ECON Exam 2

in the long-run, a monopolist will

be able to continue to earn economic profit as long as the market remains a monopoly

in a perfectly competitive firm finds itself producing here its marginal costs exceeds its price, it should

decrease its output to increase its profit

in perfect competition, an individual firm

determines the quantity it sells in the marketplace but has no influence over its price

the maximum economic profit that can be made by a duopoly that colludes is equal to the _______

economic profit made by the monopoly

Perfect competition is an industry with

many firms producing identical goods

which characeristic is associated with monopolistic competition - collusion - small # of firms - awareness of rival firms in the market - product differentiation

product differentiation

a firm's basic goal is to maximize its

profit

Revenue Equivalence Theorem suggests that different auction designs will

raise about the same expected revenue for the seller; produce an outcome similar to the law of one price

in the short run a perfectly competitive firm will

shut down if P < AVC

in the long run monopolistically competitive firms are ______ to perfectly competitive firms because _______

simslar; both firms earn zero economic profit

the long run is distinguished from the short run because only in the long run

the quantities of all resources can be varied

the short run is a period of time in which

the quantity used of at least one resource is fixed

a firm in monopolistic competition produces where

MR = MC

what is true regarding the long-run for a firm in monopolistic competition?

P = ATC

the two auction types that are strategically equivalent

1st price sealed-bid and descending; and 2nd price sealed-bid and ascending

in the short-run, a perfectly competitive firm will earn an economic profit as long as

P > ATC

when new firms enter a monopolistically competitive industry, each existing firm's

demand curve shifts leftward

price discrimination is the practice of charging different prices to

different customers even thought the cost of selling to each is the same

which is (are) parts of the market structure for monopolistic competition - barriers to entry - each firm produces a differentiated product - a large number of firms compete

each firm produces a differentiated product; a large number of firms compete

collusions or cartel agreements are bound to fail because

each firm will earn higher profit by breaking from the cartel agreement

total revenue minus the sum of implicit and explicit costs is equal to __________ profit

economic

High fixed costs are associated with

economies of scale

a firm incurs implicit costs when

the company uses capital equipment which it owns

in the long-run equilibrium in the perfectly competitive market

the economic profit for each firm equals zero

what happens in the long-run if competitive firms suffer economic losses?

the exit of some firms and the elimination of the short-run losses

what is marginal cost

the extra cost of producing 1 more unit of output

if a monopoly is operating along the portion of its demand curve where marginal revenue is positive, its

total revenue increases when price decreases

an economic profit for a self-employed entrepreneur is

total revenue that exceeds the opportunity cost

a firm that shut down and produces no output incurs a loss equal to its

total variable cost

in the long-run, perfectly competitive firms earn zero economic profit. This result is due mainly to which of the following assumptions?

unrestricted entry and exit

total cost is the sum of fixed costs and

variable costs

a decision that a firm DOES NOT make in the short run

whether to enter or exit an industry

A key difference between a monopoly and a perfectly competitive firm is that the monopolist

has a marginal revenue curve that lies below its demand curve

in perfect competition, the demand curve facing a single firm is

horizontal

when will a perfectly competitive firm shut down?

in the short-run, when price fall below the average variable cost

the marginal product of labor is equal to the

increase in the total product that results from hiring one more worker

a monopolist

is a price setter

if firms in a monopolistically competitive industry are earning a positive economic profit, then

new firms will enter the industry

Brand name drugs are chemically identical to their generic counterparts. Yet, consumers often prefer the brand name product to the generic product. Making consumers think that a brand name drug differs from its generic counterpart is an example of

product differentiation

a firm in monopolistic competition can determine what price to charge for its product because of

product differentiation

one benefit of monopolistic competition over perfect competition

product variety

the profit maximizing condition for a perfectly competitive firm is

P = MC

price wars can be a result of

new firms entering the industry and all firms then finding themselves in a prisoners' dilemma situation

the key feature of an oligopoly is that there

are only a few sellers

if economic profits are equal to zero then

accounting profits are being earned and they are equal to implicit costs

the distinguishing features of oligopoly are ______ and a ______ in the industry

barriers to entry; few firms

why do economists say that monopoly is "inefficient"?

