output effect < price effect, total revenue ______________

question

Zero

answer

Total revenue will be the highest where marginal revenue equals __________

question

Perfect Competition

answer

Which market structure has no price effect?

question

Average Revenue

answer

= Total Revenue / Quantity Sold

question

Total Cost

answer

Variable costs plus fixed costs- essentially, all of our costs

question

Average Cost

answer

= Total Cost / Quantity

question

Average Total Cost

answer

What is another name for average cost

question

Average Total Cost

answer

= Average Fixed Cost + Average Variable Cost

question

Average Fixed Cost

answer

(AFC) = Total Fixed Cost / Quantity

question

Average Variable Cost

answer

(AVC) = Total Variable Cost / Quantity

question

Average Variable Cost

answer

Finding the ___________ _________ ________ helps with short run decisions (such as paying for labor or raw materials) and helps determine whether to shut down or produce at a loss

question

Marginal Cost

answer

The additional cost incurred when producing one additional product

question

answer

= Change in TC / Change in Q

question

Break Even

answer

The _______ _______ price is where marginal cost = average total cost

question

Shut Down

answer

The _________ ________ price is where marginal cost = average variable cost

question

Minimum

answer

On a graph, marginal cost will intersect an average at its ___________ point.

question

Total Product

answer

The quantity of goods and services produced overall depending on the number of employees or capital

question

Marginal Product

answer

The output produced when we add one additional unit of input

question

Marginal Product of Labor

answer

(MPL) The additional output generated by adding one more unit of labor

question

Marginal Product of Capital

answer

(MPK) The additional output generated by adding one more unit of capital

question

Average Product

answer

= Total Output / Quantity of Input

question

Diminishing Marginal Product

answer

The marginal product of capital or labor will begin to fall at some point, holding everything else constant

question

Marginal Revenue Product

answer

(MRP) The additional sales revenue received from employing one more unit of labor or capital

question

MRP

answer

= Marginal Product x Marginal Revenue (Price of Good)

question

Total Revenue

answer

(TR) = P x Q

question

Total Cost

answer

TC = FC + VC

question

Price Takers

answer

In a perfect competition, firms are ___________ __________

question

Slope

answer

Rise over run; Change in the value of the y-axis relative to the change in the x-axis variable

question

Highest

answer

Profit will be __________ when a firm produces to the point where the slope of total revenue and total cost are equal

question

Horizontal

answer

The slope of marginal revenue and demand in price for a perfect competition is __________ (constant)

question

Profit

answer

__________ is the highest where there is the greatest difference between total revenue and total cost.

question

Equals

answer

A firm should produce until the point where marginal revenue _________ marginal cost

question

Equals

answer

A firm will optimize their output by hiring up to the point where the marginal revenue of each input ________ the cost of the input

question

Profit

answer

If TR>TC, firm incurs ____________

question

Loss

answer

If TR<TC, firm incurs ________

question

Breaks Even

answer

If TR=TC, firm ___________ _________

question

Short Run

answer

A point in which a firm cannot adjust output and expenses in preparation to minimize cost per unit

question

Long Run

answer

A point in which a firm can adjust output and expenses to minimize cost per unit

question

Breakeven

answer

A point where there is no profit or loss

question

Entry

answer

Short run profit causes _______ into the industry

question

Exit

answer

Short run losses cause _______ from the industry

question

Profit

answer

If P>ATC, firm incurs ________

question

Loss

answer

If P<ATC, firm incurs ________

question

Breaks Even

answer

If P=ATC, firm ___________ __________

question

Loss

answer

When expenses exceed revenue

question

Shutdown

answer

The factors of production no longer operating.

question

Shutdown

answer

If P<ATC for too long, the best option is to ______________

question

Exit

answer

A long run decision where a shareholder sells the investment in a firm

question

Exit

answer

In an _______ there are no more fixed costs

question

Shutdown

answer

In a ___________, there are still fixed costs

question

Short

answer

A shutdown is a _________ run decision

question

Long

answer

An exit is a _______ run decision

question

Short Run Supply Curve

answer

A firm's ________ _____ __________ __________ is the marginal cost curve above the shut down point

1 of 117

question

Perfect Competition

answer

An industry market structure characterized by a very large number of firms selling a homogeneous product. Firms have essentially no market power.

question

Hypothetical

answer

Perfect competition in our current market structure is mostly ____________

question

Homogeneous Product

answer

This characteristic of a perfect competition states that there is no way to differentiate the product of one seller from another. There are not even brand names

question

Many Sellers

answer

This characteristic of a perfect competition states that no one firm is large enough to have any market power at all, and because of this, they have no ability to set their own price

question

Perfect Information

answer

question

Instantaneous Entry/Exit

answer

question

Monopoly

answer

An industry market structure characterized by one firm supplying a unique product to the entire market. Barriers prevent entry into the market

question

Differentiated Product

answer

A characteristic of a monopoly that states the monopolistic firm sells a unique product that no other company provides

question

One Seller

answer

A characteristic of a monopoly that states there is only one firm selling the unique product. This also means that they determine the price

question

Imperfect Information

answer

This characteristic of a monopoly states that there is not a free flow of information between consumer and firm.

