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Econ quiz 4
Terms in this set (19)
Perfect Competition Characteristics
1) many buyers & sellers so that no one had any control over that market or industry. 2) perfect information: everyone has all the information necessary to make an optimal decision. 3) easy entry & exit 4) homogeneous product: all firms in an industry sell products that are absolutely identical in every way 5) everyone is a price taker
True/ False: the demand curve of a perfect competition industry is horizontal
False: demand curve for a p.c. Firm is horizontal and a p.c. industry is downward sloping.
T/F: when a firm has diminishing marginal returns, its total product diminishes.
False. Addition to output decreases but total product increases
T/F: when a firm has diminishing marginal returns, its MC curve slopes up
At the profit maximizing output, the slope of the __ curve = the slope of the __ curve
Total revenue, total cost
When profit is maximized, marginal revenue=__
When profit is maximized, MR= marginal cost
What separates atc & avc?
1) Firm: firm minimizes it's per-unit cost of production (automatically obtained under perfect competition)
2) Society: mc=mu (under perfect competition mr=p)
(Pure) Monopoly characteristics:
1) one firm in an industry- the firm IS the industry.
2) the firm produces a good or service for which there are no close substitutes (location & attributes)
3) it is difficult or impossible for another firm to exist in that industry
4) the firm is a price maker
Ex) some medications (epi pen), Edison electricity. (Near monopoly): DeBeers 93% of sales, Microsoft 95%
How monopolies form
1) government decree
2) issuance of a patent
3) ownership of a key resource
4) form is best in industry
5) large start up costs, too expensive for competitors to enter the industry
6) cost advantages from large scale production
7) buyout of competition
8) deliberately erected barriers to entry
1 firm can produce the output of an entire industry at a lower atc than if there were multiple firms. Ex) electricity, natural gas, water
One firm that charges different consumers different prices for the same good/service. Perfect Competition can't have price discrimination.
Monopolistic Competition Characteristics
1) many buyers & sellers
2) "perfect" (very good) information
3) easy entry & exit
4) heterogeneous product
5)firms are price makers within limits
Y/N: if a firm has an economic profit, must it have an accounting profit?
Y/N: if a firm has an accounting profit, must it have an economic profit?
At profit maximizing output, does this firm produce efficiency (firm perspective)
Minimum of atc, not efficient
Compare the output & price of p.c. & monopoly
Monopoly charges a higher price & produces less
Can monopolistic competition firms use price discrimination?
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