Micro unit 2
kinked demand
- if a firm raises its price its competitors will not follow causing a sharp decrease in Qd - if a firm lowers its price, its competitors follow, resulting in only a small increase in Qd
characteristics of monopolistic competition
-Many buyers and sellers -Differentiated products - little to No barriers to market entry or exit -No long-run economic profit -Some control over price
When output is 100 units, the firm's total fixed cost is $500. What will this firm's total fixed cost be if output doubles to 200 units?
$500
Darrell owns a furniture store. His total costs are $225,000 per year, and his fixed costs are $150,000 per year. This means that his variable costs are:
$75,000
a normal rate of return
A rate of return on capital that is just sufficient to keep owners and investors satisfied.
why might a monopoly have a loss
ATC
sunk costs
Already incurred and cannot be recouped by a new decision or alternative
If Firm A is making zero economic profits,
Firm A is breaking even when opportunity cost is taken into consideration.
the monopolist maximizes its profit by using the output rule
MR=MC
a monopoly firm does not have
a marginal revenue curve that equals price at all quantities
monopoly
a market that runs most efficiently when one large firm supplies all of the output
the difference between a natural monopoly and a monopoly is that
a natural monopoly maximizes profit at a quantity where marginal cost is falling
break even price is when
a price taking firm is the market price at which it earns zero profits
what is not a barrier to entry to an industry
a relatively low marginal tax rate
normal profit equals
an economic profit of zero
example of oligopoly
automobile industry
______ is found by dividing total output by the number of workers employed to produce that output.
average cost
which of the following is a characteristic of a monopoly firm
barriers to entry
advantages to advertising
brand loyalty, creates value, social value with product
Which of these would create diseconomies of scale?
bureaucracy
When talking about economic profits in a perfectly competitive market, the difference between the long run and the short run is that, in the short run, firms:
can earn positive or negative economic profits, but in the long run, firms have zero economic profits.
a price maker is a firm that
can influence market price by adjusting its level of output
An extreme case of oligopoly in which firms collude to raise joint profits is known as a:
cartel
Marginal product is defined as the:
change in output from hiring an extra worker.
barriers to entry
control of natural resources or inputs, increasing returns of scale or technological superiority, government created barriers including patents and copyrights
the exclusive right to produce or reproduce certain types of intellectual property (such as books, works of art, and so on) for an extended period of time is called a
copyright
disadvantages to advertising
creates incentive to lie, FTC tries to regulate, internet makes unsubstantiated claims and government has no control
If the marginal product of labor is increasing, the marginal cost of output must be:
decreasing
It can be cost-effective to pursue economies of scale only if:
demand is large
economies of scale
describe a type of barrier to entry for a monopoly in which one firm can operate more efficiently than two or more firms
If a firm increases its inputs by 80% and its output increases by 60%, then this would be an example of:
diseconomies of scale
The range of output where long-run average costs tend to increase as production is increased are:
diseconomies of scale
monopolistic competition is similar to perfect competition in that firms in both market structures
do not face any barriers to entry into the industry in the long run
barriers to entry allow some monopolists to
earn economic profits in the long run
Monopolistically competitive firms have zero economic profits in the long run because of:
easy entry and exit
Specialization of labor and management typically supports:
economies of scale
the most important source of oligopoly is
economies of scale
if firms earn short run economic profits, new firms
enter the industry and existing firms expand their operation s
Firms will break even if the price they charge is:
equal to their minimum average total cost
the demand curve facing a monopoly firm is
equivalent to the market demand curve.
natural monopoly
exhibits increasing returns of scale
explicit costs
expenses paid directly to some entity (wages, lease, payments, raw materials, taxes)
accounting costs include only
explicit costs
One difference between implicit costs and explicit costs is that:
explicit costs are included in accounting profits, whereas implicit costs are not.
true or false: a monopoly has close substitutes for the monopolist's product are available to buyers
false
true or false: all costs are fixed costs in the long run
false
example of monopolistic competition
fast food restaurants
in an oligopoly
firms recognize their interdependence
Since a monopolistically competitive firm faces a downward-sloping demand curve for its product, its price will be:
greater than marginal revenue
in monopolistic competition each firm
has some ability to set the price of its differentiated good
to exercise market power, a firm must
have some control over price
market power means the ability to
have some control over price.
