ECN final

For a nonlinear demand function of the form Q = aPb Mc PRd, the estimated income elasticity is

c

when we say that market prices allocate goods to the highest valued users we mean that

only consumers who value the good more than the market price of the good will choose to buy the good

demand and inverse demand

Direct: Qd=f(P) Inverse: P=f (Qd) say the demand equation was Q=1,400-10P inverse would be P=140-1/10Q^4

Theoretical restrictions on the parameters of the short-run cubic cost equation, TVC = aQ+ bQ2 + cQ3, are (?< ?<...)

a > 0, b < 0, c > 0

an underallocation of resources occurs when

a positive externality in consumption exists

nash equilibrium

a set of actions for which all mangers are choosing heir best actions given the actions chosen by their rivals

a dominant strategy is

a strategy or action that always provides the best outcome no matter what decisions rivals make

natural monopoly rises when

average cost is falling throughout the relevant output range

when social surplus is maximized in competitive equalibrium

allocation and productive efficiency are achieved marginal social benefit equals marginal social cost

social economic efficiency means that the market is achieving

allocative and productive efficiency

as a policy option for regulating natural monopoly, marginal cost pricing is desirable because

allocative efficiency is achieved

a credible commitment is

always irreversible

price leadership is

an arrangement in which one firm in the market sets a price that the other fims match

marginal analysis

analytical technique for solving optimization problems that involves changing values of choice variables by small amounts to see if the objective function can be further improved

a short-run cost function assumes that

at least one input is fixed

when estimating a short-run average variable cost function at least one input must

be fixed during the period in which the data were collected

marginal revenue

change in total revenue divided by change in quantity

prisoners dilemma

confessing vs not confessing - dominant strategy equilibrium

if the entry barrier is remove consumers will be better off because

consumers will enjoy greater consumer surplus

For a linear demand function, Q = a + bP + cM + dPR, the cross-price elasticity is

d(PR/Q)

whats the most important characteristic of an oligopoly

interdependence of profits

in a repeated decision for awhich the present value of the benefits of cheating are greater than the present value of the cost of cheating

deciding to cheat IS a VALUE MAXIMIZING decision

Suppose that when a firm increases its usage of all inputs by 100%, output increases by less than 100%. The firm's production function exhibits

decreasing returns to scale

consumer surplus

demand pricce- market price

what conditions make it less likely that a cartel will succeed

differentiated cost structures among cartel members

time- series models often use

dummy variables to control cyclical variation

Suppose you operate a sandwich shop and currently have two employees. If you hire a third employee, your output of sandwiches per day rises from 75 to 90. If you hire a fourth employee, output rises to 110 per day. A fifth and sixth employee would cause output to rise to 120 and 125 per day,respectively. diminishing returns set in with the hiring of____________ worker

fifth

___________ is/are examples of market failure that could be justify goverment intervention in the market

imperfect information public goods a dominant firm that under takes pricing strategies aimed at maintaining high entry barriers

marginal cost

is less than average cost when average cost is decreasing measures how total cost changes when one more unit of output is procuced

the marginal product of labor

is less than the average product of labor when the average product of labor is decreasing is negative when adding another unit of the variable input reduces total product

seasonal or cyclical variation in a time series model

is regular in nature but can be accounted for by dummy variables can decrease the accuracy of a forecast if not accounted for by dummy variables

at the point of intersection of two best response curves, each manager

is unable to achieve a higher payoff through any unilateral change of stategy

a form of strategic entry deterrence is

limit pricing and maintaining excess capacity

economies of scale exist when

long run average cost decreases as output increases

if a firm is producing the level of output at which long run average cost equals long run marginal cost then...

long run average cost is at its minimum point

if a firm is producing a given level of output in an economically efficient manner, then it must be the case that it is choosing the

lowest-cost method of producing that output

average total cost increases if

marginal cost is greater than average total cost

diminishing returns refers to the decrease in

marginal product that results from increasing the variable input

when there is negative externalize in production

marginal social cost exceeds marginal private cost

producer surplus

market price- supply price

if average product is decreasing then marginal product

must be less than average product

average fixed cost decreases as

output increases

when a competitively produced product is subject to negative externalities in production the industry will

over produce the good because marginal social cost will exceed marginal social benefit in competitive equilibrium

in long run perfectly competitive equilibrium, economic efficiency is achieved because

price equal long run marginal cost for every firm in the industry price equals minimum long run average cost for every firm in the industry

market or monopoly power leads to market failure because

price exceeds marginal revenue which causes the profit maximizing firm to UNDER produce the good or service

a sequential decision making situations using the roll back method

results in a nash equilibrium

an overallocation of resources in an industry means that for the last unit produced

society places higher value on the resources required to produce the last unit than the the value society places on consuming the the last unit

actions taken by firms to plan for and react to competition from rival firms are known as

strategic behavior

dominated strategies

strategies that would never be chosen no matter what rivals might choose to do

dominant strategy

strategy or action that always provides the best outcome no matter what decision the rival makes

the less information consumer have about product quality

the GREATER will be the loss of social surplus due to ALLOCATIVE inefficiency

If a firm is producing the level of output at which short-run average cost equals long-run average cost, then

the firm has chosen the profit-maximizing level of output with a fixed amount of capital, short-run average cost is greater than long-run average cost at all other levels of output the firm has chosen the cost-minimizing combination of inputs to produce this level of output

the brooklyn bridge is not a pure public good because

the free rider problem could be solved using toll accesses or booths

private provision of public goods fails to achieve economic efficiency because

the free rider problem prevents collection of sufficient revenue the price of privately supplied public goods must exceed zero in order to be allocatively efficient

diminishing marginal productivity occurs when

the marginal product curve begins to slope downward adding one more unit of the variable input reduces total product

if a firm is producing a given level of output in a technically efficient manner, then it must be the case that this output level is

the most that can be produced with the given levels of inputs

a production function meatures the relation between

the quantity of inputs and the quantity of outputs

common property resources lead to market failure becuase

the resources is over exploited and under supplied

a problem with consumer interviews is that

the sample might not be a representative sample interview techniques are not scientific

a short run production function assumes that

the usage of at least one input is fixed

nash decisions are likely to be chosen because

they represent a set of actions for which all managers are choosing their best actions given the actions chosen by their rivals

which strategy for punishing cheating has consistently been the winning strategy in tournaments pitting decision strategies against one another

tit for tat

A firm is using 400 units of capital and 200 units of labor to produce 20,000 units of output. Capital costs $80 per unit and labor $20 per unit. The last unit of capital added 100 units of output, while the last unit of labor added 30 units of output. The firm could produce the same level of output at a lower cost by using ________capital and _________ labor

using less capital and more labor

in the long run, all inputs are

variable

a second mover advantage occurs

when a firm can earn a greater profit by reacting to earlier decisions made by rivals

a conditional strategic move, such as a threat or promise can be credible only if

when the time comes to carry out the threat or promise fulfilling he threat or promise is in the best interest of the firm making the threat or promise

firms with market power

will maximize profit but fail to maximize social surplus