Micro Final
economic of pollution
- 1970, the US introduced antipollution polices - genuine progress against pollutants
exclusive dealing
- an agreement between a dealer and a manufacturer that the dealer will sell only products form one manufacturer (can be legal and illegal) - legal if the purpose of the contract is to encourage competition between dealers - illegal for Ford only to sell to Ford dealerships
new way- detailed analysis of specific markets and firms
- estimating supply and demand curves that the firms proposing M&A face - build a statistical model that estimates the likely outcome for consumers - focused heavily on consumers
still have high levels of air and water pollution other issues include
- hazardous waste disposal - destruction of wetlands and other wildlife habitats - impacts of pollution on human health
Oligopoly
-A smaller number of firms have all or most of the sales in an industry
How can natural monopolies arise
1. in industries where the MC of additional customers is very low, once the FC of the overall system is in place 2. In smaller local markets for products that are difficult to transport 3. control over, scarce physical resources
Perfect Competition Criteria
1. many firms producing identical products - ex. gas 2. many buyers, many sellers 3. perfect information- buy and sellers have all the information to make decision 4. free entry and exit- no barriers to entry
type of restrictive practices
1. minimum resale price maintenance agreement 2. exclusive dealing 3. tying sales 4. bundling
sherman act
1890- breaking up standard oil into 34 independent firms
Marketable permits work best when..
A few dozen or a few hundred parties are highly interested in trading
In order to produce 100 oatmeal cookies, GoodieCookieCo incurs an average total cost of $0.25 per cookie. The company's marginal cost is constant at $0.10 for all oatmeal cookies produced. The total cost to produce 50 oatmeal cookies is
$20
If a firm holds a pure monopoly in the market and is able to sell 5 units of output at $4.00 per unit and 6 units of output at $3,90 per unit, it will produce and sell the sixth unit if its marginal
$3.40 or less
Which of the following would be classified as a situation where a third-party benefits from a market transaction by others?
City buying 10,000 trees for green space renewal projects
The portion of a long run average cost curve that is downward sloping is called the range of
Economies of scale.
How is a legal monopoly different from a natural monopoly?
In a legal monopoly, barriers to entry are created by the government.
Your textbook covered 4 possible ways to deal with a natural monopoly. Which approach would be best for consumers?
Let the natural monopoly charge enough to cover its average costs and earn a normal rate of profit.
For a constant cost industry in a purely competitive market structure, whenever there is an increase in market demand and price, then the supply curve
Shifts to the right with new firms' entry and stops at the point where the new long-run equilibrium intersects at the same market price as before.
Mirtha owns an online jewelry store that specializes in earrings. In March, she sells 50 pairs of earrings priced at $15. The cost of materials to create the 50 pairs of earrings was $100. The website she uses to sell her wares costs her $10 a month, and she is also charged 4% on each sale by the company that processes debit/credit card purchases.
The sum of the materials ($100), website charge ($10), and 4% payment processing charge (4%)
What is the most controversial aspect of Antitrust regulation?
Defining a market
Which of the following government institutions bears the responsibility of enforcing US antitrust laws?
Department of Justice
Which of the following would a market competition regulator be most likely to assign the maximum HHI valuation to?
a monopoly
The refundable charge of 5 or 10 cents for returning recyclable cans and bottles works like
a pollution tax incentive to avoid littering
A complementary approach to supporting R&D that does not involve the government's close scrutiny of particular R&D projects is to give firms
a reduction in corporate taxes based on the amount of R&D performed.
Which of the following denotes a weakness that is common to both the four firm concentration ratio and the HHI?
assuming the subject market is well-defined relative to measuring how sales are divided within it.
