microeconomics comprehensive review

product differentiation allows a firm to compete with another firm on the basis of...

quality, price, and marketing

For a duopoly, the maximum total profit is reached when the duopoly produces

the same amount of output as the monopoly outcome

what is the shape of the demand curve faced by the perfectly competitive firm, and why

the slope is horizontal because demand for the product is elastic, considering if the firm raises its price, customers have many other options

price discrimination is possible, in part, because...

the willingness to pay can vary among groups of buyers

if a perfectly competitive firm manufacturing chairs produces 100 more chairs, what happens to the market price of a chair

there would be no change in the market price because no firm in a perfectly competitive market has an effect on the market price

a firm in monopolistic competition ___ influence its price and ___

can; cannot

how do the federal trade commission and/or the department of justice decide whether firms are allowed to merge

they use the four firm concentration ratio and the herfindahl-hirschman index to determine whether a merger would place too much market share in the hands of one firm

why would a firm in a monopolistically competitive industry spend money on research and development

to make its product stand out and seem more appealing to consumers than the products of its competitors

why do firms price discriminate

to make more profit while seeming like they are giving the consumer a better deal

how do you calculate profit/loss

total revenue - total cost

how do you find the economic profit of of monopolistically competitive firms

total revenue minus total cost

define profit maximization

when a firm charges different prices for the same product

price discrimination is possible because

willingness to pay can vary among groups of buyers

can a monopoly make an economic profit in the long run

yes because it has no competitors and has high barriers to entry

what kind of economic profit is a perfectly competitive industry making when a firm is producing so that its total revenue is equal to its total cost

zero economic profit

if the four firm concentration ratio of an industry is less than 40...

the industry is considered monopolistic competition

characteristics of monopolistic competition

1. many, small buyers and sellers 2. no barriers to entry 3. differentiated products

characteristics of monopoly

1. single seller 2. no close substitutes 3. high barriers to entry

if a firm shuts down, it incurs....

an economic loss equal to its fixed cost

how do you determine a perfectly competitive firm's profit maximizing price and output

at the point where marginal revenue is equal to marginal cost

a perfectly competitive firm will shut down when the price is just below the minimum point on the...

average variable cost curve

what are natural barriers to entry

barriers that arise when one firm's economies of scale allow it to produce at a lower average total cost than multiple firms

what factors must be present in order for a firm to price discriminate

buyers must be willing to pay a higher price and the product must not be able to be resold

In contrast to competitive firms, single-price monopolies

can make an economic profit indefinitely

in contrast to competitive firms, single price monopolies

can make an economic profit indefinitely

A group of firms acting together to limit​ output, raise​ price, and increase economic profit is a called a

cartel

why is it difficult for a cartel to maintain its effectiveness

cartels are illegal and each firm will always be tempted to lower cost and make more economic profit

how do you calculate marginal revenue

change in total revenue / change in quantity

how to calculate marginal revenue

change in total revenue / change in quantity

With price discrimination, a monopoly

converts consumer surplus into economic profit.

is the following statement correct or incorrect: a firm in monopolistic competition maximizes its profit by producing where its price is equal to its marginal cost

correct: firms maximize profit where mr=mc

nike is a firm in monopolistic competition. if nike is making an economic profit from new cross-training shoe, over time the demand of these shoes...

decreases as new firms enter the market

a firm in monopolistic competition has a ___ demand curve

downward sloping

a monopoly can set any price it wants. so why does it still produce at a point where marginal revenue is equal to marginal cost, just like a perfectly competitive firm

economic profit is maximized when marginal revenue is equal to marginal cosst

a perfectly competitive producer notices that the market price of his product is greater than the marginal cost. what should he do

expand his output to increase profits

game theory is the tool that economists use to analyze strategic behavior, which is behavior that takes into account the ___ behavior of others and the mutual recognition of ___

expected; interdependence

how do you find the total cost of monopolistically competitive firms

find the average total cost at the equilibrium quantity

what is the shape of the demand curve for a perfectly competitive firm and why?

horizontal because it is perfectly elastic

a nash equilibrium i. is named after the nobel prize winning economist, john nash ii. occurs when each player chooses the best strategy given the strategy of the other player iii. must give the best possible outcome for both players

i and ii

consider a perfectly competitive market that was in a long run equilibrium when a permanent increase in demand occurs. what will occur as a result? i. the existing firms will start to earn an economic profit ii. new firms will be motivated to enter the market iii. some firms that cannot meet the new demand will exit the market

i and ii

in the short run, a perfectly competitive firm can experience which of the following? i. an economic profit ii. an economic loss but it continues to stay open iii. an economic loss equal to its total fixed cost when it shuts down

i, ii, and iii

the major dilemma facing boeing and airbus in the textbook's example is the fact that...

if each firm separately tries to maximize its profit, it might actually wind up with less profit

why would a firm in a monopolistically competitive industry advertise

in order to increase demand for its product; the consumer would have more familiarity and trust for a product that had been advertised

is the statement correct or incorrect: because firms in an oligopoly are so large, they do not need to consider each other's actions

incorrect: oligopolies must consider game theory because they are interdependent

is the statement correct or incorrect: a single price monopoly charges a higher price and produces more output than a perfectly competitive industry

incorrect; they charge a higher price, but produce at a lower output than a perfectly competitive market

consider a perfectly competitive market experiencing good times. in the short run, the equilibrium price will ___ and firms will earn an ___

increase; economic profit as the new price exceeds average total cost

consider a perfectly competitive market experiencing good times. in the short run, the equilibrium price will ____ and firms will earn a(n) _____

increase; economic profit as the new price exceeds average total cost

when marginal revenue is positive, total revenue ___ when output increases and demand is ___

increases; elastic

fixed costs are ___ in a natural monopoly, so average total cost ___ as output increases

large; decreases

mylan pharmeceuticals holds a patent on the epipen - designed to inject epinephrine into shock victims. in 2016, mylan received criticism for charging $600 for this life-saving drug. mylan's patent is a ____ and it ____ mylan to charge a price that is ___

legal barrier to entry; allows; greater than marginal cost

when a city licenses only three firms to serve the market, the city has created a...

