ECON Exam 2
in the long-run, a monopolist will
be able to continue to earn economic profit as long as the market remains a monopoly
in a perfectly competitive firm finds itself producing here its marginal costs exceeds its price, it should
decrease its output to increase its profit
in perfect competition, an individual firm
determines the quantity it sells in the marketplace but has no influence over its price
the maximum economic profit that can be made by a duopoly that colludes is equal to the _______
economic profit made by the monopoly
Perfect competition is an industry with
many firms producing identical goods
which characeristic is associated with monopolistic competition - collusion - small # of firms - awareness of rival firms in the market - product differentiation
product differentiation
a firm's basic goal is to maximize its
profit
Revenue Equivalence Theorem suggests that different auction designs will
raise about the same expected revenue for the seller; produce an outcome similar to the law of one price
in the short run a perfectly competitive firm will
shut down if P < AVC
in the long run monopolistically competitive firms are ______ to perfectly competitive firms because _______
simslar; both firms earn zero economic profit
the long run is distinguished from the short run because only in the long run
the quantities of all resources can be varied
the short run is a period of time in which
the quantity used of at least one resource is fixed
a firm in monopolistic competition produces where
MR = MC
what is true regarding the long-run for a firm in monopolistic competition?
P = ATC
the two auction types that are strategically equivalent
1st price sealed-bid and descending; and 2nd price sealed-bid and ascending
in the short-run, a perfectly competitive firm will earn an economic profit as long as
P > ATC
when new firms enter a monopolistically competitive industry, each existing firm's
demand curve shifts leftward
price discrimination is the practice of charging different prices to
different customers even thought the cost of selling to each is the same
which is (are) parts of the market structure for monopolistic competition - barriers to entry - each firm produces a differentiated product - a large number of firms compete
each firm produces a differentiated product; a large number of firms compete
collusions or cartel agreements are bound to fail because
each firm will earn higher profit by breaking from the cartel agreement
total revenue minus the sum of implicit and explicit costs is equal to __________ profit
economic
High fixed costs are associated with
economies of scale
a firm incurs implicit costs when
the company uses capital equipment which it owns
in the long-run equilibrium in the perfectly competitive market
the economic profit for each firm equals zero
what happens in the long-run if competitive firms suffer economic losses?
the exit of some firms and the elimination of the short-run losses
what is marginal cost
the extra cost of producing 1 more unit of output
if a monopoly is operating along the portion of its demand curve where marginal revenue is positive, its
total revenue increases when price decreases
an economic profit for a self-employed entrepreneur is
total revenue that exceeds the opportunity cost
a firm that shut down and produces no output incurs a loss equal to its
total variable cost
in the long-run, perfectly competitive firms earn zero economic profit. This result is due mainly to which of the following assumptions?
unrestricted entry and exit
total cost is the sum of fixed costs and
variable costs
a decision that a firm DOES NOT make in the short run
whether to enter or exit an industry
A key difference between a monopoly and a perfectly competitive firm is that the monopolist
has a marginal revenue curve that lies below its demand curve
in perfect competition, the demand curve facing a single firm is
horizontal
when will a perfectly competitive firm shut down?
in the short-run, when price fall below the average variable cost
the marginal product of labor is equal to the
increase in the total product that results from hiring one more worker
a monopolist
is a price setter
if firms in a monopolistically competitive industry are earning a positive economic profit, then
new firms will enter the industry
Brand name drugs are chemically identical to their generic counterparts. Yet, consumers often prefer the brand name product to the generic product. Making consumers think that a brand name drug differs from its generic counterpart is an example of
product differentiation
a firm in monopolistic competition can determine what price to charge for its product because of
product differentiation
one benefit of monopolistic competition over perfect competition
product variety
the profit maximizing condition for a perfectly competitive firm is
P = MC
price wars can be a result of
new firms entering the industry and all firms then finding themselves in a prisoners' dilemma situation
the key feature of an oligopoly is that there
are only a few sellers
if economic profits are equal to zero then
accounting profits are being earned and they are equal to implicit costs
the distinguishing features of oligopoly are ______ and a ______ in the industry
barriers to entry; few firms
why do economists say that monopoly is "inefficient"?