A local regulator has calculated the average cost of production for the public water utility. The regulator has allowed an adjustment for the normal rate of profit the firm should expect to earn, and then set the price that consumers can be charged accordingly. In this instance, the regulator has used which of the following?
cost-plus regulation
Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs
costs of research and development
It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $199.00, ________________________.
could likely result in a notable loss of sales to competitors
Market-oriented environmental tools ______________________ for firms to take the social costs of pollution into account and ______________________ in reacting to these incentives.
create incentives; allow firms some flexibility
If the firm produces 5 units that it sells at a price of $30.00 each, what will its profits or losses equal? Q-5 C-125 FC-40 TC-165 ATC-33 AVC-25 MC-35
losses equal $5
nash equilibrium
does any 1 player have an incentive to unilaterally deviate
If the North American newsprint paper market has barriers to entry, then
entry will be blocked even if firms are earning high profits.
Economies of scale may arise from all but one of the following. Which one is it?
government economic subsidies protect firms from competition to avoid losses.
Which of the following would most likely create the setting for an oligopoly?
government grants Alex, Trent, and Alyse each a patent for their respective molybdenum based electric car batteries
Which of the following would an economist identify as a difficulty relating to environmental command-control regulations?
high degree of inflexibility
I'maSolarPanelCo. manufactures and distributes solar panels in the US market. Two years ago, it had 5 US competitors, but government stimulus in the industry has encouraged 7 new US competitors to enter the market. In these circumstances, I'maSolarPanelCo.'s price for its output
is dictated by the forces of demand and supply.
Temperatures have persisted below freezing levels in Florida throughout the months of December and January. As a result, demand for electricity sharply increased and the price of electricity rose sharply. The price of coal also rose. In these circumstances, any resulting shifts in the supply curves for coal miners and electricity producers
can also be interpreted as shifts of their respective marginal cost curves.
MC=
change in TC/change in Q
MR=
change in TR/change in Q
Which of the following has become a common condition for allowing a merger of large firms?
commitment to sell off certain parts of the firms
Which of the following would be classified as a positive externality?
converting a derelict empty lot to a public vegetable garden
Government policy-makers often must decide how to balance the potential benefits of _____________ against the potential benefits of _______________.
corporate size; competition
antitrust laws
power to block certain mergers, and in some cases to break up large firms into smaller one
The use of sharp, temporary price cuts as a form of ________ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers.
predatory pricing
What happens in a perfectly competitive industry when economic profit is greater than zero?
new firms may enter the industry and all of the above
When a firm invests in new technology, the _____________________ that the firm receives are _____________________.
private benefits; only a portion of the overall social benefits
A monopolist is able to maximize its profits by
producing output where MR = MC and charging a price along the demand curve
In Sam's greenhouse operation, labor is the only short term variable input. After completing a cost analysis, if the marginal product of labor is the same for each unit of labor, this will imply that
the average product of labor is always equal to the marginal product of labor.
A beekeeper decides to locate her business on a plot of land that is between an apple orchard and an elementary school. A positive externality that can result is
the bees helping to pollinate the orchard, leading to more fruit.
Acct Profit=
total rev-total cost
Econ profit
total rev-total cost (total cost is explicit costs + implicit costs)
In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?
what quantity to produce
tying sales
when a customer is allowed to buy one product only if they buy a second product
Entry
when new firms enter the industry - responding to an increase in industry profits
acquisition
when one firm purchases another
minimum resale price maintenance agreement
when there is a requirement that the dealer who buys from the manufacturer to sell for a least a certain minimum price
mergers
when two formerly separate entities combine into a single firm
If the two smallest firms in a competitive market merged, the four-firm concentration ratio ________________ because _______________.
would not change; the degree of competition isn't notably diminished
In economics, the term "shutdown point" refers to the point where the
marginal cost curve crosses the average variable cost curve
If a government chooses a system of marketable permits as its environmental managing tool, the reduction in pollution will
take place in the firms where it is least expensive to do so.
The definition of a market is getting blurrier. Why?
technology and globalization
If it was possible for one company to gain ownership control all of the uranium processing plants in the US, then
that firm could set up barriers to entry to discourage competition.
