SASAS
What are the desires of an union?
Higher wages More benefits Greater job security Better working conditions
For marginal resource costs to maximize profit
Hire resources until MRC = MRP
What is an comparative advantage?
In producing a particular good if it can do so at the lowest opportunity cost.
The perfectly competitive firm faces a perfectly elastic demand curve because
It has no ability to control price
Characteristics of a private good
Rival in consumption Nonexclusive Provided by government
Characteristics of Open-access resources
Rival in consumption and non exclusive Subject to the common-pool problem No private property rights Negative externalizes arise
Assume that Bethany optimized today's production with today's sale of 100 bushels of corn. If her total variable cost is $200, and her total fixed cost is $100, and her marginal revenue is $3, then:
She has earned a normal profit
A characteristic shared by both oligopoly and monopoly
Significant barriers too entry into the market
In a competitive market, market price is determined by
Supply and demand
What are the most common forms of trade restrictions?
Tariffs ( a tax collected on imports ) Quotas (Restricts the volume of imports )
What are tariffs?
Tax on imports (Specific amount of $ per unit)
What is marginal revenue product?
The amount of additional revenue a firm collects by selling the output contributed by one worker.
A firm operates in a perfectly competitive industry. At the current level of output, the marginal cost is $26 and the average cost is $23. If the firm can sell its product for $25:
The firm should decrease its output.
What are quotas?
The government limits imports to a specified quantity.
When the HHI is above 1800
The industry is highly concentrated
When the HHI is between 1000 and 1800
The industry is moderately concentrated
When the HHI is less than 1000
The industry is unconcentrated
What are some traditional economic arguments?
The infant industry argument Antidumpying argument Low foreign wages National Defense Trade and domestic employment Trade and the environment
What is the short-run supply curve for the perfectly competitive firm?
The marginal cost curve above the minimum point on the average variable cost curve.
Characteristic of a monopoly
The market has only one seller No close substitutes exist for the product. There are significant barriers to the entry of other firms.
A very important difference between perfect competition and monopoly is:
The monopoly faces a downward-sloping demand curve while the perfect competitor faces a horizontal demand curve.
Characteristics of a monopolistically competitive markets and perfectly competitive markets share
Zero economic profits in the long run Many firms in the market Ease of entry into the market
An example of a cooperative game is
a cartel
If a market has 20 competing firms and 20% of those firms produce 80% of the sales, then the market structure would be described as:
an oligopoly
If each country specializes according to its comparative advantage, both nations can
be made better off through trade.
A perfectly competitive firm
can adjust the price of the product it sells in order to make more money.
Second degree price discrimination involves
charging consumers for different blocks of consumption (Like buying items in bulk at Costco, the cost per unit is typically less than buying just one item at the local store)
What are countries that trade the least called?
closed economies
With perfect price discrimination, a firm charges each customer a ___________, the maximum price each is willing to pay.
different
Third degree price discrimination applies a different price to...
each type of consumer.
A decreasing cost industry arises when
economies of scale present themselves with the entry of more firms. -Perhaps raw materials suppliers enjoy economies of scale as this industry's demand for their product increases. -The semiconductor industry seems to fit this profile: As the demand for semiconductors has risen over the past few decades, their price has fallen dramatically.
Monopolist will seek to produce the profit-maximizing quantity where marginal revenue ________ marginal cost.
equals
For all firms, regardless of the market structure, the profit maximizing rule is produce where marginal revenue
equals marginal cost.
Assume that a given level of output a monopoly firm has marginal revenue of 9$, its ATC is $9, and marginal cost is 7$. If the firm were to incrementally increase its output, then its profit will?
increase
Price discrimination is more likely in the case of services than in the case of goods because:
it is easier to resell goods than services.
The cotton industry is experiencing less than normal profits. You can expect some firms to
leave the industry in the long run.
Jack is making a normal profit by selling firewood in a perfectly competitive market. His price is $100 per load. If the market price goes up to $120, then he can expect:
more competition in the future
A firm earning an normal profit has
no pressure for firms to enter or leave the industry.
In a perfectly competitive market, individual firms set:
quantities but not prices
If the electric power company hires an expensive lobby firm to persuade the utility commission to increase its utility rate ceiling, this would represent:
rent-seeking behavior
Monopoly power implies that a firm has
some control over price.
