Econ 202 Edwardson Tamu Final exam Part 3

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What is the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

The market demand curve is downward sloping, and the firm's demand curve is a horizontal line.

A perfectly competitive firm in a constant cost industry produces 3,000 units of a good at a total cost of 36,000. The prevailing market price is $15. What will happen to the number of firms in the industry and the industry's output in the long run?

The number of firms, and the industry's output increases

The Bay Area Rapid Transit, BART, offers senior citizens discounted fares for BART rides. This suggests that BART authorities believe that senior citizens have a

more price elastic demand for subway rides

With perfect price discrimination there is

no deadweight loss

Mutual interdependence is found in

oligopolistic markets

Assume that price is greater than average variable cost. I a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize the profits the firm should

produce a smaller level of output

In which market structure is it not possible to practice price discrimination

perfect competition

No barriers to entry, many buyers and sellers, and identical products are the assumptions for what kind of market

perfectly competitive

The labor supply curve is ending backwards because

As the wage rate rises, the income effect becomes larger than the substitution effect

Player B Confess Don't confess Confess A:3 years A:1 year B:3 years B:10 years Player 1 Don't A:10 years A:2 years Confess B:1 year B:2 years The table above shows the payoff matrix for a prisoners' dilemma. In the Nash Equilibrium

Both prisoners choose to confess

What happens when a monopolistically competitive firm reaches long term equilibrium

P=ATC and MR=MC

A firm will make a profit when

P>ATC

The key characteristics of a monopolistically competitive market include

Sellers selling similar but differentiated products

Tony's Italian Ice is a monopolistically competitive firm. if Tony's earns a profit in the short run, what will happen when new firms enter the market

The demand curve will shift to the left

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit. This condition is referred to as

allocative effeciency

Because leisure is a normal good, an increase in the wage rate will result in

an increase in the quantity of labor supplied because of the substitution effect and a decrease in the quantity of labor supplied because of the income effect.

A natural monopoly is defined as

an industry in which economies of scale allow one firm to supply the entire market at the lowest possible cost

For productive efficiency to hold

average total cost is minimized

A monopoly has two key features which are

barriers to entry and no close substitutes

The prices college students and faculty pay for apple computers are lower than the prices Apple charges on its website and in retail stores. Apple charges lower prices to college students and faculty members because

college students and faculty members have a more elastic demand for computers that the general public

Compared to a similar perfectly competitive industry, a single price monopoly

creates a deadweight loss and decreases consumer surplus

In the long run firms in both monopolistically competitive markets, and perfectly competitive markets earn zero economic profits, but unlike perfectly competitive firms in the long run, monopolistically competitive firms

do not produce at a minimum average total cost

With perfect price discrimination the marginal revenue curve

is equal to the demand curve

The reservation wage is

the lowest wage for which a person is willing to supply labor

The marginal revenue curve for a perfectly competitive firm is

the same as it's demand curve


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