If two companies are seeking regulatory approval to merge their respective businesses, which of the following will most likely be the focus of the arguments that they will present in favor of the merger?
the new firm will produce more efficiently and all of the above
A beekeeper decides to locate her business on a plot of land that is between an apple orchard and an elementary school. A negative externality that can result is
the possibility of the bees stinging the students at the school.
In order to determine the average variable cost, the firm's variable costs are divided by
the quantity of output
The Microsoft antitrust case covered in your textbook embodies many of the gray areas in restrictive practices. Antitrust regulators accused Microsoft of numerous offenses. What was the end result?
Microsoft appealed a federal court decision to break up the company and reached a settlement with the government that it would end its restrictive practices
Monopoly
Only one firm produces all of the outputs in a market
Exit
The long-run process of reducing production in response to a sustained pattern of losses
The input factors of production include Land, Labor, Capital, Technology, and Entrepreneurial ability. Which of the following is an example of Capital?
The machines required to produce cars
What are the key trade offs of imperfect competition?
The monopolistically competitive market structure provides powerful incentives for innovation, but they never achieve productive efficiency in the long run.
In collusion how do they keep the prices high
They do this by holding down industry output, charging a higher price, dividing profit among themselves
If oligopolists collude with each other then...
They may act like a monopoly
Which of the following is NOT an example of a monopoly?
Three firms control the production of a precious gem globally.
The profit maximizing monopolist would achieve loss minimization when.
Total cost equals total revenue
Blank include all spending on labor, machinery, tools, and supplies purchased from other firms.
Total costs
For the past two years, a cellphone manufacturer has been selling to a group of distributors, who then sell the products to retailers to sell to the general public. The firm has now informed its distributors that each of them must sell the cellphones for a minimum price the manufacturer has set. In these circumstances,
any resulting minimum resale price maintenance agreements will be illegal.
When I'MaGoldMiner chooses what quantity of gold each of it/s mines will produce over the next 12 months, this quantity, along with the prices prevailing in the market for output and inputs, will
determine the company's total revenue, total costs, and its profits
defining a market in current times
difficult, controversial
kink demand curve
perceived demand curve that arises when competing oligopoly firms commit to match price but not price increases
When a government establishes a marketable permit program to address environmental pollution, it is actually issuing a form of
permit to pollute.
Given the data provided in the table below, the total revenue (TR) for production at a quantity (Q) level 4 equals Q-0 P-$5 TC-$9 Q-1 P-$5 TC-$10 Q-2 P-$5 TC-$12 Q-3 P-$5 TC-$15 Q-4 P-$5 TC-$19 Q-5 P-$5 TC-$24 Q-6 P-$5 TC-$30 Q-7 P-$5 TC-$45
$20.00
The prisoners' dilemma
A scenario in whihc the gains from cooperation are greater rewards from being selfish
externalities
AKA "spillovers" - negative when a 3rd party suffers from the market transaction of others - positive when a 3rd party benefits from the market transaction of others
The long run is the period of time during which
All factors are variable.
game theory
Branch of math that analyzes situations in which players must decide and then receive payoffs based on what they and other players do
How does a marketable permit program encourage innovation?
By providing a market for companies who can pollute less to sell to those who pollute more.
Which of the following characteristics does NOT describe a perfectly competitive market?
Firms set different prices for their product, either at or above the equilibrium price.
Using a graphical approach, once you have found the optimal level of output for the monopolist, how would you find the corresponding price?
From the point of optimal level of output, trace up to the demand curve, and then trace horizontally over to the price axis.
A good example of a monopolistically competitive market would be?
Gas stations in Texas
Antitrust laws
Give the government the power to block certain mergers or break up large firms.
What is often the result of regulatory capture
Government price regulation becomes a way for existing competitors to work together to reduce output, keep prices high, and limit competition.
What is often the result of regulatory capture?
