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52 terms

econ midterm

STUDY
PLAY
At the socially optimum quantity of production price equals
Marginal cost
Suppose an oligopolistic firm assumes that it's rivals will ignore a price increase but match a price cut. in this case, the firm perceives its demand curve to be
Kinked being steeper below the going price then above
Given that there are significant economies of scale involved in making flatscreen televisions the cost of manufacturing a flat screen television set will most likely
Fall as the industry matures
If the marginal revenue of the next widget the firm produces is $50 and it's marginal cost is $35 a firm should
Increased production
Which of the following is one of the necessary conditions for perfect competition
Large number of firms
Into thousand nine Circuit City closed it's stores if we assume this was a short red decision then the most likely explanation for is that the price of a typical products sold at Circuit City stores was
Less than the average variable cost of producing the toy
As long as marginal cost is below marginal revenue a perfectly competitive firm should
Increase production
Which of the following is most likely an example of constant returns to scale
Widget manufacturing double its production by opening a new plant that was identical to its old plant
Which of the following is most likely to be an example of econoomies of scale
The per-unit costs on Excel publishing companies manuals fall because it adopted a new technology following a large order from the government
There are many restaurants in the city of really each one offering food and services that differ from those of its competitors there is also free entry of sellers into the market and each seller sears a very small fraction of the total number of meals served each day the restaurant industry in rally is best categorized as
Monopolistically competitive
Which of the following is most likely an example of diseconomies of scale
The XYZ Co. increase production capacity by 25% and experienced a 30% increase in its total cost
Although many legal music downloads site started up because of the technology only if you have survived it is likely that online music firms
Experience economies of scale
The demand for clothing increases as a result the price of clothing increases above the minimum average cost of producing it. In the long run if the clothing industry is perfectly competitive and is a constant cost industry
The supply of clothing will increase but the price will not
If a natural monopolist were forced to set price equal to average cost it would
earn a normal profit
The foregone income that the owner of the business could have made by spending time working in another job is called
Opportunity cost
EBay.com is a vast auction site that is similar to a competitive market in some ways but also differs from it and others. Which of the following best describes how eBay resembles a competitive market
There is a great variety of different products sold on eBay
Spam email is a major annoyance for many people who use the Internet. However spammers sometimes have to send thousands of messages to just get one response that pays any money. Given this information
Spamming can be profitable even with a very low number of buyers because the marginal cost of sending spam is virtually zero
Costs that are spent and cannot be changed in the period of time under consideration are called
Fixed costs
Variable costs:
Changes output changes
In the market for bank credit a large big sometimes announces a change in interest rates. After the changes in interest rates are announced other banks in the industry usually react by changing their rates in the same way this is an example of
implicit collusion
In the short run average variable cost equals
Average total cost less average fixed cost
Implicit and explicit revenues minus implicit and explicit cost equal
economic profit
If a firm in a perfectly competitive market experiences a technological breakthrough
Other firms would find out about it immediately
US pharmaceutical companies often sell drugs at a lower pricing for markets. Where demand is more price he lasted been in US markets. The main reason for this price discrimination is that the companies must charge high prices to some consumers in order to recover development costs. U.S. consumers end up paying
More because they have less price elastic demand
Be able to calculate fixed/variable/total costs
TC = VC + FC
Be able to calculate average fixed cost AFC
AFC = FC/Q
Be able to calculate average variable costs AVC
AVC= VC/Q
Be able to calculate average total cost ATC
ATC= TC/Q
ATC=AVC+AFC
Be able to calculate marginal costs MC
(TC1 - TC2)/(Q2-Q1)=MC
Why do companies merged and spinoff units with respect to their LR ATC's
COMPANIES MERGE BECAUSE IT'S MORe EFFICIENT AND HAS A LOWER COST. THEY SPINOFF UNITS OR SPLIT THEM AT DISECONOMIES OF SCALE.
What formulas used to determine profit maximizing out
MR equals MC
What formulas are used to determine the amount of profit or loss
TR minus TC
What is a perfectly competitive firm short run supply curve
MC is supply in short run
What formula determines if a firm will shut down in this market structure
If P is less than AVC
Are productive and/or allocative efficiency achieved with perfect competition? why or why not
Yes because what is needed is Produced and must be productive effiently because they couldn't compete otherwise
List the market characteristics of a perfectly competitive firm
Large numbers, Perfect elastic demand, free entry and exit, pricetakers
List the market characteristics of a purely Monopolistic firm
Single firm is the sole producer of a product with no substitutes.

