Managerial Econ Test 1
Characteristics of Oliogopoly
- few firms produce all or most of market output - profits are interdependent. actions taken by any one firm will affect sales and profits of the other firms
Characteristics of Monopolistic Competition
- large number of small firms - differentiated products. gives competitors a degree of market power. - price setters - no barrier to entry
Characteristics of Perfect Competition
- large number of small firms - undifferentiated product - price takers with no market power - no barrier to entry
what are some internal corporate control mechanisms?
- require managers to hold stipulated amount of firm's equity - increase percentage of outsiders serving on board of directors - finance corporate investments with debt instead of equity
Characteristics of a monopoly
- single firm - produces product with no close substitutes - protected by barrier to entry
When does a principal-agent problem arise?
- the objectives of the owner and manager are not aligned - the owner finds it either too costly or impossible in the case of moral hazard to perfectly monitor the manage or block all management decisions that might be harmful to the owner of the business
what is a moral hazard?
a situation in which managers take hidden actions that harm the owners of the firm but further the interests of the managers
What is a Price Setter?
can set price of its product. has a degree of marketing power, which is the ability to raise price without losing all sales
What is a Price Taker?
cannot set the price of its product. price is determined strictly by market forces of demand and supply
what are some external corporate control mechanisms?
corporate takeovers
what is globalization?
it is the economic integration of markets located in nations around the world. it provides opportunity to sell more goods and services to foreign buyers. it presents threat of increased competition from foreign producers
What is a principal-agent problem?
when a manager takes an action or makes a decision that advances the interests of the manager but reduces the value of the firm