Firm Behavior under Different Market Structures (Mankiw 13, 17)..........Final!!!!!

1. How is marginal cost derived? (Marginal=change)

It is the increase in total cost that arises from an extra unit of production. MARGINAL COST=Change in total cost/ change in quanity

10. What does "downward sloping" with regards to the demand curve mean?

It reflects trade off between price and quantity demanded

3. What is the specific formula to calculate marginal cost?

MC= change in total cost/change in output (Remember total cost could be fixed and variable)

13. If the firm has price setting capacity, how will they use information about marginal costs and marginal revenues in order to accomplish their primary objective?

MR=MC

**2. How is marginal cost related to total cost?

Marginal cost is related to total cost because you have to know the total cost before you can use it to get the change in total cost to calculate the marginal cost.

7.What is a price taker? Which of the market structures are characterized as being "price takers"?

Perfectly competitive market, example "Old McDonald"

11. Where do firms with market power determine the quantity of product/service they will produce?

The output at which the MR=MC **this is were profit is maximized

16. How might an oligopolistic firm behave like a monopoly? What forces may prevent this?

They can behave like a monopoly when they are able to behave like a monopoly and cooperate. What may prevent it is self interest and anti-trust law.

12. What is the primary goal/objective of the firm?

To MAXIMIZE PROFIT

5. Total cost is made of two types of costs, what are they? Total cost= fixed cost + variable cost

Total cost is made up of of fixed cost and variable cost. Fixed cost- fixed cost includes rent, employees salary, cost that does not vary with the quantity of output produced. Variable cost-cost that comes from changes to alter the quantity of output produced. For example the cost of coffee beans, milk, sugar, hiring extra workers to make more cups of coffee.

6. How does a firm determine to shut down in the short run? What rules characterizes this?

When Price=MR (marginal revenue), drops below AVC (average total cost)

4. If Dave's company has a total cost of $100 when quantity output is 5, and a total cost of $115 when quantity output is 6, what is the marginal cost of producing the 6th unit?

$15

9. How is the demand curve for a perfectly competitive "firm" distinct from the demand curve for a monopolistic market?

Demand curve for a perfectly competitive firm is horizontal, where monopolistic demand cure is downward slopping

8. When a "market" is characterized as being price taker, what fundamental shape does the demand cure for this "market" take?

It is downward sloping

15. What fundamental truth is realized when styling the behavior of an oligopolistic firm wishing the context/model called "prisoner's dilemma'?

Oligopolistic firm's can cause collusions which causes game theory-prisioner's dilemma. Both prisioners confess, but it is not the best outcome. The best outcome is that they cooperate. Self intrerest does not allow them to cooperate. Self interest makes them confess. Each prisioner looks out for their own self intrest.