Final ECON

Suppose an oligopolistic firm raises the price of its output. Demand for the firm's output will be relatively price____________if the other dominant firms in the market_______________.

elastic; do not raise price

Oligopoly

is a market dominated by few sellers, at least several of which are large enough relative to the total market to be able to influence the market price.

Monopolistic competition

Refers to a market in which products are heterogeneous but which is otherwise the same as a perfectly competative market

5 Forces Model: Competitive Rivalry

- No of competitors - Quality Differences - Customer loyalty

5 Forces Model: Supplier Power

- Number of suppliers - Size of suppliers - Uniqueness of service

All else constatn, all of the following would cause the damand curve for a good shift except

A change in the cost of producing the good.

predatory pricing

A strategy of lowering prices below costs to drive firms out of the industry and scare off potential entrants

Characteristics of Perfectly Price Inelastic

A. Quantity demanded does not respond to price changes B. Elasticity Equals 0

The supply and demand for a good in 2 countries can be presented with the following linear functions: Country A Qd = 6 - 0,2Pa Qs = - 1 + 0,2Pa Country B Qd = 3 - 0,1Pb Qs = -1 + 0,4Pb If the countries can trade, which one will be the exporter and which one the importer of this product? Define the volume of the import of this product in the conditions of free trade and absence of the transportation costs.

Country A - importer, Country B - exporter; the volume of import = 1 unit.

The supply and demand for a good can be presented with the following function Qd = 700-2P Qs-100+2P Last year there was a significant technological enhancement in the industry that caused a decrease in production costs for most of the companies (c=-60). What the percentage changes in the equilibrium quantity and the equilibrium price are?

Decline in price by 5% and in quantity by 6,7%

As the price of milk increases, what would reasonably be expected to happen to the equilibrium price and equilibrium quantity of cereal? (Milk and cereal are complements.)

Equilibrium price and quantity would both decrease.

Assume declining profits in the market for Internet service force several firms in the area to drop out of the market. All else constant, this would cause the:

Equilibrium price to increase and equilibrium quantity to decrease.

Many people consider hot dogs to be an inferior good. For such people, all else held constant. A decrease in income would cause demand for hot dogs to:

Increase

Profit Maximization: Monopoly

MC=MR<P

Profit Maximization: In a perfect competitive market

MC=MR=P

Which of the following best describes the basic characteristics of noncooperative oligopoly models?

Managers make decisions based on the strategy they think their rivals will pursue.

Which of the following conditions holds for a monopolist, but not for a perfect competitor, at the profit-maximizing level of output?

Price > marginal cost.

Unit Elastic ( Effect on revenue)

Price increase or decrease has no impact on total revenue

The supply and demand for a good can be presented with the following linear functions: 0=500 - 2P 05 = 200 + 4P The Pw = 30 (c.u.) Next year, there is an expectation of the local quantity demanded growth by 100 units. This will provoke the increase in the import. To prevent such a situation and to keep the import at the same level, the government decided to introduce the tariff. Define the size of tariff (cu. per unit of import).

Tariff = 16,67 (c.u.)

Perfectly competitive firms are said to be "small." Which of the following best describes this smallness?

The individual firm is unable to affect market price through its output decisions.

Which of the following is not considered a factor that influences supply?

The number of buyers

The manager of a perfectly competitive firm has to decide:

The quantity of output the firm should produce

Assume the supply function for good X can be written as Qs = -100 + 27Px - 5Py - 1.8W, where Px= the price of X, Py = the price of good Y, and W = Wage index for workers in industry X. According to this equation:

X and Y are substitutes in production.

Assume the demand function for good X can be written as Qd = 80 - 3Px + 2Py + 10l, where Px = the price of X, Py = the price of good Y, and I = Consumer income. According to this equation:

X and Y are substitutes.

Assume the four-firm concentration ratio in industry X is 75 percent and that the firms in the industry produce a differentiated product. Industry X most likely would be characterized as:

an oligopoly.

