SDSU Econ 102 Exam 3 + Final Cullivan
price elasticity of supply formula
% change in quantity supplied / % change in price
midpoint formula
((Q2-Q1)/(Q2+Q1))/((P2-P1)/(P2+P1))
formula to calculate deadweight loss
.5 * (P2 - P1) * (Q1 - Q2) on graph - .5 x B x H
If an increase in the price of pineapple juice of 10% results in an increase in the demand for grape juice of 5%, the cross-price elasticity of demand between pineapple juice and grape juice is:
0.5
Oligopoly Characteristics
1. Few large sellers (top 4 > 40% market shares) 2. standardized or differentiated product 3. price makers wit mutual interdependence 4. significant barriers to entry/exit
Monopolistic Competition Characteristics
1. Relatively large number of sellers 2. Relatively easy entry and exit 3. Differentiated products or services 4. Some control of price (function of market power) 5.. Profit maximizing rule (MR=MC)
how to calculate consumer/producer surplus on a graph
1/2 x b x h
deadweight loss formula
5 * (P2 - P1) * (Q1 - Q2)
a cartel is
A formal agreement among firms to collude
budget line
A line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products' prices.
Oligopoly
A market structure in which a few large firms dominate a market
What is one difference between a firm in a perfectly competitive industry and a firm in a monopolistically competitive industry?
A monopolistically competitive firm faces competition from firms producing close substitutes
Which of the following statements is a major criticism of a pure monopoly as a source of allocative inefficiency?
A pure monopoly fails to expand output to the level where the price of an additional unit is just equal to its marginal cost.
mutual interdependence
A situation in which a change in price strategy (or in some other strategy) by one firm will affect the sales and profits of another firm (or other firms). Any firm that makes such a change can expect the other rivals to react to the change.
If MC < ATC
ATC decreases
If MC > ATC...
ATC increases
If MC = ATC
ATC remains unchanged
Total cost (profit/loss) equation
ATC x Q
If MC < AVC
AVC decreases
If MC > AVC
AVC increases
If MC = AVC
AVC remains unchanged
An indifference curve shows
All combinations of two products from which the consumer derives a specific level of total utility
The demand for Gold Toe socks is likely to be more elastic than the demand for power tools because:
Gold Toe socks have more substitutes than power tools in general.
regular percentage change method
If the price increased, (New Quantity-Old Quantity)/Old Quantity/[(New Price - Old Price)/Old Price] If the price decreased, (Old Quantity- New Quantity)/New Quantity/[(Old Price - New Price)/Old Price]
for a monopolist, allocative efficiency is found on a graph where...
MC and D meet
allocatively efficient output is found where...
MR = MC
Monopolistic competitors will produce an output where...
MR=MC
How do you find the price monopolistic competitors can charge on a graph?
MR=MC, then find D above/ below that spot
equal marginal principle formula
MU of A/P of A = MU of B/P of B
Why might a policy of rent control actually increase homelessness in a city?
More people may move to the area hoping to find a reasonably-priced apartment.
economic loss
P < ATC
economic profit
P > ATC
When does a firm shut down?
P<AVC
normal profit
P=ATC
Which is necessarily true for a perfectly competitive firm in short-run equilibrium?
Price minus average total cost equals zero.
Total Revenue Formula
Price x Quantity
productive efficiency
Producing output at the lowest possible average total cost of production; using the fewest resources possible to produce a good or service.
If a state decided to place a tax on home heating oil, over time:
demand would become more elastic and tax revenue would decline.
Which of the following is an example of an oligopolistic market with a standardized product?
The market for aluminum
economic profit formula
Total Revenue - economic Costs (explicit + implicit costs)
regular percentage change method - if the demand/price of a product increases, the formula is...
[(new demand/price - old demand/price) / old demand/price]
regular percentage change method -if the demand/price of a product decreases, the formula is...
[(old demand/price - new demand/price) / old demand/price]
welfare economics
a branch of economics that focuses on measuring the welfare of market participants and how changes in the market change their well-being
decreasing marginal returns
a characteristic of production whereby the marginal product of the next unit of a variable resource utilized is less than that of the previous variable resource
Herfindahl-Hirschman Index (HHI)
a concentration index that measures the sum of the squared percentage of sales from all sales in a particular industry
If D=ATC, monopolistic competitors will have a(n)... profit/loss?
a normal profit
monopolistically competitive firms usually end up with a(n)... profit/loss in the long run.
