ECO 2023 Chapters 8,9,10

In a perfectly competitive market is in long-run equilibrium, then the market is?

Both productively and allocatively efficient.

Economies of Scale

By establishing EOS early, an existing firm has the ability to under price new competition.

What is 2nd degree discrimination?

Charging different customers different prices based on the quantities of the product they purchasing.

What is 3rd degree discrimination?

Charging different groups of customers different prices based on varying elasticities of demand.

What is 1st degree discrimination?

Charging each customer the max price each is willing to pay, ex-propriating all consumer surplus.

Which statement is an example of mutual interdependence?

Coca cola introduces a new tea and monitors how Pepsi will react.

Market Power

A firm's ability to set prices in a market.

The "dilemma" in a Prisoner's Dilemma refers to the fact that?

Both players would be better off by cooperating, but not cooperating is a dominant strategy.

What are 3 cost types?

Deadweight lose, rent-seeking, and x-inefficiency.

Under monopolistic competition, entry typically causes price to _______ and profits to _______?

Decrease, decrease

Natural Monopoly

Demand can only supply one firm.

A characteristic that distinguishes monopolistic competition from perfect competition is?

Differentiated Products

What type of curve does a monopoly market structure have?

Downward sloping demand curve with marginal revenue curve being below the demand curve.

Government Franchise

Grants a firm permission to provide specific goods or services, while preventing over firms from doing so.

If a player chooses not to forgive another player who cheats on an agreement, which trigger strategy is more likely to be used?

Grim Trigger Strategy

X-Efficiency

Incur-excessive and unnecessary cost.

Contestable Market

Industries in which the threat of competition keeps prices low.

If a firm is producing where price exceeds average variable cost, the firm should continue production even though it will incur a lost since?

It can cover its variable cost (payroll, utilities etc.) and have some funds left over to apply toward paying fixed cost.

When ATC is greater then prices in a monopoly market structure what will the result be?

Losses

What are five characteristics of "Monopolistic Competition"?

Many buyers and sellers, differentiated products, few barriers, no long run economic profit, and no control over price.

The perfectly competitive firm's short-run supply curve is the?

Marginal cost curve is above the average cost curve.

Compared to a competitive industry, a monopolist is likely to achieve_______ producer surplus while generating_________ deadweight lose?

More, more.

What is a characteristic that is found in a perfe3ctly competitive market?

No barriers to market entry or exit.

A monopoly differs from a perfectly competitive market in that?

No close substitutes exist for the monopolist's product.

Market structure depends on?

Number of firms, nature of product, barriers to entry, and control over price.

Leadership Games

One player is dominant don't have to worry about other players.

List the market structures from highest number of sellers to the lowest?

Perfect Competition, Monopolistic Competition, Oligopoly, and Monopoly.

What are the four primary market structures?

Perfect Competition, Monopolistic Competition, Oligopoly, and Monopoly.

What market structures share the characteristic of many buyers and sellers?

Perfect competition and monopolistic competition.

What are 5 components of a game?

Players, information, strategies, outcomes, payoffs.

A monopolistic competitive firm is when?

Price equals average total cost and MR=MC.

If a competitive firm can increase its profits by increasing its output, then the firms?

Price is greater then marginal cost.

With the kinked demand curve model, the discontinuity of the marginal revenue curve suggests that?

Prices will be stable.

For a monopoly firm, if AVC= $20, P= $21, and ATC= $22, then firm should?

Produce at the point at which MC=MR.

Compared with firms in competition, firms in monopolistic competition in the long run?

Produce less and sell at a higher price.

How to get the best (cooperate) outcome in a Prisoner Dilemma?

Repeated games and the use of trigger strategies.

When a firm uses price discrimination successfully, the result is that producer surplus _______ while deadweight loss ______ compared to a single-price monopoly?

Rises, falls because output increases with price discrimination.

The profit-maximizing rule states that a perfectly competitive firm?

Should produce that level of output at which marginal revenue is equal to marginal cost.

Focal Point

Solutions that seem more obvious based on clues and past experiences.

If the marginal cost pricing rule is used to regulate a natural monopolist, the monopolist?

Sustains an economic loss.

Anytime mr is below ATC, what happens to the firm.

They lose money.

Perfect Competition is the only market structure to have?

Total surplus maximization and zero dead weight loss.

Tit For Tat Trigger Strategy

Trigger strategy that rewards cooperation and punishes defection.

Following a perfect competition, in the long run?

Firms can enter or leave an industry.

What is an example of rent-seeking?

Firms hiring lobbyists to keep out new entrants and avoid competition.

If it is not profitable for more than one firm to operate within an industry, this is an example of?

A monopoly due to economies of scale.

What is an example of a barrier to entry?

A research patent awarded to an inventor of a product.

Persuasive Advertising

Ads containing little info. content, but designed to shift buyers among competitive of similar products.

Assumption

All parties have information about prices and product quality that they had in order to make informed decisions.

Trembling Hand Trigger Strategy

Allow for a mistake by opponent before you retaliate.

A firm in a perfectly competitive industry would exhibit which characteristic?

An ability to produce as much output as the firm desires at the market price.

Cartel

An agreement among several producers to obey output restrictions in order to increase their joint profits.

What is a constant cost industry?

An industry, in the long run, that faces constant prices and cost as industry output expands.

What is an increasing cost industry?

An industry, in the long run, that faces higher prices and cost as industry output expands.

Interdependence is a key characteristic of?