The supply and demand for a good can be presented with the following linear functions: 0°=800 - 20P Q = - 400 + 40P The world price for this product is 18 c.u. What is the difference between the local equilibrium price and the world price? Define the expenses of the local customers on purchasing this good from abroad.

c. 1) 2 c.u.; 2) 2160 c.u.

Which of the statements is false? a. Any firm that operates in an imperfectly competitive market faces a downward-sloping demand curve for its product. b. The fact that a firm is a price-setter does not ensure it will make a positive economic profit in the short run and over time. c. Price will be lower and output will be higher under monopoly than under perfect competition with the same demand and cost conditions. d. For a monopolist to earn a positive economic profit, price has to exceed average total cost at the level of output at which marginal revenue equals marginal cost.

c. Price will be lower and output will be higher under monopoly than under perfect competition with the same demand and cost conditions.

According to one study, the price elasticity of demand for restaurant meals is -2.27. This implies that if restaurants want to increase their total revenues they should:

decrease prices.

Assume there is a simultaneous decrease in the incomes of people in the market for new homes and a decrease in the wages paid to carpenters, plumbers, and electricians. All else constant, we can predict, with certainty, that in the market for new homes the equilibrium:

price of new homes will decrease.

Suppose there is an increase in both the supply and demand for personal computers. In the market for personal computers, we would expect...

the equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.

A decrease in price will result in an increase in total revenue if:

the percentage change in quantity demanded is greater than the percentage change in price.

5 Forces Model: Buyer Power

- Price Sensitivity - Number of customers - Ability to substitute

Characteristics Unit Price Elastic

- Quantity demanded changes by the same precantage as the price - Elasticity Equals 1

Characteristics Perfectly Price Elastic

- Quantity demanded changes infinitely with any change in price - Elasticity Equals Infinity

5 Forces Model: Threat of Substitution

- Substitute performance - Cost of change

What are the 5 forces in Porter's model?

- Threat of new entry - Buyer Power - Threat of Substitution - Supplier Power - Competitive Rivalry

5 Forces Model: Threat of new entry

- Time and Cost of entry - Cost advantages - Economies of Scale

Inelastic Demand (Effect on revenue)

Price increase results in higher total revenue Price decrease results in lower total revenue

Elastic Demand (Effect on Revenue)

Price increase results in lower total revenue Price increase results in higher total revenue

Assume wages paid by a firm to its workers decrease. What will be the reaction of consumers as the market moves to its new equilibrium?

Quantity demanded will increse

Assume the cost of certain inputs used to produce artificial Christmas trees increases and, at the same time, the economy moves into a recession, causing the incomes of consumers to decrease. Which of the following will happen to the equilibrium price and quantity of artificial Christmas trees? (Assume artificial Christmas trees are normal goods.)

Quantity will decrease; price cannot be determined.

Assume the costs of production in the U.S. auto industry are rising and, at the same time, the prices of Japanese-made autos are decreasing. What would reasonably be expected to happen to the equilibrium price and quantity of U.S.-made autos?

Quantity will decrease; price cannot be determined.

Assume the technology for producing personal computers improves and, at the same time, individuals discover new uses for personal computers so that there is greater utilization of personal computers. Which of the following will happen to equilibrium price and equilibrium quantity?

Quantity will increase; price cannot be determined.

The supply and demand for a good can be presented with the following linear functions: Qd =100 -p Qs = - 50 + 2P The volume of import of this product = 90 units. The government decided to introduce the tariff to reduce the import by 50%. What should the size of the tariff be (cu. per unit of import)?

Tariff = 15 (c.u.)

Assume the demand function for good X can be written as Qdx = 20 - 0,5Px + 3Py + 15l, where Px = the price of X, Py = the price of good Y, and I = Consumer income. All else constant, a one unit increase in the price of good Y would cause the quantity demanded of good X to:

increase by 3 units.