a normal profit
product differentiation
a positioning strategy that some firms use to distinguish their products from those of competitors
the marginal utility of consuming another slice of pizza at a local sporting event is the
additional satisfaction you will receive by eating that slice
If D < ATC. monopolistic competitors will have a(n)... profit/loss?
an economic loss
If D > ATC, monopolistic competitors will have a(n)... profit/loss?
an economic profit
total revenue minus the explicit and implicit costs of production is
an economic profit
when a firm uses a price to prevent people from using a good or service
an excludable good
If the increase in the price of product A increases the demand of product B, then the two products...
are positive substitutes
A perfectly competitive firm trying to maximize profits in the short run will expand output...
as long as marginal revenue is greater than marginal cost.
it is useful to calculate average cost because... (2)
average cost numbers are more usable for managing average cost can be compared directly to the price
total fixed cost is...
average total cost - average variable cost
how to calculate tax revenue on a graph
b x h
The marginal benefit of an additional beach towel is $12. The marginal cost of producing an additional beach towel is $8. If producers are minimizing the average costs of production, then we can conclude:
beach towel production is not allocatively efficient but is productively efficient.
The production of paper often creates a waste product that pollutes waterways. Assume the producer of paper does not directly pay to dispose of the waste in the water. In this case, the price of paper will be... the socially efficient price and the amount of paper produced will be.... the socially efficient amount.
below; above
second degree price discrimination is also know as
block pricing
from an economic perspective, pollution has
both costs and benefits
marginal cost formula
change in total cost / change in quantity
A price-discriminating monopolist can increase profits by:
charging a higher price to those with less elastic demand and a lower price to those with more elastic demand than it would if it could not price discriminate.
a perfectly competitive market involves firms that produce identical products. this ensures that...
consumers receive the lowest prices
If the MC of polluting increased, what would happen to the optimal level of pollution?
decrease
for a monopoly, the marginal revenue per unit fall under the price per unit because when the price (increases/decreases) the monopoly gives up some revenue on units it could have sold at higher prices
decreases
for inferior goods, an increase in income... demand and a decrease in income... demand
decreases; increases
Increasing consumption of one good means consumption of the other good must decrease in order to maintain constant utility. Additionally, individuals experience less marginal utility for each additional unit consumed. These statements explain why indifference curves must be:
downward-sloping and convex.
in an oligopoly, producers may or may not...
earn an economic profit
in a monopolistically competitive market, the closer the substitutes are to each other, the more (elastic/inelastic) each firms demand curve will be
elastic
midpoint formula - if the number is greater than 1, it is...; if it is less than 1, it is... and if it is equal to 1, it is...
elastic; inelastic; unit-elastic
governments usually regulate monopolies when the fixed costs associated with the production of a(n)... good or service are relatively high, and it may not make sense to have multiple firms duplicating these fixed costs
essential
accounting profit equal total revenue minus...
explicit costs
monetary payments a firm makes to pay for resources are called...
explicit costs
Natural monopolies result from ____.
extensive economies of scale in production
how do you find the profit of a firm that is allowed to first degree price discriminate?
find the area of the triangle along the demand curve and ATC
what is are two examples of a variable cost of production in the short run?
fuel and power payments baking supplies for a bakery
which is more elastic - gas at your local gas station or gas around the city
gas at local gas station
Suppose the cross-price elasticity of demand between eggplant and broccoli is 0.4. If the price of broccoli increases by 10%, we would expect the quantity of eggplant demanded to
increase by 4%
Suppose that a pure monopoly calculates that at its present output level, marginal revenue is $1 and marginal cost is $2. The monopoly could maximize profits or minimize losses by ____.
increasing price and decreasing output
An economist recently estimated that for every 1% increase in the price of french fries at fast-food restaurants, 0.44% fewer french fries are sold. This indicates that the demand for fast-food french fries is:
inelastic
demand tends to be relatively more inelastic/elastic for a product that is considered a necessity
inelastic
with income elasticity of demand, a negative value indicates
inferior goods
if the price elasticity of demand for canned soup is estimated at 1.62, what happens to sales revenue if the price of canned soup rises?
it falls
which is more elastic - rice or jewelry
jewelry
Perfect Competition Characteristics
large number of buyers and sellers homogeneous product price takers no barriers to entry/exit
In many large U.S. cities, taxicab companies operate as near monopolies because of_____.
licenses
in perfect competition, marginal revenue is equal to...
market price
If MC is lower than AVC...
markets will stop producing in the short run
for... competitive firms, branding serves as a signal to consumers about the products they are going to purchase
monopolistically
one common feature of... markets is that firms invest heavily in product development and innovation, which benefits consumers greatly
monopolistically competitive
Monopolistic competitive firms are (both/neither) productively or allocatively efficient in the long run
neither
common salt - monopolistic?
no
producers operating in oligopolistic markets generate
normal profits and even losses in the shirt run
With a natural monopoly, the normal profit price is _________________ and the competitive price is _________________.
not allocatively efficient; allocatively efficient
In an oligopoly market
one firm's pricing decision affects all the other firms.
