ECON1150 FINAL
What can we say about a consumer who doesn't spend all her income?
She is at a point inside her budget constraint
when a monopolist decreases the price of its good, what do consumers do?
they will buy more of the good
Define Average Variable Costs (AVC) and the formula
variable costs divided by the quantity of output AVC=TVC/quantity
when will a monopolist choose to increase output
when marginal revenue exceeds marginal cost at the present level of output
when does a government-created monopoly arise
when the government gives a firm the exclusive right to sell some good or service
How do you find the economic profit? And what is it
Total revenue minus (total expenses plus the opportunity cost)
how do economists assume that monopolists behave
as profit maximizers
Explain fixed costs (FC)
costs that do not vary the quantity of output produced
Explain what variable costs are (VC)
costs that do vary with the quantity of output produced
what do we know about about a monopoly's marginal cost
it will be less than the price per unit of its product
when a firm operates under conditions of monopoly, what do we know about its pricing
its pricing is constrained by demand
for a monopoly firm, what equality holds?
price=average revenue
Assume that a college student spends all of her income on cola and candy bars. The price of candy bats in .50 and cola costs 0.75. If she has $20 income, what could she choose to consume?
10 candy bars and 20 cans of cola
What is perfect competition and it's comonenets?
A market in which there are many firms selling an identical product
Define oligopoly
A market structure in which a small number of firms compete
What is monopolistic competition and it's components?
A market structure in which large number of firms make similar but slightly different products
Define monopoly
A market structure in which there is only one firm and it produces a good/service that has no close substitutes
what is the formula for average revenue
AR= P or (TR/Q)
(T/F) a production quota creates inefficiency through overproduction
False
(T/F) all points inside a consumers budget line are unaffordable
False
(T/F) if the marginal utilities from consuming two goods are not equal, the consumer cannot be in equilibrium
False
(T/F) when income increases, the quantity demanded of all goods increases
False
Evaluate the following statement: warren buffet is the second richest person in the world. He doesn't face any constraints on his ability to purchase commodities he wants
False because although his income is high, there will always be some constraint
In what direction will a decrease in income cause a shift in the budget constraint
Inward
What is the formula for marginal revenue
MR=(TR#2) - (TR#1)
What two curves intersection determines the monopolists profit maximizing quantity of output
Marginal cost and marginal revenue
In consumer equilibrium, a consumer equates the
Marginal utility per dollar spent on each good
for a profit maximizing monopolist, what relationship holds(in terms of P, MR & MC
P>MR=MC
A households consumption choices are determined by
Prices of goods and services, income, preferences etc...
What is the formula for total revenue
TR=Q x P
Explain economic and technological efficiency of production
Technological: produce a given out put using least amount of inputs Economic: produce given output at the least cost
What determines the slope of the budget constraint
The relative price of commodities represented on the axes
Consider two goods, pizza and cola. What is the slope of the consumers budget constraint measured by
The relative price of pizza and cola
How do you find the accounting profit?
Total Revenue minus total expenses
Define Average Total Costs (ATC) and the formula
Total cost divided by the quantity of output ATC=AFC+AVC or TC/Q; it is U shaped
(T/F) consumer surplus is the amount a buyer actually has to pay for a good minus the amount the buyer is willing to pay for it
True
(T/F) if a shift in supply decreases the price of a good, consumer surplus increases
True
(T/F) in general, a tax burden falls more heavily on the side of the market that is more Inelastic
True
(T/F) producer surplus is the marginal cost of producing a good minus it's price
True
(T/F) rent control may lead to lower rents for those who find housing, but the quality of the housing may also be lower
True
(T/F) when markets fail, public policy can potentially remedy the problem and increase economic efficiency
True
Suppose that Larry,moe and curly are bidding in an auction for A mint condition video. Each has a maximum amount he will bid. What is this maximum called?
Willingness to pay
what is the main difference between a competitive firm and a monopoly
a competitive firm is a price taker, and a monopoly is a price maker
what is the typical market demand curve for a monopolist
downward sloping
what is the defining characteristic of natural monopolies
economies of scale over the relevant range of output
Define Average Fixed Costs (AFC) and the formula
fixed costs divided by the quantity of output AFC=TFC/quantity
what type of monopoly are patent and copyright laws major source of
government created monopolies
supply curves tell us how much producers are willing to supply at any given price. What type of supply curves will monopoly firms have
no supply curves
What is NOT a characteristic of a monopoly(generally)
supply curve
Define Marginal Cost (MC) and the formula
the increase in total cost that arises from MC=Change in TC/change in quantity