Government price regulation becomes a way for existing competitors to work together to reduce output, keep prices high, and limit competition.
Allocative efficiency is an economic concept regarding efficiency at the social or societal level. It refers to producing the optimal quantity of some output, the quantity where the marginal benefit to society of one more unit just equals the marginal cost. The rule of profit maximization in a world of perfect competition was for each firm to produce the quantity of output where P = MC, where the price (P) is a measure of how much buyers value the good and the marginal cost (MC) is a measure of what marginal units cost society to produce. A monopolist...
Has no motivation to operate at an output level where P=MC, once a barrier is in place and no longer has to worry about competition.
How does advertising impact monopolistically competitive firms?
It either causes a firm's perceived demand curve to become more elastic, or advertising causes demand for the firm's product to increase.
Why is the perfect competition often used as a benchmark?
It provides a useful comparison to markets that operate in more complex, real-world conditions
In a perfectly competitive market...
It will eventually reach long-run equilibrium
Legal monopolies
Laws prohibit or severely limit competition
Barrier to entry
Legal, technological, or market forces that either discourage or prevent potential competitors from entering the market
price taker
No power over your final price - must use prevailing market price
The profit maximizing condition for a purely competitive firm is when
Price > average total costs
As firms enter and exit a monopolistically competitive market, what happens to productive efficiency in the long run?
Price will eventually intersect the average cost curve at a point where price > average cost, and productive efficiency will not be reached
How do oligopolists collude
Pushing up prices and consistently earn high levels of profit
total rev=
PxQ
profit maximizing choice of quanity=
Q star where MR=MC
When the quantity of environmental protection is low so that pollution is extensive, there are usually numerous relatively cheap and easy ways to reduce pollution, and the marginal benefits of doing so are?
Quite high
Command-and-control regulation refers to laws that
Specify allowable quantities of pollution.
A pollution charge gives a profit-maximizing firm an incentive to reduce its emissions with what condition?
That the marginal cost of reducing the emissions is less than the tax.
Which of the following is an example of an implicit cost?
The $40,000 in rental income an entrepreneur no longer receives after converting the rental space to their new storefront.
Natural monopoly
The barriers to entry are something other than legal prohibition
Mathematically, marginal cost is expressed as
The change in total cost divided by the change in output.
A good example of an oligopoly would be
The production of tennis balls where 4 firms dominate - Wilson, Dunlap, Spalding, and Penn
Long-run equilibrium
Where all firms earn zero economic profits producing at an output level where P=MR=MC and P=ATC
Both Wisconsin and Illinois border Lake Michigan. The lake is becoming polluted and both states are deciding whether or not to clean it. If Wisconsin decides to clean the lake it will cost 1200 and generate social benefits of 1500 - however, Wisconsin will receive only 1100 of those social benefits while neighbor Illinois will receive the other 400. If Illinois cleans the lake, it will cost them 700 and generate social benefits of 900 - however, Illinois will receive only 600 of those benefits, Wisconsin will receive the remaining 300. If a state does not clean the lake, it experiences a cost of $0. If both states clean the lake, the payoffs will be
Wisconsin gains 200, Illinois gains 300
Both Wisconsin and Illinois border Lake Michigan. The lake is becoming polluted and both states are deciding whether or not to clean it. If Wisconsin decides to clean the lake it will cost 1200 and generate social benefits of 1500 - however, Wisconsin will receive only 1100 of those social benefits while neighbor Illinois will receive the other 400. If Illinois cleans the lake, it will cost them 700 and generate social benefits of 900 - however, Illinois will receive only 600 of those benefits, Wisconsin will receive the remaining 300. If a state does not clean the lake, it experiences a cost of $0. In the absence of any agreement, the outcome of this game will be
Wisconsin not cleaning the lake, Illinois cleaning the lake
Reverse acquisition
a firm was purchased by another firm
cartel
a group of firms that have a formal agreement to collude to produce the monopoly output and sell at the monopoly price
When the quantity of environmental protection is low so that pollution is extensive, then there are usually__________________to reduce pollution and the __________________.