An oligopoly.

In a perfect competitive industry, short-run economic profits will lead firms to_____ the market, causing market price to______?

Enter, decrease

The demand curve facing a monopoly firm is?

Equivalent to the market demand curve.

In a perfect competition, normal profits are equal to?

Zero economic profits.

Do consumers prefer monopolies or perfect competition for society?

Perfect competition.

Copy Rights

Protects ideas created by individuals in the form of bonds, movies, art, software.

Patents

Provide legal protection to individuals who invent new products and processes.

Which statement is NOT true about a Nash equilibrium?

A Nash equilibrium gives each player the highest possible payoff in the game.

Price Taker

A firm gets their prices from the market.

A monopoly firm does not exhibit________?

A marginal revenue curve that equals price at all quantities.

What is a decreasing cost industry?

An industry, in the long run, that faces lower prices and cost as industry output expands.

Grim Trigger Strategy

Any decision by your opponent to defect is met with permanent retaliatory decision forever.

Barrier's To Entry

Any obstacle that makes it more difficult for a firm to enter into an industry.

Which is a characteristic of a monopoly firm?

Barriers to entry.

Which is not a characteristic of monopolistic competition?

Barriers to entry.

The reason a monopoly imposes a deadweight loss on society is that?

Consumers are denied output for which they are willing to pay more than the cost of producing it.

In a ________ market, the threat of entry keeps prices low.

Contestable.

The word "monopolistic" in the label "monopolistic competition" refers to the fact that?

Each firm produces a unique version of the product.

Compared with a single-price monopolist, a price-discrimination monopolist?

Earns higher profits.

What characteristic does not describe a oligopoly?

Economic profits being zero in the long run.

Contestable Markets

Exist where the threat of easy entry prevents a dominant company from charging excessive prices.

Monopolistic competition is like perfect competition in that they both?

Have numerous competitors.

What type of curve does a perfect competition market structure have?

Horizontal demand curve, perfectly elastic.

In which situation can a Prisoner's Dilemma outcome most likely be avoided?

If the game is repeated over and over under the same conditions.

When new firms enter a perfectly competitive market, it will cause?

Increase in supply.

Compared with a competitive market, a cartel as a whole will produce?

Less output in order to increase price.

Informational Advertising

Lets consumers know about products and reduce search costs.

What are the five characteristics of a "Perfect Competition"?

Many buyers and sellers, every product is identical, no barriers to market entry or exit, no long run economic profit and no control over price.

Perfectly competitive firms and monopoly firms should increase production when?

Marginal revenue is greater than marginal cost.

With perfect competition, the price of the good or service is determined by?

Market supply and market demand.

Price Caps

Maximum prices that firms can charge, adjusted to cost conditions.

Assume the economic profits are earned by monopolistic competitive firms. What will happen in the long run?

New firms enter and demand for each firm's product falls until economic profits are zero.

Which sequence describes the long-run adjustment process in a competitive market when firms are earning short-run economic profits?

New firms enter, industry supply increases, market price falls.

What are five characteristics of "Monopoly"?

One firm, no close substitutes for product, nearly insuperable barriers to entry, potential long run economic profit, and substantial market power and control over price.

A firm will have a "kink" demand curve if its decision to raise prices is ______ matched by competitors, whereas its decision to lower prices is ______ matched by competitors?

Rarely, always.

Concentration Ratio

The share of industry output in sales or employment accounted for by the top firms.

Product Differentiation

One's firms product is distinguished from another's through advertising location, innovation etc.

Elimination Principle

Only happens in perfect competition, in the long run, profits are eliminated by firm entry and losses are eliminated by firm exit.

What is not a significant barrier to entry?

Opportunity costs.

What sequence of market structures ranks the barriers to entry from fewest to the most?

Perfect Competition, Oligopoly, Monopoly

Chicken Games

Players hold out for optimal outcome, however if neither player gives in, worse outcome occurs.

A perfectly competitive firm is?

Price taker, it must accept the market equilibrium price.

Rate Of Return

Pricing that allows the firm to earn a normal return on investment.

What are five characteristics of "Oligopoly"?

Relatively few firms, interdependent decision making, substantial barriers to market entry, shared market power, and considerable control over price.

Rent-seeking

Resources expended to protect a monopoly position. These are used for such activities as lobbying, extending patents, and restricting the number of licenses permitted.

Antitrust Policy

The goal of antitrust policies and laws is to preserve competition and prevent monopolies with their maximum market power from arising in the first place.

X-Efficiency

The idea that monopolies do not have to act efficiently because they are protected from competition.

Herfindahl-Hirschman Index (HHI)

The main measure of market concentration used to evaluate merges and judge monopoly power.

A regulatory agency has imposed marginal cost pricing on a natural monopolist. We should expect that?

The natural monopolist will eventually go out of business.

The stability of a cartel is improved if?

The participating members have similar cost structures.

Normal profits for a competitive firm occur when?

The price will equal average total cost.

If Glass Inc. produces 80 window pans per day at the market price of $60 in a perfectly competitive market, what would happen to price if Glass Inc. production to 120 window panes, all else equal?

The price would remain the same.

What condition is not necessary for price discrimination?

The product must be a durable good.

For both the monopolist and the perfectly competitive firm:

The profit-maximizing output occurs where MR=MC.

Shutdown Point

When price in the short run falls below the minimum on the AVC curve, the firm will minimize losses by closing its door and stopping production.