microecon exam 3

Allocative Efficiency

resources allocated to their highest possible use (demand=MC)

What is the relationship between a​ monopolist's demand curve and the market demand​ curve?

A​ monopolist's demand curve is the same as the market demand curve.

What is the relationship between a​ monopolist's demand curve and its marginal revenue​ curve?

A​ monopolist's marginal revenue curve has twice the slope of its demand​ curve, because to sell more​ output, a monopoly must lower price.

When are firms likely to enter an​ industry? When are they likely to​ exit?

Economic profits attract firms to enter an​ industry, and economic losses cause firms to exit an industry.

productive efficiency vs allocated efficiency

Productive efficiency pertains to production within an industry while allocative efficiency pertains to production across all industries.

What is the shape of ATC, AVC, MC

U-shaped

Nash Equilibrium

a situation in which economic actors interacting with one another each choose their dominant strategy and stay with it

dominant strategy

a strategy that is the best for a firm, no matter what strategies other firms use

Marginal Cost (MC)

change in total cost / change in total output

Marginal Revenue (MR)

change in total revenue / change in quantity

Suppose that a perfectly competitive industry becomes a monopoly.

consumer surplus-decreases, producer surplus- increases deadweight loss- incrasese

total cost

cost of all inputs a firm uses

fixed costs

costs that remain constant as output changes

variable costs

costs that vary with the quantity of output produced

natural monopoly

develops automatically due to economics of scale

in a competitive market, P=MR=AR because?

firms can sell as much output as they want at market price

cooperative equilibrium

firms cooperate to increase their mutual payoff

total cost(TC)

fixed costs + variable costs

Causes of Monopoly

government action, control of key resource, network externalities, natural monopoly

the market supply curve is derived from?

horizontally adding the individual firms' supply curves

The four main reasons a firm becomes a monopoly​ are?

the government blocks​ entry, control of a key​ resource, network​ externalities, and economies of scale.

When maximizing​ profits, MR​ = MC is equivalent to P​ = MC because?

the marginal revenue for a perfectly competitive firm is the same as its demand curve

four-firm concentration ratio

the percentage of total industry sales accounted for by the top four firms in the industry

Technology

the processes a firm uses to turn inputs into outputs

Long run

the time period in which all inputs can be varied

why are firms willing to accept losses in short run but not in the long run?

there are sunk cost in the short run but not in the long

Average Total Cost (ATC)

total cost / output

Profit

total revenue - total cost

Production Theory

universal rules for firms to operate by

Average Variable Cost (AVC)

variable cost / output

price efficiency

when a good or service is produced at the lowest possible cost

a monopolist is a price taker because?

when a monopolists raises its prices, it loses some but not all customers

monopolistic competition

a market structure in which many companies sell products that are similar but not identical

monopoly

a market structure with only one seller of a unique product

Average Fixed Costs (AFC)

Fixed costs / output

profit max

MC=MR

Total Revenue (TR)

Price x Quantity

Average Revenue (AR)

TR / Q

Monopoly

a firm that is the only seller of a good or service that does not have a close substitute

A price taker is?

a firm that is unable to affect the market price

What is the relationship between a perfectly competitive​ firm's marginal cost curve and its supply​ curve?

a firms marginal cost curve is equal to its supply curve for prices above average variable cost

perfect competition

a market structure in which a large number of firms all produce the same product

oligpolistic competition

a market structure in which few companies produce identical or different products

economic profit formula

accounting profit - opportunity costs(salary+bonds x %)

Capital

any physical item that helps produce something

labor

any sort of worker (human)

In the short​ run, a​ firm's shutdown point is the minimum point on the

average variable cost curve, while in long run, a firms exit point is the minimum point on the average total cost

Why are consumers so powerful in a market​ system?

because it is consumers demand that influences the market price and dictates what producers will supply

Perfect competition leads to allocative and productive efficiency

because prices reflect consumer preferences/ because firms are motivated by profit.

Economists could find that a firm is a monopoly if

it earns profits in the long run.

economists believe that the model of perfect competition is important because?

it is a benchmark-a market with maximum possible competition- that economists use it to evaluate actual markets that are not perfectly competitive

a firm is likely to be a price taker when?

it represents a small fraction of the total market

For a market to be perfectly competitive, there must be?

many buyers and sellers, with firms selling identical products, and no barriers to entry

technological change

method used to turn less inputs into the same amount of outputs, or more outputs from the same input

Short run

period of time, where where one of the firms inputs are fixed

Production Efficiency

producing something at the lowest possible cost (MC=ATC)

in​ long-run competitive​ equilibrium, a firm earning zero economic profit

will continue to produce because such profit corresponds with positive accounting profit