External benefits in consumption refer to benefits accruing to those
other than the ones who consumed the product.
In a free-market economy, a product that entails a negative externality (additional social cost) will be
overproduced
what can restrict competition in oligopolies?
patents
first degree price discrimination is also known as...
perfect price discrimination
which is more elastic - plain white tees or all clothing
plain white tees
the cross price elasticity of demand is always... for substitute goods
positive
Marginal utility can be
positive, negative, or equal to zero.
an indifference curve that is farther away from the origin is
preferred to one that is closer
Pure monopolies are said to be allocatively inefficient because ____.
price is greater than marginal cost
If a good that generates negative externalities were priced to take these negative externalities into account, its
price would increase, and its output would decrease.
Social MB/MC formula
private MB/MC + external MB/MC = social MB/MC
when the market is in equilibrium
producer and consumer surplus are maximized
a government imposed price floor that has a binding effect has what effect on surplus?
producer surplus increases
allocative efficiency
producing the goods and services that are most wanted by consumers in such a way that their marginal benefit equals their marginal cost
economies of scale can result from a variety of factors including...
productivity gains from more specialized labor lower costs of inputs as firms produce larger quantities
a private company cannot provide... goods because it does not have the ability to force people to pay for a good or service by collecting
public; taxes
in the short run, as prices increase....
quantity supplied increases
a firm sells a product in a perfectly competitive market. the marginal cost of the product at the current output level of 200 units is $4. the minimum possible average variable cost is $3.50. the market price of the product is $3. To maximize profits or minimize losses, the firm should...
shut down
how to find the intercept
take the budget and divide by price of product
Where there are spillover (or external) benefits from having a particular product in a society, the government can make the quantity of the product approach the socially optimal level by doing the following except
taxing the sellers of the product.
in monopolistically competitive markets, what allows consumers to be more responsive to price changes?
the availability of close substitutes
in the elastic range of the demand curve...
the change in quantity demanded is grater than the change in price
When a competitive market achieves allocative efficiency, it is implied that...
the combined consumer and producer surplus is maximized.
when a pure monopoly practices first degree price discrimination...
the demand curve becomes the MR curve
marginal cost
the extra cost associated with the production of an additional unit of output
the time periods associated with a set of supply curves include:
the immediate period the long run the marketing period the short run
price elasticity of supply
the measure of how responsive quantity supplied is to price changes
the demand curve faced by a non-discriminating pure monopoly is
the same as the industry's demand curve
four-firm concentration ratio
the sum of 4 firms sales divided by total market sales multiplied by 100
total product
the total amount of output produced with a given amount of resources
a negative externality or spillover cost (additional social cost) occurs when
the total cost of producing a good exceeds the cost borne by the producer
A negative externality or spillover cost (additional social cost) occurs when
the total cost of producing a good exceeds the costs borne by the producer.
excess capacity
the underutilization of resources that occurs when the quantity of output a firm chooses to produce is less than the quantity that minimizes average total cost
deadweight loss
the value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium
demand is perfect inelastic when
the value of the price elasticity of demand is zero
a pure monopoly can charge along hte demand curve because
they don't have to worry about competition
average total cost
total cost divided by the amount of output produced; total cost per unit
average variable cost
total variable cost divided by the amount of output produced; variable cost per unit
In a free-market economy, a product that entails a positive externality (additional social benefit) will be
underproduced
where do you find the normal profit price on a graph?
where ATC meets D
At what price would the firm generate the same profit or loss whether it chooses to produce or not?
where MC = AVC
along a downward sloping linear demand curve, total revenue is greatest...
where the demand is unit elastic
average variable cost is used to determine...
whether a firm should continue to operate or shut down in the short run
Assume a perfectly competitive constant-cost industry is initially at long-run equilibrium. Now suppose that a decrease in market demand occurs. After all the long-run adjustments have been completed, the new equilibrium price...
will be the same as the initial price, and the output will be less.
clothing - monopolistic?
yes
shampoo - monopolistic?
yes
what is an example of an explicit cost?
you hire a worker who could have received the same wage working for your competitor