a lot of cheap and easy ways; marginal benefits of doing so are quite high.
bundling
a situation where mutiple products are sold as one
collusion
act together to reduce output for the purpose of keeping prices high
Herfindahl-Hirschman Index (HHI)
adding the square of market shares for each firm in the industry
The marginal revenue curve for a monopolist _________ the market demand curve
always lies beneath
The marginal revenue curve for a monopolist _________ the market demand curve.
always lies beneath
Paddy and Mick are the only two inhabitants of a small island off the coast of Ireland. They burn coal to keep their houses warm at night. However, this coal burning is harming the air quality on their island. Both Paddy and Mick could install air filters on their chimneys. These filters cost 50 each. Each filter provides a social benefit of 80, but those benefits are divided equally among Paddy and Mick. If both Paddy and Mick install the filters
both will gain 30
In the competitive market for figure skate blades, manufacturers offer an array of products that are
distinctly different in a particular way
celler-kefauver act
extends clayton, restricts vertical (buying other firms that have outputs for you, such as a baker buying a flour company) and conglomerate mergers
If the firm sells 5 units at a price of $30 each, then the marginal unit produced Q-5 C-125 FC-40 TC-165 ATC-33 AVC-25 MC-35
is subtracting from profits.
The economies-of-scale curve is a long-run average cost curve, because Group of answer choices
it allows all factors of production to change.
how to enforce cooperation
kink demand curve
If the CEO of I'MaBigBank is playing prisoner's dilemma then, from his perspective, the gains to be had from cooperation are
larger than the rewards from pursuing self-interest
The perceived demand curve for a group of competing oligopoly firms will appear kinked as a result of their commitment to
match price cuts, but not price increases.
(four-firms) concentration ratio
measures total share of sales for the largest firms - typically the top 4-8 firms
Which of the following is a valid criticism of the reduction of competition that results from corporate mergers?
merged firms can increase price and maintain permanently higher profits
For the restaurant industry in Seattle, with dozens or hundreds of extremely small competitors, the value of the HHI
might drop as low as 100 or even less.
change is
new-old/(old+new/2)x100
If the maintenance fees for a lighthouse are paid in full each year by charging port fees, then the lighthouse is
nonrivalrous and nonexcludable
implicit cost
opportunity cost of using resources that the firm already owns (time, capital)
In the closing decades of the nineteenth century, many industries in the U.S. economy were dominated by a single firm that had most of the sales for the entire country. In many cases these large firms were
organized in the legal form of a trust
clayton act
outlawed price discrimination, outlawed M&A that "substantively lessen competition", outlawed "tied sales"(when you buy one product that forces you to buy another product)
If a graph is used to compare total revenue and total cost of a perfectly competitive firm, then the horizontal axis of the graph will represent the __________ and the vertical axis will represent ________________________________.
quantity produced; both total revenue and total costs, measured in dollars.
In the event that Only1Corp. obtains control of all the natural gas producers in the US, it would most likely
raise prices, cut production, and realize positive economic profits.
Cathy can take either of two separate roads to drive to work. The first is a lightly used new toll road that is rarely congested. The second road is a local road with no tolls, but it is often congested and has many potholes. In this instance, the toll road is
rivalrous and nonexcludable
Traditionally, policies for environmental protection in the U.S. have focused on ______________________ pollutant could be emitted.
setting limits for how much of each
historical antitrust legislations
sherman act clayton act celler-kefauver act
If a small electric automobile manufacturer is able to gain the social return generated by its electric motor, its demand for financial capital would
shift to the left
If monopolistic competitors must expect a process of entry and exit like perfectly competitive firms,
they will be unable to earn higher-than-normal profits in the long run
If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero.
variable costs