econ exam #3 quizlet
When a firm operates at a loss, revenue will be: ....which means ATC will be:
be less than costs at the quantity of output above the demand curve at the quantity marked by point E.
more competition causes the perceived demand curve for the remaining firms' products (at any price) to _____ resulting ____
decrease in the demand curve shifting to the left.
Firms in monopolistic competition
differentiate their products.
Suppose that in the small town, Prairie, there are only two cable providers. What type of market structure does the local cable market have?
duoploy
Please classify the source of barriers to entry described in each scenario below. c. Building a brewery is a high start‑up cost operation.
economies of scale
Please classify the source of barriers to entry described in each scenario below. e. It is very expensive to build an amusement park but not that expensive to admit an additional customer.
economies of scale
oligopolies are where there are how many firms with what kinda ease of entry?>
few firms, ease of entry is LOW
Please classify the source of barriers to entry described in each scenario below. a. There are a limited number of licenses for taxi drivers in NYC.
government imposed
Please classify the source of barriers to entry described in each scenario below. b. Drug companies obtain patents so that they can recover research and development costs by the exclusive sale of the drug for some number of years.
government imposed
Please classify the source of barriers to entry described in each scenario below. g. The government establishes a quota on how much foreign oil can be imported.
government imposed
Please classify the source of barriers to entry described in each scenario below. f. The government establishes a tariff on tea.
government-imposed
perfect competition includes how many firms and with what kind of products? they are price makers or takers? they can easily or difficultly enter or exit the industry? what kind of line is the demand curve?
large # of firms with identicial products price takers easily enter or exit horizontal line demand crve
are monopolies price makers or takers
makers
monopolostic competition is where ______ produce ____
many firms produced differentiated prodcuts
A monopolistically competitive firm will maximize profits by producing the output at which
marginal revenue equals marginal cost.
Identify the market structure that most accurately describes the context in which each good or service is sold: retail clothing
monopolistic competition The retail clothing market is an example of monopolistic competition. In this market, there are many competitors selling similar but differentiated products. For example, many of the firms in this market sell T-shirts that are similar but differentiated by different styles or colors. There are also few barriers to entry into this market.
Identify the market structure that most accurately describes the context in which each good or service is sold: intercity passenger rail services
monopoly
Identify the market structure that most accurately describes the context in which each good or service is sold: locally regulates sewage disposal
monopoly Local sewage disposal and intercity rail services in the United States are examples of monopolies. Sewage services are typically provided exclusively by local cities or municipalities, and Amtrak, a government-owned corporation, has a monopoly on intercity rail services in the United States.
are homogenous products barrier to entry?
no
do monopolies have close substitutes?
no
is an oligopoly barrier to entry?
no
is collusion a barrier to entry?
no
Identify the market structure that most accurately describes the context in which each good or service is sold. automobile indsutry
oligopoly
Identify the market structure that most accurately describes the context in which each good or service is sold: commercial airline manufacturing
oligopoly The commercial airline manufacturing and automobile industries are examples of oligopolistic markets. There are few firms in both markets, and these firms sell similar but differentiated products. There are also significant barriers to entry in these industries, such as high start-up costs.
Please classify the source of barriers to entry described in each scenario below. d. Caribbean Cruz owns the only swimmable beach on an exclusive island in the Bahamas.
ownership of a key imput
Monopolies and monopolistically competitive firms differ in that monopolies
participate in markets where barriers to entry are present.
Identify the market structure that most accurately describes the context in which each good or service is sold: high quality russet potatoes
perfect competition The market for russet potatoes is a perfectly competitive market. In this market, there are identical products and no barriers to entry. Examples of perfect competition are rare in real life since even agricultural products like potatoes could be distinguished by their quality or by whether they are organic.
Characterize three properties of the market structure: monopoly
positive long run profits efficient quantity not produced barriers to entry
Characterize three properties of the market structure:: duopoly with collusion
positive long run profits efficient quantity not produced barriers to entry
In long-run perfectly competitive equilibrium, marginal revenue, which is the _____, also intersects the ____ and ___ curves at the equilibrium point.
price atc mc
total revenue =
price x quantity
Monopolistic competition is achieved through product differentiation, but having monopolistic competition does not mean that :
productive and allocative efficiency is achieved. [It is possible to have waste and not have productive efficiency through the duplication of products. Furthermore, it is possible to not have allocative efficiency since productive efficiency is not achieved. Recall that allocative efficiency is one of the productive efficient points, which is going to be optimal for society.]
In the long run, a perfectly competitive firm will produce at
the minimum point on the ATC;
What is the most likely price agreed upon by the cartel?
the obvious point where it kinks
Which of the following are characteristics of a monopoly market structure? there are low barriers to entry into the market. there is only one firm in the industry. no close substitutes are available. firm(s) have little to no price-setting power
there is only one firm in the industry. no close substitutes are available.
