Microeconomics Chapter 8-12

In an increasing cost industry, what happens when the industry contracts?

the ATC decreases

In an increasing cost industry, what happens when the industry expands?

the ATC increases

What causes diseconomies of scale?

the difficulty of controlling/coordinating large scare operations of a firm

Whats a big difference between long and short run?

the number of firms may increase or decrease throughout time

In contrast to short run, long run firms have

time to expand or contract their capacities

How do you find average fixed cost?

total fixed cost/quantity

What is economic profit?

total revenue-explicit costs-implicit costs

What is accounting profit?

total revenue-total explicit cost

How do you know when resources have been allocated efficiently in a purely competitive market?

when P=MC=ATC, it upholds productive allocative efficiency

What are standardized products?

when characteristics among goods are uniform

What is creative destruction?

when creation of new products/production techniques destroys the market position of firms who have not adapted

What is productive efficiency?

when goods are produced in the least costly way

In what scenarios will firms exit and industry?

when price<mATC or p<mAVC

What are differentiated products?

when products are competed on based on other things besides price, such as quality, being unique, etc

What is marginal cost

cost of producing an additional unit

What are variable costs?

costs that do change with level of output

What are fixed costs?

costs that do not vary with output

The market demand curve in a pure monopoly is equal to the

demand curve of the monopoly firm

In a monopoly the marginal revenue curve is

downsloping

Does a pure monopoly demand curve slope upwards or downwards?

downwards

Accounting profit is greater than economic profit because

economic profit takes into account opportunity cost

List the four common barriers to entry in a pure monopoly industry:

economies of scale, patents, licenses, ownership/control of resources

In a purely competitive industry, after long run adjustments are made, price will

equal minimum average total cost

Describe an oligopoly:

few sellers of a standardized/differentiated product

Which costs can firms NOT avoid paying in the short run?

fixed costs

Suppose a monopolist can segregate buyers into two groups, the group which should be charged a higher price is the:

group with a lower elasticity of demand

to an economist, the main difference between long and short run

in the long run, all resources are variable, in the short run at least one is fixed

Number of firms in the long run may also

increase or decrease as new ones join, or existing ones leave

Constant cost is only prevalent when

industry demand for resources is small compared to total demand for those resources

What does the law of diminishing returns assume?

it assumes that technology/techniques of production dont change.

How easy/difficult is entry/exit in a pure competition?

it can be done easily

How many firms are in a pure competition industry?

large number of firms

Describe monopolistic competition:

large number of sellers, producing differentiated products, entry/exit is easy

What are explicit costs?

monetary costs

Does entry/exit of firms shift long run ATC curves?

no

Whats another word for making zero economic profit?

normal profit

What are implicit costs?

opportunity cost of using resources to create product, instead of selling for cash

What are economic costs?

payments that must be made to obtain and retain resources

What distinguishes monopolistic competition from other market structures?

product differentiation

In a pure competition industry, what does average revenue =

product price

What is average revenue?

revenue per unit

Describe an increasing cost industry:

ATC goes up as expansion occurs, and vice versa

Describe a decreasing cost industry:

Higher costs as industry contracts, lower as industry expands

Can a purely competitive have economic profit in the long run?

I cannot have economic profit in the long run, but it can in the short run.

Describe a pure monopoly:

One firm is seller, there is blocked entry, no product differentiation

What is the main problem with monopoly socially optimal price?

Price may be so low that the monopoly cant break even

How many sellers in a monopolistic competition?

Relatively large amount

What are the main traits of a pure monopoly?

Single seller, price maker, no close substitutes, blocked entry, non-price competition

In pure competition, what happens when market price exceeds minimum ATC?

The resulting profit will attract new firms to the industry, causing an increase in supply. This goes on until price is brought back down to equality with minimum ATC.

What is a constant cost industry?

When the entry or exit of firms does not impact resource price

What profit will firms earn in the long run?

a normal profit

What is common between all imperfect competition industries?

all firms are price makers

In the long run firms will have time to

alter production capacities, and/or liquidate assets/go out of business

What are the basis for a monopoly?

barriers to entry

Why cant a purely competitive have economic profit in the long run?

because of unimpeded entry into the industry