Micro Final
If the demand increases in a perfectly competitive market, firms will likely
enter the market in hopes of capturing some profits
Economic profits are calculated by subtracting
explicit and implicit costs from total revenue.
When some firms leave a perfectly competitive market, the price
increases, and profits of those left rise
If a firm decides to produce no output in the short run, its costs will be
its fixed costs
The monopolist's cost curves differ from those of a perfectly competitive firm in that the
marginal cost curve is downward sloping instead of flat
For most producing firms
marginal cost rises as output is carried to a certain level, and then begins to decline
Implicit costs are
nonexpenditure costs
A firm realizes that the market price has fallen below its average total costs, and it is now earning a loss. What is the best action for the firm to take in the short run
produce where MC = MR to minimize losses if P is greater than AVC.
For a firm in a perfectly competitive market, if it is producing at a level of output where marginal costs are less than marginal revenue it
should increase production to increase profits
Most U.S. firms face
some degree of competition
A firm realizes that the market price has fallen below its average total costs, and it is now earning a loss. What is the best action for the firm to take in the short run
stay open if price is greater than average variable costs
Implicit and explicit costs are different in that
the former refer to non-expenditure costs and the latter to monetary payments
When firms are faced with repeating games, such as the prisoner's dilemma, they
are more likely to collude
The short run is characterized by
at least one fixed resource
Diseconomies of scale means that
a firm's long-run average total cost curve is rising
An explicit cost is
a money payment made for resources not owned by the firm itself
A cartel is
a number of firms who collude to make collective production decisions about quantities or prices
When a Nash equilibrium is reached
no one has an incentive to break the equilibrium by changing his strategy
If a firm in a perfectly competitive market price of $5, and it decides to produce 400 units, the firm's total revenue will be
$2000
Which of the following is a short-run adjustment
A local bakery hires two additional bakers.
When one strategy is always the best for a player to choose, regardless of what other players do, it is called
a dominant strategy
An outcome in which all players choose the best strategy they can, given the choices of all other players, is called
a Nash equilibrium
A number of firms who collude to make collective production decisions about quantities or prices is called
a cartel
A Nash equilibrium is
an outcome in which all players choose the best strategy they can, given the choices of all other players
Fixed cost is
any cost which does not change when the firm changes its output
In the short run, a firm that finds itself earning a loss should compare the market price to which cost in order to determine how to minimize its losses
average variable costs
In the short run, the relevant costs for a firm to consider whether to shut down production are
average variable costs
One reason a government might choose to protect monopoly rights in an industry is
because it is in the public's interest to do so. to benefit insiders. to encourage innovation.
An essential characteristic of a perfectly competitive market is
buyers and sellers have no control over the market price
In the short run, monopolistically competitive firms:
can earn positive economic profits by acting like a monopolist
Cartels
can effectively sustain large profits in the long run. are usually illegal. can create outcomes similar to a monopoly.
When someone has market power, it means they
can noticeably affect the market price
The existence of a monopoly
causes consumers to get less at a higher price. creates market inefficiencies. and causes reduction in the total surplus
Marginal cost is the
change in total cost that results from producing one more unit of output
The act of firms working together to make decisions about price and quantity is called
collusion
Collusion is
difficult to maintain since firms always have an incentive to renege
One way for firms to analyze their choices in an oligopoly is by using
game theory
An essential characteristic of a perfectly competitive market is
goods are standardized
Standardized goods are
goods which are easily substitutable and not distinguishable.
Accounting profits are typically
greater than economic profits because the former do not take implicit costs into account
A price taker is a buyer or seller who
has no control over setting the market price
Most countries
have laws against firms making agreements about prices or quantities
The opposite of being a price taker is:
having market power
To economists, the main difference between the short run and the long run is that
in the long run all resources are variable, while in the short run at least one resource is fixed
A good that is perfectly standardized is
indistinguishable to others in the market
For a firm in a perfectly competitive market, if it is producing at a level of output where marginal costs are equal than marginal revenue it
is producing a profit-maximizing quantity
For firms that sell one product in a perfectly competitive market, the market price
is taken as a constant by individual firms. will remain constant regardless of an individual firm's output decision
Marginal product (of labor) is
may initially increase, then diminish, and ultimately become negative.
Costs to an economist
may or may not involve monetary outlays
A firm that is the sole producer of a good or service with no close substitutes is called a
monopolist
For a monopolist, at the profit-maximizing level of output
price is chosen according to demand
Collusion is
the act of firms working together to make decisions about price and quantity.
Normal profit is
the return to the entrepreneur when economic profits are zero.
For firms that sell one product in a perfectly competitive market, marginal revenue is always
the same as market price
The amount of calendar time associated with the long run
varies from industry to industry
One barrier to entry into a monopoly market is
very large fixed costs relative to variable costs. the existence of large economies of scale. the high cost of required infrastructure for an industry.
A dominant strategy is
when one strategy is always the best for a player to choose, regardless of what other players do