In the short run, firms in the market make a profit because: As a consequence, firms will enter the market as long as:
they produce where marginal revenue equals marginal cost, and at this point, the average cost is lower than the demand. profits are being made
For a monopoly, a. At what quantity should a firm produce? b. Following this choice in quantity, what should the firm choose next? c. In order to assess whether profits or losses have been accrued, what should happen next?
where MR = MC They should choose the price that correlates with the chosen quantity on the demand schedule. Compare price to average total cost at the quantity produced.
is a patent a barrier to entry?
yes
is exclusive ownership of a resource a barrier to entry?
yes
is mass production a barrier to entry?
yes
Characterize three properties of the market structure: monopolistic competition
zero long run profits efficient quantity not produced free entry and exit
Characterize three properties of the market structure: perfect competition
zero long run profits efficient quantity produced free entry and exit
Suppose you are a manager of a firm that operates in a duopoly. Recently, the state attorney general fined you and your competitor for price fixing. In your market, firms only set prices, not total quantities to sell. From previous experience, you know your competitor has a marginal cost of $4.904.90. Further, your marginal costs are $4.884.88. The previous cartel price was $10.00, when you and your competitor were price fixing. What price level do you now choose to maximize profits?
$4.89
Profit =
(P - ATC) x Q
Given an equilibrium level of output in an oligopoly market, each firm may face a kinked demand curve because the firms
agree to cut prices if another firm cuts prices.
total cost =
ATC x quanitty
explain where a loss is on the graph
Because ATC is higher than price, the point on ATC will be the upper‑right corner of the loss box. The lower‑right corner is the monopoly's loss-minimizing price and quanitity
explain the steps of finding the profit maximizing quantity
Finding the profit maximizing quantity and price is a two-step process. First, find the point where marginal cost (MC) equals marginal revenue (MR). The quantity at this point is the profit maximizing quantity. Second, find the maximum price the monopoly can charge for each unit by locating the point on the demand schedule associated with the profit maximizing quantity. This price is the maximum per unit price demanders are willing and able to pay for the profit maximizing quantity
The perceived demand curve for this oligopolistic firm in a cartel appears kinked because
all firms will match price decreases but not price increases.
what happens if the ATC curve is BELOW or ABOVE the demand curve at the profit-maximizing quantity?
If the ATC curve is below the demand curve at the profit-maximizing quantity (which implies ATC is less than price at the profit-maximizing quantity), then the profit calculation will be positive. If the ATC curve is above the demand curve at the profit-maximizing quantity (which implies ATC is greater than price at the profit-maximizing quantity), then the profit calculation will be negative. This means the firm generated losses.
How can a kinked demand curve indicate that the firms in the oligopoly will continue to behave as a cartel and not have an incentive to deviate from the cartel?
If the firms in the oligopoly collude to restrict output, the firms implicitly agree to cut prices if a firm in the oligopoly cuts prices.
To correctly assess whether profits or losses are generated, first think about how profits are calculated:
Profit=(𝑃 - 𝐴𝑇𝐶)×𝑞 According to this equation, the monopoly will earn a profit if and only if the ATC is less than the per unit price
where does a monoploy maximize profits?
The firm maximizes profits at the quantity where marginal revenue (MR) equals marginal cost (MC). Find the point where MR and MC cross. When you look straight down to the horizontal axis, you will see the quantity the firm will produce. Although it is tempting to look straight over to the left of this intersection to find price, that is not accurate. From the point where MR equals MC, look straight up to the demand curve and then across to the left to find the price consumers are willing to pay for the profit‑maximizing quantity
what are the 4 characteristics of product differentation?
These characteristics include some physical aspects such as the packaging, location where the product is sold such as at a high end retail store versus a discount department store, some intangible aspects such as money‑back guarantee or free delivery, or the customer perception of the product, which can be affected through advertising.
Comparing monopoly to perfect competition, which of the statements are true? Select all that apply. a. The monopoly is likely to be less responsive to consumers. b. The monopoly's price is higher. c. The perfectly competitive market's ouput is lowe
a & b
What are economies of scale?
a proportionate saving in costs gained by an increased level of production. google says: a proportionate saving in costs gained by an increased level of production.
a. Differentiated and frequently changing products ____ the likelihood of collusion. b. The ability to easily detect and punish cheating on collusive agreements ____ the likelihood of collusion. c. Oligopolistic firms with substantial excess production capacity _____ the likelihood of collusion. d. Very few firms in an industry ______ the likelihood of collusion. e. Easier entry into an oligopolistic industry _______ the likelihood of collusion. f. U.S. antitrust laws that prohibit cartels and price-fixing _______ the likelihood of collusion
a. decrease b. increase c. decrease d. increases e. decreases f. decrease
In each scenario, select the source of monopoly market power. a. Mary McFly invents a time machine and gets legal protection from competition. b. One electric company can operate at a lower cost than multiple electric companies. c. The author of Economics for Dumbbells is given exclusive rights to produce this book. d. Only the United States Postal Service can deliver first‑class mail by law. e. DeJeers Jewelers owns 80% of the world's diamond mines.
a. patent b. economies of scale c. copyright d. government franchise e. control over a significant input