A typical total product curve goes through four stages. What is the correct order for these stages?
increases at an increasing rate, increases at a decreasing rate, reaches a maximum, decreases
in the long run all
inputs can be adjusted
The total product curve:
is a relationship between total output and input.
economies of scale
lead to lower average costs in the long run.
competition reduces the demand for each individual seller shifting the demand curve to the
left
if a monopoly firm sells more than one unit, marginal revenue will the be
less than the price
there are no fixed costs in the
long run
there are increasing returns to scale (economies of scale) when
long run average total cost declines as output increases
there are decreasing returns to scale (diseconomies of scale) when
long run average total cost increases as output increases
advertising is meant to
make demand more inelastic for that product
characteristics of perfect competition include
many buyers and sellers standardized products no barriers to market entry or exit no long-run economic profit no control over price
The change in total product occurring when a variable input is increased and all other inputs are held constant is:
marginal product
both perfectly competitive firms and monopoly firms should increase production when
marginal revenue is greater than marginal cost
perfectly competitive firms and monopoly firms should increase production when
marginal revenue is greater than marginal cost
the ability of a monopolist to raise its price above the competitive level by reducing output is known as
market power
the entry and exit of firms ensure that ______ in the long run than in the short run
market supply curve is much more elastic
the entry and exit of firms ensure that the
market supply curve is much more elastic
a firm that is the only seller of a good with no close substitutes is a
monopolist
compared to a competitive industry, a monopolist is likely to achieve ____ producer surplus while generating ____ DWL
more more
a monopoly differs from a perfectly competitive market in that
no close substitutes exist for the monopolists's product
subsidizing imported goods
not a government imposed restriction that could keep potential entrants from the market
characteristics of monopoly
one firm, no close substitutes for product, nearly insuperable barriers to entry, potential long run economic profit, substantial market power and control over price
a monopolist is a firm that is the
only producer with no close substitutes
implicit costs
opportunity cost of using resources
price taking only occurs when there is
perfect competition
in a perfectly competitive market each firm is a
price taker
for a monopoly firm, if AVC<P<ATC then the firm should
produce at the point at which MC=MR
the only way monopolistically competitive firms can acquire some market power is
product differentiation
A firm earns an economic profit when
profits are greater than zero after implicit costs are considered
what are some ways firms can differentiate their products
quality, location, preference, style, type
A form of regulation that controls a firm's prices and profits based on its costs and capital investments is called:
rate of return regulation
characteristics of oligopoly
relatively few firms, interdependent decision making, substantial barriers to market entry, potential long-run economic profit, shared market power considerable control over price
when a firm uses price discrimination successfully, the result is that producer surplus _____while DWL _____ to a single price monopoly
rises, falls because output increases with price discrimination
economies of scale result from
specialization of labor and management, better use of capital, complementary production techniques
Holding all else constant, a decrease in the market demand for a product in a competitive market would cause:
the MR curve of the firms to shift downward
marginal product is
the change in total output, given a change in labor input.
The full set of short-run cost curves for a firm tells us:
the cost-minimizing level of output
when marginal cost intersects the average total cost curve at its minimum point
the firm will earn normal profits
variable costs rise as
the level of output increases
total costs are the
the sum of the fixed and variable costs
a natural monopoly could arise when
there are large economies of scale relative to the industry's demand
accounting revenue
total revenue - explicit costs
economic profit
total revenue-explicit costs- implicit costs
profits=
total revenue-total cost
should a competitive firm keep producing even if it faces short run losses
yes as long as it is covering its variable costs
a perfectly competitive firm earns
zero economic profit in the long run
example of monopoly
NFL