Micro unit 2

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kinked demand

- if a firm raises its price its competitors will not follow causing a sharp decrease in Qd - if a firm lowers its price, its competitors follow, resulting in only a small increase in Qd

characteristics of monopolistic competition

-Many buyers and sellers -Differentiated products - little to No barriers to market entry or exit -No long-run economic profit -Some control over price

When output is 100 units, the firm's total fixed cost is $500. What will this firm's total fixed cost be if output doubles to 200 units?

$500

Darrell owns a furniture store. His total costs are $225,000 per year, and his fixed costs are $150,000 per year. This means that his variable costs are:

$75,000

a normal rate of return

A rate of return on capital that is just sufficient to keep owners and investors satisfied.

why might a monopoly have a loss

ATC

sunk costs

Already incurred and cannot be recouped by a new decision or alternative

If Firm A is making zero economic profits,

Firm A is breaking even when opportunity cost is taken into consideration.

the monopolist maximizes its profit by using the output rule

MR=MC

a monopoly firm does not have

a marginal revenue curve that equals price at all quantities

monopoly

a market that runs most efficiently when one large firm supplies all of the output

the difference between a natural monopoly and a monopoly is that

a natural monopoly maximizes profit at a quantity where marginal cost is falling

break even price is when

a price taking firm is the market price at which it earns zero profits

what is not a barrier to entry to an industry

a relatively low marginal tax rate

normal profit equals

an economic profit of zero

example of oligopoly

automobile industry

______ is found by dividing total output by the number of workers employed to produce that output.

average cost

which of the following is a characteristic of a monopoly firm

barriers to entry

advantages to advertising

brand loyalty, creates value, social value with product

Which of these would create diseconomies of scale?

bureaucracy

When talking about economic profits in a perfectly competitive market, the difference between the long run and the short run is that, in the short run, firms:

can earn positive or negative economic profits, but in the long run, firms have zero economic profits.

a price maker is a firm that

can influence market price by adjusting its level of output

An extreme case of oligopoly in which firms collude to raise joint profits is known as a:

cartel

Marginal product is defined as the:

change in output from hiring an extra worker.

barriers to entry

control of natural resources or inputs, increasing returns of scale or technological superiority, government created barriers including patents and copyrights

the exclusive right to produce or reproduce certain types of intellectual property (such as books, works of art, and so on) for an extended period of time is called a

copyright

disadvantages to advertising

creates incentive to lie, FTC tries to regulate, internet makes unsubstantiated claims and government has no control

If the marginal product of labor is increasing, the marginal cost of output must be:

decreasing

It can be cost-effective to pursue economies of scale only if:

demand is large

economies of scale

describe a type of barrier to entry for a monopoly in which one firm can operate more efficiently than two or more firms

If a firm increases its inputs by 80% and its output increases by 60%, then this would be an example of:

diseconomies of scale

The range of output where long-run average costs tend to increase as production is increased are:

diseconomies of scale

monopolistic competition is similar to perfect competition in that firms in both market structures

do not face any barriers to entry into the industry in the long run

barriers to entry allow some monopolists to

earn economic profits in the long run

Monopolistically competitive firms have zero economic profits in the long run because of:

easy entry and exit

Specialization of labor and management typically supports:

economies of scale

the most important source of oligopoly is

economies of scale

if firms earn short run economic profits, new firms

enter the industry and existing firms expand their operation s

Firms will break even if the price they charge is:

equal to their minimum average total cost

the demand curve facing a monopoly firm is

equivalent to the market demand curve.

natural monopoly

exhibits increasing returns of scale

explicit costs

expenses paid directly to some entity (wages, lease, payments, raw materials, taxes)

accounting costs include only

explicit costs

One difference between implicit costs and explicit costs is that:

explicit costs are included in accounting profits, whereas implicit costs are not.

true or false: a monopoly has close substitutes for the monopolist's product are available to buyers

false

true or false: all costs are fixed costs in the long run

false

example of monopolistic competition

fast food restaurants

in an oligopoly

firms recognize their interdependence

Since a monopolistically competitive firm faces a downward-sloping demand curve for its product, its price will be:

greater than marginal revenue

in monopolistic competition each firm

has some ability to set the price of its differentiated good

to exercise market power, a firm must

have some control over price

market power means the ability to

have some control over price.