If Biker's Oasis offers lower prices to women on "ladies night," then it would be engaging in:
third-degree price discrimination
The notion that individuals and firms are compelled to retaliate or punish others for engaging in non cooperative actions, but leaving the door open for future reconciliation is Best referred to as a
tit-for-tat strategy
When price is equal to average total cost, the firm is earning a
zero economic profit (normal profits)
What is monopoly profit equal to?
(Price - ATC) x Q
A monopolist sells 2000 units for 20$ each. Total costs of 2000 units are $30,000. If the price falls to 19$, the number of units sold increases to 2100. total costs of 2100 units are $30,075. Total profits at the level of 2,000 units and a price of $20 is:
10000$
Suppose a firm produces 20 units of output. At that level, ATC is 70, P = 50, MR and MC = 30. The firm is experiencing a loss of?
400$ (P x 20 - ATC x 20)
A firm in a perfectly competitive industry is maximizing its profits at 400 units. If the marginal revenue and marginal cost are each $35 and the firm's average total cost is 25$, this firm's profit is:
4000 ((400 x (35 - 25 ))
A perfectly competitive firm has total revenues equal to $360 when it produces 40 units. What is the marginal revenue for the 41st unit?
9$ (360$ /40 units)
What do all oligopoly models share in terms of common assumptions:
A few dominant firms in the industry Each firm recognizes that it must consider the responsive behavior of its competitors when it makes a decisions. Economists refer to this as mutual interdependence. Significant barriers to entry of a new firms
If MRP > MRC
A firm can increase profit or reduce a loss by employing more of that resource.
Profit-maximizing rule is
A firm maximizes profit by producing at the point where marginal revenue equals marginal cost.
Characterization of a monopolistic competition is
A large number of small firms Easy entry and exits of firms Each firm sells a slightly differentiated product
Characteristics of exhaustible resources?
A resource in fixed supply Does not renew itself
Characteristics of Renewable resources
A resource that regenerates itself Can be used indefinitely if used conservately
What can Product Differentiation be the result of?
A superior product A better location First-rate service Clever packaging Advertising/Brand names
What are externalities?
Actions or market transactions cause some other party not involved in the activity or transaction to benefit or be harmed
Following commonly uses game theory
Competing airlines Lawyers in a courtroom Candidates in an election
Farmer Bob sells cotton in a perfectly competitive market. At his current level of production, the marginal cost of a pound of cotton is $14 and his average total cost $15. His average variable cost is $12. The industry price for cotton is $14. To maximize profits or minimize losses, Farmer Bob should?
Continue at his current level of production
Barriers to entry include
Control over a key factor of production/essential resources Legal restrictions - patents, copyrights, licenses Economies of scale
What is interdependence?
Cooperation or fierce competition
Factors that can cause the entire labor supply curve to shift:
Demographic changes Working conditions and employee privileges Wages in alternative jobs Nonwage income
What type of slope does monopolists face?
Downward-sloping demand curve
What are some reasons for international specialization?
Economies of scale (Firms produce more, reducing average costs) Differences in tastes ( Differences in consumption patterns) More variety (People prefer having a choice of products, International trade helps broaden that choice)
If a perfectly competitive firm can sell a bushel of soybeans for $25 per bushel and it has an average variable cost of $20 per bushel, and the marginal cost is $22 per bushel, it should:
Expand output
Effects of an decrease of demand in the long run
Firms exit the market Supply decreases, Price increases Firm's Demand curve increases Normal profit
Characteristics of a public good
Nonrival in consumption Nonexclusive Provided by government
Market structure analysis 4 categories are?
Number of firms Nature of product Barriers to entry Extent of control over price
Before deciding on a pricing strategy, Worldwide Widgets consults with its market intelligence team to understand what discounts the Gargantuan Gizmo company is offering. The model that Best fits this industry is:
Oligopoly
Kellogg, General Mills, Post and Quaker Oats dominate the ready-to-eat cereal market. This industry has consistently showed profits in the long run, and is difficult to enter due to brand proliferation. The ready-to-eat cereal industry is an example of what type of market structure?