question

Barriers To Entry

answer

A characteristic of a monopoly. These are something that prevents other companies from entering the market and competing with the monopoly.

question

High Start Up Costs

answer

One of the barriers to entry for a monopoly. This one is described as needing a significant amount of money to enter the market.

question

Government Created Monopolies

answer

Patents or copyrights create these. For example, pharmaceutical companies can exclusively sell new drugs until the patent expires. Another variant of a barrier to entry for a monopoly

question

Control Over Key Resource

answer

A barrier to entry for a monopoly where a company has control over a resource, and it is difficult or impossible to find

question

Predatory Pricing

answer

The pricing of goods or services at such a low level that other suppliers cannot compete and are forced to leave the market.

question

Worse

answer

The closer we are to a monopoly, the _________ it will be for consumers

question

Inputs

answer

Factors of productions are also known as ________

question

Outputs

answer

Goods and services are also known as ___________

question

Monopolistic Competition

answer

An industry market structure characterized by a large number of firms selling similar products

question

False

answer

True or False: A monopoly and a monopolistic competition are the same thing.

question

Differentiated Product

answer

A characteristic of a monopolistic competition market, where while products are similar firms will do everything they can to differentiate their product from competitors.

question

Many Firms

answer

A characteristic of a monopolistic competition market that states there are multiple firms selling a similar product

question

Some

answer

In a monopolistic competition, the many firms have _______ control over market price, meaning they have the ability to choose what price they want to charge, but they do have to be careful

question

Imperfect Information

answer

A characteristic of a monopolistic competition where information is not perfectly shared between the firm and the consumer

question

Inefficiencies

answer

question

Differentiation

answer

In a monopolistic competition, the name of the game is ______________. Making your product better than the competition, or more well known through advertising.

question

Production Cost

answer

Differentiation in a monopolistic competition drives up __________ __________. One example is increasing advertising to make your product more well known.

question

Short Run

answer

In the ________ _______, firms in a monopolistic competition behave more like monopolists, becasue they are trying to differentiate their product and establish market power

question

Short Run

answer

In the ________ ___________, monopolistic competitors will set prices and produce the quantity that will maximize their profit, just as a monopolist would do, because they have the power to do so.

question

Long Run

answer

In the _______ ______, monopolistic competitors face a lot of competition, because barriers to entry are low and it is easy to get in and out of the market.

question

Oligopoly

answer

An industry market structure characterized by a few firms selling similar products

question

Few Firms

answer

A characteristic of an oligopoly that states there is more than one firm but fewer than a monopolistic or perfect competition market

question

Barriers to Entry

answer

In an oligopoly, there are significant _________ ___ ________, such as exclusive access to resources and patents

question

Profit

answer

Like all firms, oligopolies set output and prices to maximize their ________

question

answer

Oligopolies produce ________ than monopolies

question

Less

answer

Oligopolies produce _________ than perfect or monopolistic competitors

question

Lower

answer

Oligopolies have _______ prices than monopolies

question

Higher

answer

Oligopolies have _______ prices than perfect competitors

question

Collusion

answer

An attempt by firms to agree on prices and number of units produced

question

Oligopolies

answer

_____________ often partake in collusion

question

Prisoner's Dilemma

answer

A model used to illustrate why collusion tends to break down. It is a model that simplifies why oligopolies tend to collude with one another.

question

Cartel

answer

A group of colluding firms

question

Antitrust

answer

__________ laws outlaw cartels (in business)

question

Profit

answer

_________ = TR - TC

question

Accounting Profit

answer

Total revenue minus total cost, where total cost includes only explicit costs

question

answer

Price x Quantity Sold

question

answer

Cost per Unit x Quantity Produced

question

Opportunity Costs

answer

The sacrifices made by choosing one value or opportunity over another

question

Economic Profit

answer

TR - TC (where TC includes all opportunity costs)

question

Opportunity Cost

answer

__________ ___________ = Accounting Profit - Economic Profit

question

Fixed Input

answer

A factor of production or input that cannot be changed in the short run

question

Variable Input

answer

A factor of production or input that depends upon the level of production

question

Short Run

answer

Defined not in terms of three months, six months, or a year but rather defined as having at lease one fixed input or cost

question

Long Run

answer

In the ______ ______ all inputs and costs are variable

question

Production of Function

answer

The mathematical relationship between inputs and outputs. In the context of economics of the firm, cost/profits can be determined through cost/profit functions

question

Utility Function

answer

Used to determine how consumers can maximize their utility within a budget constraint

