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Microeconomics Exam 3 Lipman - Rutgers

Terms in this set (47)

In a purely competitive industry, where do you have a profit? Short run or long run?
Short run, not long run
What is production efficiency?
Production of a good at its lowest ATC
Which of the 4 market models does the automobile industry fall under?
An Oligopoly
If monopolists engage in price discrimination, what would happen?
charge a higher price where individual demand is inelastic and lower price where individual demand is elastic (ex: cable)
Creative destruction is...
the process by which new firms and new products replace existing dominant firms and products
In the short run, a purely competitive firm will always make an economic profit if:
P>ATC
In which market does mutual interdependence occur?
Oligopoly
X-inneficiency refers to a situation in which a firm...
fails to achieve the minimum ATC attainable at each level of output
Economies and diseconomies of scale explain:
why the firm's long-run ATC curve is U-shaped
Which of the following conditions is NOT required for price discrimination:

The good or service cannot be profitably resold by original buyers

The seller must possess some degree of monopoly power

Buyers with different elasticities must be physically separate from each other

The seller must be able to segment the market
Buyers with different elasticities must be physically separate from each other
A purely competitive firm's demand schedule is inelastic or elastic?
Perfectly elastic (horizontal line) "E-shape"
In a purely competitive firm, where D=AR=MR (DARMR line)(Horizontal line), Q is shown as being the point where MC=ATC and is touching the DARMR line. What kind of profit/loss with this firm incur?
Normal Profit (where MR=MC)
What was OPEC and example of?
an international cartel
Purely competitive seller is a price maker or taker?
Price taker (they accept the market price)
What kind of demand curve does a purely monopolistic firm have?
downsloping
In pure competition, in the long run, what's happening with allocative and productive efficiency?
both are achieved
On the graph showing the relationship between ATC, AVC, and MC, the lowest point on the MC curve where it is underneath the AVC curve, what does the firm need to do?
Shut down (Below AVC)
Where does a firm, in the short run, find its point where its profits are at a max and its losses are at a min?
where MR=MC (Marginal cost; Marginal Revenue)
In relation to the graph with total cost and total revenue, where does the firm produce its max profit at? (hint: MC and MR are not present. We're talking about TC and TR)
At the max distance between TC and TR curves
How do you find AFC for a specific quantity amount?
TC/Q
In an imperfect competition's graph, how do you find where you max profit and min loss?
Find MR=MC and bring it up to the demand curve
For an imperfectly competitive firm:
the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold
Monopolistically competitive firms
may realize either profits or losses in the short run but realize normal profits in the long run
How do you find the marginal product of a worker?
Subtract the units of output from the worker you want to find from the units of output from the previous worker.
If marginal revenue is constant, what type of market firm is it? (hint: DARMR)
Purely competitive
What is game theory?
the analysis of how people (or firms) behave in strategic situations
How do you find marginal cost?
TC2-TC1
How do you find MR if you're given P and Q?
First find TC (P*Q), then do TR2-TR1
Herfindahl index equation
(x)^2; pure monopolist is (100)^2
A natural monopoly occurs when
unit costs are minimized by having one firm produce an industry's entire output
For a pure monopolist, a "fair return" is where...
ATC=MC (normal profit point)
What does the graph of the curves for Total, Marginal, and Average product curves look like?
Total is highest, followed by Average, and then Marginal
The mutual interdependence of an oligopoly arises because...
each firm in an oligopoly depends on its own pricing strategy and that of its rivals
Which is NOT a barrier to entry?

Ownership of essential resources

Economies of scale

X-inefficiency

Patents
X-inefficiency
Where should a pure monopolist NEVER produce and why?
Inelastic segment of its demand curve because it can increase TR and reduce TC by increasing price
Which is a characteristic of a pure monopoly?

Barriers to entry

Close substitute products

"price taking"

the absence of market power
Barriers to entry
If there are 6 firms with a total percent market share of 100%, what market firm is it?
Oligopoly
If a firm decides to not produce in the short run, its costs will be what?
Its fixed costs
For a purely competitive firm, what happens with the demand and marginal revenue curves?
They will coincide
An industry having a 4-firm concentration ratio of 30%, what market firm is it?
Monopolistically competitive
Monopolistically competitive means...
many firms producing differentiated products
A concentration ratio measures...
% of total industry sales accounted for by the largest firms in the industry
The deciding point where it is optional to shutdown at is where...
MC=AVC
Excess capacity refers to...
the amount by which actual production falls short of the min ATC output
Basic differences between the SR and LR is...
at least one resource is fixed in the SR, and all resources are variable in the LR
To maximize profit is where..
MR=MC
What is the difference between the demand curves for a purely competitive firm and the industry?
The PC firm is purely elastic while the industry is downsloping
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