EC 201 EXAM 3

an individual seller in perfect competition will not sell at a price lower than the market price because

the seller can sell any quantity she wants at the prevailing market price

if patents reduce competition, why does the federal government grant them?

to encourage firms to spend money on research to create new products

average total cost

total cost/quantity

profit

total revenue - total cost

average product of labor

quantity/number of workers

Sherman Act

1st!!! outlawed monopoly, collusion, price fixing, restraint of trade

Clayton Act

2nd!!!! prohibited firms buying stock in competitors from having directors serve on the boards of competing firms

Federal Trade Commission Act

3rd!!! established Federal Trade Commision to help administer antitrust laws

who is in charge of enforcing antitrust laws

Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice

public franchise is

a firm designated by the government as the only legal provider of a good or service

Long Run

a firm is able to vary all its inputs and adopt new techonology (everything is variable, NO fixed)

monopoly

a firm that is the only seller of a good or service that does not have a close subsitute

law of diminishing returns

adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the variable input to decline SHORT RUN ONLY

suppose that a perfectly competitive industry becomes a monopoly

as a result, consumer surplus will decrease, producer surplus will increase, and deadweight loss will increase

Short Run

at least one of a firm's inputs is fixed (both variable and fixed)

if marginal cost curve is below the average total cost curve then..

average total cost is decreasing

marginal product of labor

change in quantity/change in labor

firms with market power create deadweight loss because they

charge a price that is greater than marginal cost to maximize profits

Variable costs

costs that change as output changes

fixed costs

costs that remain constant as output changes (e.g. rent)

natural monopoly

develops automatically due to economies of scale

in a perfectly competitive market P = MR= AR because

firms can sell as much output as they want at the market price

explicit cost

involves spending money

antitrust laws are intended to

make illegal any attempts to form a monopoly or to collude

a firm might experience economies of scale because

managers become more specialized, enabling them to become more produtive as output expands

for a market to be perfectly competitive there must be

many buyers and sellers, with all firms selling identical products and no barriers to new firms entering the market

three main parts of the merger guidelines involve

market definition, measure of concentration, and merger standards

do network externalities create or remove barriers to entry?

network externalities create barriers to entry because if a firm can attract enough customers initially, it can attract additional customers as its product's value increases by more people using it, which attracts even more customers

implicit cost

nonmonetary opportunity cost

the four main reasons a firm becomes a monopoly are

the government blocks entry, control of a key resource, network externalities, and economies of scale

in perfectly competitive markets, prices are determined by

the interaction of market demand and supply because firms and consumers are price takers