question

Total Revenue

answer

The amount received from sales of the good or service produced

question

Marginal Revenue

answer

The additional revenue resulting from the increase of product sales by one unit

question

Marginal Revenue

answer

= Change in Total Revenue / Change in Quantity

question

Perfect Competitor

answer

Marginal revenue and price are the same thing for a __________ __________

question

Output Effect

answer

The revenue received from selling additional units of a good or service

question

Price Effect

answer

In order to sell additional units, competitive firms must lower their price. This represents the loss in revenue resulting from this price drop

question

answer

= Output Effect - Price Effect

question

Increases

answer

If output effect > price effect, total revenue _________

question

Decreases

answer

If output effect < price effect, total revenue ______________

question

Zero

answer

Total revenue will be the highest where marginal revenue equals __________

question

Perfect Competition

answer

Which market structure has no price effect?

question

Average Revenue

answer

= Total Revenue / Quantity Sold

question

Total Cost

answer

Variable costs plus fixed costs- essentially, all of our costs

question

Average Cost

answer

= Total Cost / Quantity

question

Average Total Cost

answer

What is another name for average cost

question

Average Total Cost

answer

= Average Fixed Cost + Average Variable Cost

question

Average Fixed Cost

answer

(AFC) = Total Fixed Cost / Quantity

question

Average Variable Cost

answer

(AVC) = Total Variable Cost / Quantity

question

Average Variable Cost

answer

Finding the ___________ _________ ________ helps with short run decisions (such as paying for labor or raw materials) and helps determine whether to shut down or produce at a loss

question

Marginal Cost

answer

The additional cost incurred when producing one additional product

question

answer

= Change in TC / Change in Q

question

Break Even

answer

The _______ _______ price is where marginal cost = average total cost

question

Shut Down

answer

The _________ ________ price is where marginal cost = average variable cost

question

Minimum

answer

On a graph, marginal cost will intersect an average at its ___________ point.

question

Total Product

answer

The quantity of goods and services produced overall depending on the number of employees or capital

question

Marginal Product

answer

The output produced when we add one additional unit of input

question

Marginal Product of Labor

answer

(MPL) The additional output generated by adding one more unit of labor

question

Marginal Product of Capital

answer

(MPK) The additional output generated by adding one more unit of capital

question

Average Product

answer

= Total Output / Quantity of Input

question

Diminishing Marginal Product

answer

The marginal product of capital or labor will begin to fall at some point, holding everything else constant

question

Marginal Revenue Product

answer

(MRP) The additional sales revenue received from employing one more unit of labor or capital

question

MRP

answer

= Marginal Product x Marginal Revenue (Price of Good)

question

Total Revenue

answer

(TR) = P x Q

question

Total Cost

answer

TC = FC + VC

question

Price Takers

answer

In a perfect competition, firms are ___________ __________

question

Slope

answer

Rise over run; Change in the value of the y-axis relative to the change in the x-axis variable

question

Highest

answer

Profit will be __________ when a firm produces to the point where the slope of total revenue and total cost are equal

question

Horizontal

answer

The slope of marginal revenue and demand in price for a perfect competition is __________ (constant)

question

Profit

answer

__________ is the highest where there is the greatest difference between total revenue and total cost.

question

Equals

answer

A firm should produce until the point where marginal revenue _________ marginal cost

question

Equals

answer

A firm will optimize their output by hiring up to the point where the marginal revenue of each input ________ the cost of the input

question

Profit

answer

If TR>TC, firm incurs ____________

question

Loss

answer

If TR<TC, firm incurs ________

question

Breaks Even

answer

If TR=TC, firm ___________ _________

question

Short Run

answer

A point in which a firm cannot adjust output and expenses in preparation to minimize cost per unit

question

Long Run

answer

A point in which a firm can adjust output and expenses to minimize cost per unit

question

Breakeven

answer

A point where there is no profit or loss

question

Entry

answer

Short run profit causes _______ into the industry

question

Exit

answer

Short run losses cause _______ from the industry

question

Profit

answer

If P>ATC, firm incurs ________

question

Loss

answer

If P<ATC, firm incurs ________

question

Breaks Even

answer

If P=ATC, firm ___________ __________

question

Loss

answer

When expenses exceed revenue

question

Shutdown

answer

The factors of production no longer operating.

question

Shutdown

answer

If P<ATC for too long, the best option is to ______________

question

Exit

answer

A long run decision where a shareholder sells the investment in a firm

question

Exit

answer

In an _______ there are no more fixed costs

question

Shutdown

answer

In a ___________, there are still fixed costs

question

Short

answer

A shutdown is a _________ run decision

question

Long

answer

An exit is a _______ run decision

question

Short Run Supply Curve

answer

A firm's ________ _____ __________ __________ is the marginal cost curve above the shut down point

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