Pure, not near, monopoly characteristics - single seller, No close substitutes, firm is a price maker, entry into the industry is blocked.


I monopolist may engage in nonprice competition examples are public utilities, professional sports.
What formula is used to determine profit maximizing output
MR equals MC
What formulas are used to determine the amount of profit or loss
Profit equals TR minus TC
What are three barriers to entry that create monopolies
Economies of scale - Public utilities, natural monopoly pieces okay if you regulated.

Legal barriers - patents, licenses, Companies and TV stations are examples

Ownership or control over essential resources - deBeers diamonds is an example of this so is pro sports,

monopolist use pricing or strategic carriers, Microsoft building Internet Explorer and have a package with computers.
What is monopoly rent seeking behavior
Pouring money back into politics to ensure/protect their monopoly. Lobbying, public relations.
What is an X inefficiency
Firms operating Far less efficiently than they could technically. No competitive pressure to produce at lowest cost. Firms costs are higher than needed.
PacBell is an example of this.
How does profit maximization differ between a single price monopolist and a price discriminating monopolist
When a monopolist price discriminate it charges individuals high up on the demand curve higher prices and those low on the demand curve lower prices. They can charge consumers with less elastic demand a higher price and individuals with Maury lasted demand a lower price. Movie prices airline fares, executive travelers, have inelastic demand, vacation travelers, have more elastic demand. Price discrimination make greater profit because they are able to charge more to Less elastic consumers. More profits Cambiaron by the seller, since the price charged is what each buyer is willing to pay in perfect discrimination. Thus, marginal revenue equals demand when price discriminating.
Why would a firm be a natural monopoly
Cheaper do have the one firm produce and makes it cheaper for the consumer
List the market characteristics of a monopolistic competitive firm
Many sellers, differentiated products, multiple dimensions of competition, easy entry for new firms in the long run.
What is product is differniation and how is it achieved and what does it allow producers to do?
Gives it it's monopolistic aspect. Monopolistic competitors have some monopoly power advertising to increase monopoly power makes sense as long as the marginal benefit of advertising exceeds the marginal cost. Firms must make their decisions as They had no effect on other firms. Multiple dimensions of competition.
Are productive and/or allocative efficiency achieved with perfect competition
In perfect competition both types of efficiency are achieved in the long run
List the market characteristics of an ologoplostic firm
Mutually interdependent, can be collusive or non-collusive, strategic decision making.
Describe the kinked demand curve model and what it tells about the equilibrium price and it's stickiness
Type of informal collusion. Informal collusion kinkos sticky prices. Another possible reason is that firms don't collude but have certain expectations of other firms. They see a kinked demand curve facing them. When the demand curve has a kink, the marginal revenue curve must have a gap.Increased price leads to decrease in quantity demanded.Demand curve below current price, it is less elastic, price decline would be matched by other competitors = little change in quantity demanded with a price decline. Price remains sticky benefiting all competitors.
What does strategic behavior, mutual interdependence, and game theory have to do with oligopolies pursuit of profits
They can act as a monopoly if they collude
What is collusion why does it happen
Implicit collusion, is multiple firms that make the same pricing decisions even though they have not explicitly consulted with one another.
What is the cartel model for oligopolies
A model that assumes that oligopolies act as if they were monopolists that have assigned output quotas to individual member firms of the oligopoly so that total output is consistent with joint profit maximization. Limit entry of other firms by forming a cartel