because P > MC

perfect price discrimination

converts all consumer surplus into economic profit

what are variable costs

costs that change as output changes

total variable cost is the sum of all

costs that rise as output increases

explicit costs differ from implicit costs in that

explicit costs are paid in money, but implicit costs are often non-paid opportunity costs

opportunity cost equals

explicit costs plus implicit costs

One difference between oligopoly and monopolistic competition is that

fewer firms compete in oligopoly than in monopolistic competition

in the long-run equilibrium in the perfectly competitive market

firms produce at the lowest average cost per unit

in a perfectly competitive industry...

firms take price as given

a single price monopolist is inefficient becasue

it creates a dead-weight loss since P > MC

describe average fixed cost

it decreases continually as output is increased

describe average total cost

it decreases initially when output increases, but then increases

a perfectly competitive firm maximizes profit when

its marginal revenue equals its marginal cost

As perfectly competitive firms leave an industry because they are incurring an economic loss, the price of the good ________ and the economic loss of each remaining firm ________

rises; decreases

a period of time in which the quantity of at least one factor of production used by a firm is fixed is called the

short run

Marginal cost is calculated as

the increase in total cost divided by the increase in output

what is total cost

the sum of total variable costs and total fixed costs

in a perfectly competitive industry

- there are no barriers to entry - there are many firms in it, each selling an identical product

________ is a group of firms that have made a collusive agreement

a cartel

when producers agree to restrict output, raise the price, and increase profits, the agreement is called

a collusive agreement

how do monopoly outcomes differ from competitive outcomes?

a monopoly limits its output and charges a higher price for its product

a barrier to entry is

a natural or legal impediment that makes it difficult for new firms to enter a market

the long run is a period of time in which

all factors of production are variable

in perfect competition

all firms in the market sell their product at the same price

An example of a variable resource in the short run is

an employee

Pippi owns a pizza parlor. If Pippi owns a pizza oven, for its use she incurs ________. If she instead rents a pizza oven from someone else, she incurs ________

an implicit cost; an explicit cost

If a duopoly has a collusive agreement that maximizes joint profit, then each duopolist has

an incentive to cheat by lowering its price

a natural monopoly is defined as

an industry in which one firm can supply the entire market at a lower price than two or more firms

Joe and Martha get to split $100. Suppose that Joe gets x dollars and Martha gets y dollars, and that 100-x-y dollars is thrown away. For which values of x and y is the allocation Pareto-efficient?

any slit will be Pareto efficient as long as the entire $100 is used up.

for a single-price monopolist, price is _______ marginal revenue

greater than

four factors (inputs) of production

labor, capital, land, entrepreneurship

the more perfectly a monopoly can price discriminate, the

larger its output and the higher its profits

a single-price monopolist produces a ______ quantity than a perfectly competitive industry and charges a _______ price than the perfectly competitive industry

lesser; higher

total revenue equals

market price multiplied by quantity sold

the fundamental objective of a firm is

maximizing profits

Small pizza parlors exist in just about every town. Anyone can open a pizza parlor, and the pizzas from one parlor typically have different tastes and sizes than pizzas from another parlor. Thus, the pizza industry is an example of

monopolistic competition

An industry in which one firm can supply the entire market at a lower price than can two or more firms is called a

natural monopoly

a duopoly is a form of

oligopoly

which market type has characteristics as follows: small number of firms, competition between firms

oligopoly

Explicit costs are ________ and implicit costs are ________.

paid in money; are incurred when a firm gives up an alternate action

in the long run, a competitive firm decides

plant size, inputs, and technology to choose; whether to produce or shut down

if a monopolist can perfectly price discriminate, then

price equals marginal cost for the last unit it sells

Game theory is a tool for studying _______

strategic behavior

economies of scale refer to the range of output over which

the average cost decreases as output increases

an example of a fixed cost in a bicycle factory

the mortgage payment on the property the factory is run out of

cost, as measured by an accountant, generally does not include

the opportunity cost of the firm

in the long run, the economic profit of a firm in a perfectly competitive industry

will equal zero

A company could produce 100 units of a good for $320 or produce 101 units of the same good for $324. The $4 difference in costs is

the marginal cost of producing the 101st unit

the equilibrium price charged by firms in a perfectly competitive industry is determined by

the market

an industry is perfect competitive if

there are many firms in it, each selling an identical product

Economies of scale exist when the

total cost of production falls as the output increases

Average total costs are total costs divided by

total output

economic profit is equal to

total revenue - opportunity cost

when should a profit-maximizing firm increase production?

when marginal revenue exceeds marginal cost

in the short-run, a competitive firm decides

whether to produce or shut down