legal oligopoly

in the long run, firms in monopolistic competition produce at a level that is ____ the efficient scale of output

less than

the marginal revenue curve facing a monopolistically competitive firm...

lies below its demand curve

the focus of antitrust legislation is to...

maintain competition

if a perfectly competitive producer can sell its product at a price greater than average total cost, he will

make an economic profit

to maximize its profit, a perfectly competitive firm produces so that ___ and a single price monopoly produces so that ___

marginal revenue equals marginal cost

in perfect competition, marginal revenue is equal to...

market price

With perfect price discrimination, a monopoly can extract the ________ price each customer is willing to pay and thereby obtain the entire ________ surplus.

maximum; consumer

what must be the case if a perfectly competitive firm's economic loss is less by shutting down rather than by producing and selling some output

minimum average variable cost must be greater than or equal to price in order for a perfectly competitive firm to shut down

which of the market types can make an economic profit in the long run

monopolies because barriers prevent other firms from entering the market

what are the major differences between monopolistic competition markets and oligopoly markets

monopolistic competition markets have more firms and fewer barriers to entry than oligopoly markets

which of the market types has the fewest number of firms

monopoly

what are the four types of markets

monopoly, perfect competition, monopolistic competition, and oligopoly

when economies of scale limit the number of firms in an industry to three, there is a...

natural oligopoly

If firms in monopolistic competition are earning economic profits, eventually

new firms enter the industry

When firms in a perfectly competitive market are earning an economic profit, in the long run

new firms will enter the market

because of the number of firms in monopolistic competition

no firm can dominate the market

can a monopolistically competitive firm profit in the long run

no it cannot because other firms will see that it is profiting and enter the market

Is Nash equilibrium necessarily the best possible outcome

no; it is neither the best or the worst outcome

does a perfectly competitive producer have any incentive to lower its price so it is below the current market price

no; they know they can sell the product at the market price and make a higher economic profit and it is irrational to lower price below current market value

what characteristic is found only in an oligopoly?

one firm's actions affect another firm's profit

We define a monopoly as a market with

one supplier with barriers to entry.

what are legal barriers to entry

patents or copyrights that make it illegal for firms to enter the market

how do the characteristics of perfect competition and monopolistic competition differ

perfectly competitive firms produce identical products, while firms in monopolistic competition produce products that are slightly different

what type of profit, normal or economic, can a firm in monopolistic competition make in the long run

positive normal profit as long as its benefits and costs are kept in balance most make zero economic profit in the long run because more firms are incentivized to join the market if existing firms are making economic profit

what is always a violation of the antitrust law

price fixing

in which type of market do you find price takers?

price takers

how do you find the total revenue of monopolistically competitive firms

price time quantity of equilibrium

Each firm in a perfectly competitive industry

produces a good that is identical to that of the other firms

in monopolistic competition, a firm can set the price for its product because of

product differentiation

concentration ratios measure...

whether the market is dominated by a small number of firms

if there are 1000 identical rice farmers who are each willing to supply 200 bushels of rice at $2 per bushel, what price and quantity is a point on the market supply curve for rice?

$2 and 200,000 bushels

characteristics of oligopolies

1. A few large producers 2. Identical or differentiated products 3. High Barriers to Entry 4. Control over price 5. Mutual Interdependence

characteristics of perfect competition

1. Many buyers and many sellers. 2. The goods offered for sale are largely the same. 3. Firms can freely enter or exit the market.

what four firm concentration ratio is the best indicator of an oligopoly

78%

how do you calculate total revenue

Price x Quantity

what does monopolistic competition have in common with monopoly

a downward-sloping demand curve

what does it mean if a firm is a price taker?

a firm that sets its price based on the market price because it could not sell at a higher price and it has no incentive to charge a lower price

what is a cartel

a group of firms that colludes to charge the highest possible price

monopolistic competition is a market structure in which

a large number of firms compete

if the technology for producing a good enables one firm to meet the entire market demand at a lower average total cost than two or more firms could, then that firm has...

a natural monopoly

when economies of scale exist so that one firm can meet the entire market demand at a lower average total cost than two or more firms...

a natural monopoly develops

what is nash equilibrium

a situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen

a natural barrier to entry is defined as a barrier that arises because of...

technology that allows one firm to meet the entire market demand at a lower average total a cost than could two or more firms

rent seeking is the act of obtaining special treatment by ___ to create ___

the government; economic profit

how would a merger between coke and pepsi affect the four firm ratio and the herfindahl-hirschman index for the soft drink market?

the market would move slightly towards the definition of a monopoly as one firm held a larger share of the market. the value of the hhi would increase to a point where profit would not be maximized in monopolistic competition because the merged firm would take a larger share

what price do firms in monopolistic produce at

the price where mr=mc

what quantity do firms in monopolistic produce at

the quantity where mr=mc

in 2016, a federal judge prohibited staples and office depot from merging because...

the resulting hhi would have been too high