Micro Final

For Perfect or Pure Competition, the Optimal Output Quantity is found where:

MR=MC or P=MC

By observing a few industry characteristics, economists can use this information to predict pricing & output behavior within the industry.

Market structure analysis

Consumer surplus is the difference between the

Maximum price the buyer is willing to pay and the market price

A 1-firm industry with unique products and blocked/insuperable barriers to entry.

Monopoly

MR < P for which market structure?

Monopoly

What market structure doesn't act efficiently?

Monopoly

Can imperfect market structures achieve allocative efficiency?

NO

Can imperfect market structures achieve productive efficiencies?

NO

An industry exhibiting large "economies of scale" such that the minimum efficient scale is roughly equal to the market demand curve (Example of this industry would be utility companies which are regulated by the government

Natural Monopoly

How many firms in a Monopolistic Competition market structure?

301 firms to millions

Designed to maintain competition and prevent monopolies from developing.

Anti-Trust Laws

Requires a regulated monopolist (natural monopoly) to produce and sell output where the P=ATC (This permits the regulated monopolist to earn a NORMAL PROFIT ONLY!)

Average cost pricing rule

An obstacle (i.e. prohibitive fixed costs, government regulation, etc.) that makes it more difficult for a firm to enter the industry.

Barrier to entry

an agreement between firms in an oligopolistic industry where the firms collectively agree to a certain amount of output to impact prices (i.e. OPEC-Oil Producing Export Countries agree to determine the collective output levels to affect prices!)

Cartel

2nd Degree price discrimination type:

Charging different customers different prices based upon the quantities that they buy

3rd Degree price discrimination type:

Charging different groups of people different prices based on varying "elasticities of demand"

1st Degree price discrimination type:

Charging each customer the maximum price each is "willing to pay"

This classical economist was a strong advocate of the concept of "free trade."

David Ricardo

Is there a supply curve for imperfect market structures?

NO

A _____________ has Mutual-interdependence which leads to price wars within the structure.

Oligopoly

A market with a few firms dominating the industry (2 firms to 300 firms); there are significant barriers to entry in this market structure; the firms must consider its competitors decisions

Oligopoly

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

Product Differentiation

X-inefficiently

Protected from competitive pressures

An increase in "quantity supplied" is caused by:

an increase in price

Before a house is sold, the buyer usually inspects the property for problems. This reduces which cause of market failure?

asymmetric information

Laissez-faire is a _______ term that means _________.

French, "let it be"

Marginal Revenue equation:

MR=MC

Regulators would prefer to have natural monopolies charge prices where "P=MC", but this would result in economic losses because the ATC> P

Marginal Cost Pricing Rule

How many firms in a Perfect or Pure Competition market structure?

Millions and billions and trillions

A market structure with a large number of firms (301 firms to millions) producing differentiated products. (i.e. retail trade firms)

Monopolistic Competition

If the price of a complementary good increases, the demand for other goods will ________________.

decrease

The "right side" of the Average Total Cost (ATC) curve represents _________ .

diseconomies of scale

All imperfect market structures have a ________________ sloping Marginal Revenue and Demand Curves.

downward

When demand for a product falls, ceteris paribus, what happens to to equilibrium price and consumer surplus at that price?

equilibrium price falls and consumer surplus falls

A demand curve that is perfectly inelastic:

has an elasticity value of 0

MR < P for all _____________ model structures.

imperfect

This resource represents the mental and physical talents of individuals who produce products and services.

labor

The basic law that was illustrated by the Production Possibilities Curve or Production Possibilities Frontier was the:

law of increasing costs

If demand is unit elastic, a decrease in price:

leaves total revenue unaffected

What portion of the demand curve is the Ed coefficient inelastic?

lower-right

Another name for variable costs are __________ costs.

marginal

The US today is classified as a _____________ economy.

mixed

Which market structure does not guarantee economic profits?

monopoly

The greater amount of time available, the:

more elastic is demand

The "steeper" the demand curve, the ________ is the "price elasticity of demand" coefficient.

more inelastic

The "law of demand"indicate that there is a(n) ______________ relationship between price and quantity demanded.

negative and inverse

What does "price-taker" mean?

no control over price

If ones income decreases decreases and they purchase less of this product, the product is specifically called a(n):

normal or superior good

The income paid to an entrepreneur is specifically called ____________.

normal profit

IF ASP (average selling price) is greater than AVC (average variable cost) then:

open the business and proceed to step 2

Marginal revenue and demand curves are:

perfectly elastic

A horizontal supply curve represents supply that is ________ and its Es coefficient equals ________.

perfectly elastic, + infinity

Price elasticity of supply is always:

positive because of the law of supply

What does "price-maker" mean?

considerable control over price by increasing or decreasing supply

Many economists argue that sale taxes are a _________ tax.

regressive

Implementing a price floor can cause a

surplus

The income statement method may only be used on:

tables

The marginal method may only be used on:

tables and graphs

The total consumer surplus plus the producer surplus is maximized at

the market price equilibrium

Allocative Efficiency

the price equals MC

However, if one firm lowers its price, other firms will lower their prices (resulting in a "kink"in the Demand & Marginal Revenue curves) so they will not lose market share true or false?

true

If a product's price rises 10% and its quantity demanded falls by 10%, then we can say that the demand for this product is:

unitary elastic

Which would be an effective advertising strategy used to increase total revenues from the sale of higher-priced related goods?

using "loss leader" goods and services

the "HI" POINTS for PERFECT or PURE Competition EQUAL

zero points

Price Discrimination Types:

1st Degree 2nd Degree 3rd Degree

How many firms in a Oligopoly market structure?