Oligopoly
The market for air travel from Dallas to Chicago is an
Oligopoly
Shor-run Losses occurs when
P > ATC (Economic Profit) ATC > P > AVC (Economic loss/Produce in short run) P < AVC (AVC curve is above the demand curve, Economic Loss, Shut down in short run)
Effects of an decrease of demand in the short run
Price decreases; Demand decreases Firms decrease quantity supplied Economic loss
Effects of an increase of demand in the short run?
Price increasesl Demand increases Firms increase quantity supplied Economic profit
In a competitive labor market, the value of the marginal product is equal to?
Price x Marginal physical product of labor
Total Revenue equation
Price x Quantity sold
Target executives believe that if they raise prices, then customers will go across the street to shop at Walmart. However, if they lower prices, then Walmart will respond likewise, so no customers will switch from Walmart to Target. This scenario implies that.
Prices changed by both retailers will be relatively stable.
For a monopoly firm, if AVC =20$, P = 21$, and ATC = 22$, the the firm should?
Produce at the point where MC = MR
Short run industry supply curve
Quantity supplied by industry at each price in the short run horizontal sum of all firms' short-run supply curves
What are the effects of a quota?
Raise the US price above the world price Reduce quantity below the free-trade level Lower consumer surplus Increase in producer surplus Net loss in domestic social welfare
What are oliigopoly markets?
Are those in which a large market share is controlled by a few firms. There are significant barriers to entry Each firm recognizes that it must consider its competitors' reactions when making its own decisions.
Conditions for price discrimination
At least two groups of consumers (with different price elasticity of demand) Charge different prices at low cost Prevent reselling of the product
What is a country that does not trade at all called?
Autarky
If the public utility commission allows the water company to earn a normal profit, then it is enforcing an?
Average cost pricing rule
An industry where a merger is proposed has an HHI measurement of 2500. The likely merger will raise the HHI by 100 points. This merger will be?
Challenged because of the high initial HHI and the anticipated high post-merger increase in the HHI.
How do firms maximize profit?
By producing where marginal revenue and marginal costs are equal.
What are the three set of theories of oligopoly?
Collusion Price leadership Game theory
What does it mean if a firm is earning zero economic profits?
It means that it is earning a normal rate of accounting profit.
For monopolists, marginal revenue is ______ than price.
Less than
What are the effects of a tariff?
Loss of consumer surplus Increase in producer surplus Increase in government revenue Net loss in domestic social welfare
Marginal resource cost equation
MRC = Change in total cost / Change in labor
Marginal Revenue product equation
MRP = Change in Total Revenue / Change in labor
In a perfectly competitive product market MRP ='s
MRP = MP x product Price
For short run profit maximization, Stop before
Marginal Costs is greater than Marginal Revenue
For short run profit maximization, Expand output if
Marginal Revenue is greater then Marginal Costs
In a competitive market, price is always equal to
Marginal revenue
Three uses of time of Labor Supply
Market work (time sold as labor) Nommarket work (Time spent getting an education) Leisure (Time spent on non-work activities)
If MRP = MRC
Maximize profit (or minimize loss)
Miguel owns a taco shop in the city. There are many other taco shops in the city, and there are no barriers to entry. Miguel can charge a higher price for his food because he uses a special sauce passed down to him from his grandmother. Miguel stays in the taco business because he makes the same profit he would make if he devoted his resources to his next best option. What aspect of Miguel's business indicates that he is not in a perfectly competitive industry?
Miguel has some control over his price.
Benefits of a monopoly
Monopolies provide new products, technologies, and medical breakthroughs that benefit many consumers.
Effects of an increase of demand in the long run?
New firms enter the market Supply increases, Price decreases Firm's Demand curve decreases Normal profit
Marta takes her 72-year-old mother and her 11-year-old son to the local water park. Marta pays $12 for her ticket, $8 for her mother's senior citizen ticket, and $6 for her son's child ticket. This is an example of:
Third-degree price discrimination
Total Cost equation
Total Cost = Fixed Cost + Variable Cost
Profit Equation
Total revenue - Total cost
If an oligopolistic firm attempts to decrease its price:
Total revenue will decrease
(True/False) Unions can increase wages.
True
What is an absolute advantage
When one country can produce more of a good than another country.