because P > MC
perfect price discrimination
converts all consumer surplus into economic profit
what are variable costs
costs that change as output changes
total variable cost is the sum of all
costs that rise as output increases
explicit costs differ from implicit costs in that
explicit costs are paid in money, but implicit costs are often non-paid opportunity costs
opportunity cost equals
explicit costs plus implicit costs
One difference between oligopoly and monopolistic competition is that
fewer firms compete in oligopoly than in monopolistic competition
in the long-run equilibrium in the perfectly competitive market
firms produce at the lowest average cost per unit
in a perfectly competitive industry...
firms take price as given
a single price monopolist is inefficient becasue
it creates a dead-weight loss since P > MC
describe average fixed cost
it decreases continually as output is increased
describe average total cost
it decreases initially when output increases, but then increases
a perfectly competitive firm maximizes profit when
its marginal revenue equals its marginal cost
As perfectly competitive firms leave an industry because they are incurring an economic loss, the price of the good ________ and the economic loss of each remaining firm ________
rises; decreases
a period of time in which the quantity of at least one factor of production used by a firm is fixed is called the
short run
Marginal cost is calculated as
the increase in total cost divided by the increase in output
what is total cost
the sum of total variable costs and total fixed costs
in a perfectly competitive industry
- there are no barriers to entry - there are many firms in it, each selling an identical product
________ is a group of firms that have made a collusive agreement
a cartel
when producers agree to restrict output, raise the price, and increase profits, the agreement is called
a collusive agreement
how do monopoly outcomes differ from competitive outcomes?
a monopoly limits its output and charges a higher price for its product
a barrier to entry is
a natural or legal impediment that makes it difficult for new firms to enter a market
the long run is a period of time in which
all factors of production are variable
in perfect competition
all firms in the market sell their product at the same price
An example of a variable resource in the short run is
an employee
Pippi owns a pizza parlor. If Pippi owns a pizza oven, for its use she incurs ________. If she instead rents a pizza oven from someone else, she incurs ________
an implicit cost; an explicit cost
If a duopoly has a collusive agreement that maximizes joint profit, then each duopolist has
an incentive to cheat by lowering its price
a natural monopoly is defined as
an industry in which one firm can supply the entire market at a lower price than two or more firms
Joe and Martha get to split $100. Suppose that Joe gets x dollars and Martha gets y dollars, and that 100-x-y dollars is thrown away. For which values of x and y is the allocation Pareto-efficient?
any slit will be Pareto efficient as long as the entire $100 is used up.
for a single-price monopolist, price is _______ marginal revenue
greater than
four factors (inputs) of production
labor, capital, land, entrepreneurship
the more perfectly a monopoly can price discriminate, the
larger its output and the higher its profits
a single-price monopolist produces a ______ quantity than a perfectly competitive industry and charges a _______ price than the perfectly competitive industry
lesser; higher
total revenue equals
market price multiplied by quantity sold
the fundamental objective of a firm is
maximizing profits
Small pizza parlors exist in just about every town. Anyone can open a pizza parlor, and the pizzas from one parlor typically have different tastes and sizes than pizzas from another parlor. Thus, the pizza industry is an example of
monopolistic competition
An industry in which one firm can supply the entire market at a lower price than can two or more firms is called a
natural monopoly
a duopoly is a form of
oligopoly
which market type has characteristics as follows: small number of firms, competition between firms
oligopoly
Explicit costs are ________ and implicit costs are ________.
paid in money; are incurred when a firm gives up an alternate action
in the long run, a competitive firm decides
plant size, inputs, and technology to choose; whether to produce or shut down
if a monopolist can perfectly price discriminate, then
price equals marginal cost for the last unit it sells
Game theory is a tool for studying _______
strategic behavior
economies of scale refer to the range of output over which
the average cost decreases as output increases
an example of a fixed cost in a bicycle factory
the mortgage payment on the property the factory is run out of
cost, as measured by an accountant, generally does not include
the opportunity cost of the firm
in the long run, the economic profit of a firm in a perfectly competitive industry
will equal zero
A company could produce 100 units of a good for $320 or produce 101 units of the same good for $324. The $4 difference in costs is
the marginal cost of producing the 101st unit
the equilibrium price charged by firms in a perfectly competitive industry is determined by
the market
an industry is perfect competitive if
there are many firms in it, each selling an identical product
Economies of scale exist when the
total cost of production falls as the output increases
Average total costs are total costs divided by
total output
economic profit is equal to
total revenue - opportunity cost
when should a profit-maximizing firm increase production?
when marginal revenue exceeds marginal cost
in the short-run, a competitive firm decides
whether to produce or shut down