2-300 firms

Susan purchased a new printer for $150 although she was willing to pay $175. The minimum price acceptable to the seller, Jasmine, was $145. The results of this transaction are a consumer surplus of:

$25 and producer surplus of $5

What is the market structure analysis?

-# of firms -nature of industry's product -barriers to entity -extent that firms can control the price

Which elasticity coefficient would be least responsive to change in price? -2.0 -5.0 +4.0 -12.0

-2.0

If a retail store lowers its prices by 20%, and their demand increases by 80%, their "price elasticity of demand" coefficient (ed) would be equal to:

-4.00

Two methods used in the optimal output quantity and price:

-Income Statement -Marginal Revenue

What are the imperfect structures?

-Monopoly -Oligopoly -Monopolistic Competition

How many firms in a monopoly market structure?

1 firm

The "HI" POINTS for a MONOPOLY EQUAL

10,000 points

Characteristics of Perfect or Pure Competition:

-extremely large number of sellers -"price taker" (no control over the price) -standardized product -no barriers in entry/exit -no long-run economic profit (earn only normal profit/ expected profit in long-run)

Characteristics of an Oligopoly:

-few firms in industry -shared market power & considerable control over price -"Mutually-Interdependent Decisions" (lead to Price Wars) -Barriers to Entry are Substantial -Potential for Long-Run Economic Profit Only

Characteristics of Monopolistic Competition:

-many sellers -come control over price -differentiated products -little to no barriers to entry/exit -no long-run economic profit (earn only normal profit/ expected profit in long-run)

Characteristics of a Monopoly:

-only one seller -"price-maker" (considerable control over price by increasing/decreasing supply) -unique product (no close substitutes) -Barriers to Entry are BLOCKED/INSUPERABLE! -Potential for "Short-Run" & "Long-Run" Economic Profit! (NO COMPETITION!).

Two steps are utilized in determining the perfect competition:

1) Compare average selling price (on demand curve) to the average variable cost 2)Average Selling Price - Average Total Cost x Optimal Output Quantity = TOTAL ECONOMIC PROFIT $ (or TOTAL ECONOMIC LOSS $).

3 Types of Long-Run Industry Supply Curves:

1) Increasing Cost Industry 2) Decreasing Cost Industry 3) Constant Cost Industry

Four (4) Primary Market Structures:

1) Perfect or Pure Competition 2) Monopolistic Competition (real life version of perfect or pure competition) 3)Monopoly 4) Oligopoly (Real life version of monopoly)

It is the sum of the market shares for the "Top Firms" in the industry (i.e. "Top 3", "Top 4", "Top 5" Firms in an industry)

Concentration Ratio

As the firm expands, Average Total Cost (ATC) decreases

Economies of scale/ Economies of Size

it is calculated by "SQUARING" the individual firm market share percentages" for all firms that comprise that industry, AND SUMMING their TOTAL " HI" POINTS!

Herfindahl Hirschman Index (HI)

Supply Curve for Perfect or Pure Competition Model is the portion of the:

MC curve which lies above the minimum point on the average variable cost (AVC) curve

An oligopoly model that assumes that if a firm raises its price, competitors will not raise their prices

Kinked Demand Curve Model

Only which market structure achieves allocative efficiency?

Perfect or Pure Competition

The maximum price at which a regulated firm can sell its product.

Price Cap

Charging different consumer groups different prices for the same good or service (i.e. examples would be "matinee" vs. "evening" movies, "business" vs. "red-eye" air travel)

Price Discrimination

Success Rate of Cartels or Oligopolies

Success rate is LOW because firms in cartels or oligopolies "cheat" by "lowering their prices" due to stealing profitability from other firms in the oligopoly

Income Statement equation:

Total revenue minus total costs

A _____________ structure does not have the incentive to produce at the LOWEST POINT on the Average Total Cost (ATC) Curve

monopoly

The supply curve for the long run is:

more elastic

Public goods are difficult to provide in the private market because they have characteristics of:

non-rivalry and non-exclusivity

Only Perfect or Pure Competition achieves __________ in the long-run.

productive efficiency

the optimal output quantity is the LOWEST POINT on the Average Total Cost (ATC) Curve!

productive efficiency

Income taxes in the US are considered a ________ tax.

progressive tax.

Monopoly produces ____________ output quantities and charges higher prices as compared with perfect or pure competition market structures!

smaller

When price elasticity of demand is elastic, and price elasticity of supply is inelastic, consumers bear a __________ burden of taxes and sellers bear a _________ burden of taxes.

smaller, larger