A typical total product curve goes through four stages. What is the correct order for these stages?

increases at an increasing rate, increases at a decreasing rate, reaches a maximum, decreases

in the long run all

inputs can be adjusted

The total product curve:

is a relationship between total output and input.

economies of scale

lead to lower average costs in the long run.

competition reduces the demand for each individual seller shifting the demand curve to the

left

if a monopoly firm sells more than one unit, marginal revenue will the be

less than the price

there are no fixed costs in the

long run

there are increasing returns to scale (economies of scale) when

long run average total cost declines as output increases

there are decreasing returns to scale (diseconomies of scale) when

long run average total cost increases as output increases

advertising is meant to

make demand more inelastic for that product

characteristics of perfect competition include

many buyers and sellers standardized products no barriers to market entry or exit no long-run economic profit no control over price

The change in total product occurring when a variable input is increased and all other inputs are held constant is:

marginal product

both perfectly competitive firms and monopoly firms should increase production when

marginal revenue is greater than marginal cost

perfectly competitive firms and monopoly firms should increase production when

marginal revenue is greater than marginal cost

the ability of a monopolist to raise its price above the competitive level by reducing output is known as

market power

the entry and exit of firms ensure that ______ in the long run than in the short run

market supply curve is much more elastic

the entry and exit of firms ensure that the

market supply curve is much more elastic

a firm that is the only seller of a good with no close substitutes is a

monopolist

compared to a competitive industry, a monopolist is likely to achieve ____ producer surplus while generating ____ DWL

more more

a monopoly differs from a perfectly competitive market in that

no close substitutes exist for the monopolists's product

subsidizing imported goods

not a government imposed restriction that could keep potential entrants from the market

characteristics of monopoly

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

a monopolist is a firm that is the

only producer with no close substitutes

implicit costs

opportunity cost of using resources

price taking only occurs when there is

perfect competition

in a perfectly competitive market each firm is a

price taker

for a monopoly firm, if AVC<P<ATC then the firm should

produce at the point at which MC=MR

the only way monopolistically competitive firms can acquire some market power is

product differentiation

A firm earns an economic profit when

profits are greater than zero after implicit costs are considered

what are some ways firms can differentiate their products

quality, location, preference, style, type

A form of regulation that controls a firm's prices and profits based on its costs and capital investments is called:

rate of return regulation

characteristics of oligopoly

relatively few firms, interdependent decision making, substantial barriers to market entry, potential long-run economic profit, shared market power considerable control over price

when a firm uses price discrimination successfully, the result is that producer surplus _____while DWL _____ to a single price monopoly

rises, falls because output increases with price discrimination

economies of scale result from

specialization of labor and management, better use of capital, complementary production techniques

Holding all else constant, a decrease in the market demand for a product in a competitive market would cause:

the MR curve of the firms to shift downward

marginal product is

the change in total output, given a change in labor input.

The full set of short-run cost curves for a firm tells us:

the cost-minimizing level of output

when marginal cost intersects the average total cost curve at its minimum point

the firm will earn normal profits

variable costs rise as

the level of output increases

total costs are the

the sum of the fixed and variable costs

a natural monopoly could arise when

there are large economies of scale relative to the industry's demand

accounting revenue

total revenue - explicit costs

economic profit

total revenue-explicit costs- implicit costs

profits=

total revenue-total cost

should a competitive firm keep producing even if it faces short run losses

yes as long as it is covering its variable costs

a perfectly competitive firm earns

zero economic profit in the long run

example of monopoly

NFL


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