Econ Exam 3

Ace your homework & exams now with Quizwiz!

What does ATC equal to?

AFC+AVC

When will a monopolist receive economic profits?

As long is P>ATC

In a PC market, MR=...

P

In a monopoly, which is higher: MC or P?

P

What does MR equal in a PC market?

P

What is AR equal to in a monopoly?

P

In the short run, if there is an increase in demand for a PC market, what happens to P, Q, and profits?

P and Q raise. Firm now earns profits because P now exceeds ATC

What kind of market has free entry and exit?

PC

When a monopoly increases the amount it sells, what happens to P and Q?

Q is higher, P is lower

How do you calculate ATC?

TC/Q

How can profit be calculated for a PC firm?

TR-TC (TR/Q-TC/Q) X Q (P-ATC) X Q

How do you calculate a monopoly's profit?

TR-TC (TR/Q-TC/Q) X Q (P-ATC) X Q

What is the output effect in a monopoly?

The more output sold (Q is higher)

When does profit maximization occur for all markets?

When MR=MC

When MC is less than ATC, ATC is...

fallin

A monopolist's MR is always ___ than the price of its good.

less

How can a government respond to a monopoly?

1) Making more monopolized industries more competitive 2) Regulating the behavior of monopolies 3) Turning some private monopolies into public enterprises 4) Nothing

What are the three sources of these barriers that cause monopolies?

1) Ownership of a key resource 2) The government gives a single firm the exclusive right to produce some good 3) Costs of production make a single producer more efficient than a large number of producers

What are antitrust laws?

A collection of statutes aimed at curbing monopoly power

Where does MC cross ATC?

At its minimum

Why is the ATC curve U shaped?

At low levels of output, ATC is high because AFC are high ATC declines as output increases ATC starts rising because as Q increases, AVC rises

What is the fundamental cause of a monopoly?

Barriers to entry

How does a monopoly maximize profit?

By producing the Q at which MR=MC, then it uses the demand curve to find out P

How do you calculate Marginal Cost?

Change in TC/ Changes in Q

Which firm is considered to be a price taker?

Competitive firm

What are fixed costs

Costs that do not vary with the quantity of output produced

Sunk costs

Costs that have already been committed and cannot be recovered

What are variable costs

Costs that vary with the quantity of output produced

When a monopoly drops the price to sell one more unit, the revenue received from previously sold units goes up or down?

Down, because of the downward sloping demand curve.

Which profit is always equal or smaller?

Economic profit

What is a reason that monopolies RARELY arise from?

Exclusive ownership of key resources

If P< ATC in a PC firm, what should it do?

Exit the market

If TR/Q < TC/Q in a PC firm, what should it do?

Exit the market

How do you calculate Average Fixed Costs?

FC/Q

What do total costs equal to?

Fixed Costs+Variable Costs

What can costs of production be divided into?

Fixed costs and variable costs

Does a firm's cost curve differ ever?

From Short run to long run

What is the short run market supply for the PC market?

Horizontal sum of each firm's SR supply

What question does Marginal Cost answer?

How much does it cost to produce one more unit of output?

Why is a monopoly desirable to consumers?

ITS NOT DESIRABLE TO CONSUMERS B/C OF THE MARK-UP

When does a PC exit the market in the long run?

If TR<TC

How does a PC firm decide that it should shut down temporarily?

If the revenue it gets from producing is less than the variable cost of production

What does a firms cost of production include?

Implicit and explicit costs

In which markets are antitrust laws needed?

In monopolies

When does a PC firm consider sunk costs?

In the LR

Marginal Product/Marginal cost

Increase in output that arises from an additional unit of that input

What are implicit costs

Input costs that do not require an outlay of money by the firm

What are explicit costs

Input costs that require a direct outlay of money by the firm

What does the long run market supply look like for PC firms?

It is horizontal at P

In comparison to the PC market, the monopoly's Q is higher or lower?

Lower

If a monopoly wants to sell more, what must it do?

Lower price

With the quantity of output, what eventually rises?

MC

If a firm is the sole seller of its product, what is it classified as?

Monopoly

If a firm sells a product with no close substitutes, what is it classified as?

Monopoly

If a market has a downward-sloping demand curve, what is it?

Monopoly

If a market is the sole producer of a good or service, what is it?

Monopoly

If a market reduces the price of a good to increase sale, what is it?

Monopoly

Which firm is considered to be a price maker?

Monopoly

Which market creates a DWL?

Monopoly and MC

In the long run, how much of costs are fixed?

NONE. ALL FIXED COSTS BECOME VARIABLE COSTS IN THE LONG RUN

What kind of market has identical goods being sold?

PC

What kind of market has many buyers and sellers?

PC

What kind of market has no market power?

PC

What are examples of government created monopolies?

Patents and copyrights

Who is a monopoly desirable to?

Producers

When MR is less than MC in a PC market, what should happen to Q?

Q should decrease

When MR is greater than MC in a PC market, what should happen to Q?

Q should increase

What did the Sherman Antitrust act do?

Reduced the market power of the large and powerful "trusts" of that time period

Economies of scale

Refer to the property whereby long run ATC falls as Q increases

Diseconomies of scale

Refer to the property whereby long run ATC rises as Q increases

Constant returns to sale

Refers to the property whereby longrun ATC stays the same as Q increases

What were the two most important antitrust laws

Sherman Antitrust Act and Clayton Antitrust act

Production function

Shows the relationship between inputs and outputs

If a PC firm's P<AVC, what should it do?

Shut down temporarily

If a PC firm's TR/Q<VC/Q, what should it do?

Shut down temporarily

If a PC firm's TR<VC, what should it do?

Shut down temporarily

In the short run, how much of costs are fixed?

Some

How do you figure out profit/loss on a graph?

The Area Between Price and the ATC

What is the efficient scale of the firm

The bottom of the U shaped ATC curve

What is Average Total Cost

The cost of each typical unit of production

Total Revenue

The dollar figure a firm receives for the sale of its output. TR=P * Q

What is Marginal Cost?

The increase in total cost that arises from an extra unit of production

What is the slope of the production function

The marginal product of an imput

Total Cost

The market value of the inputs a firm uses in production

What is a PC's long run supply curve?

The portion of the MC curve that lies above ATC

What is a PC's short run supply curve?

The portion of the MC curve that lies above AVC

In the long run, if new firms enter a PC market what happens to P? Profits?

They both are driven down

What do antitrust laws do?

They give the government various ways to promote competition by: preventing mergers breaking up companies preventing companies from performing activities that make markets less competitive

Profit

Total Revenue-Total Cost

Economic profit

Total revenue-(Explicit and implicit costs)

Accounting profit

Total revenue-(explicit costs)

What shape is the ATC curve?

U shaped

How do you calculate AVC?

VC/Q

What makes a natural monopoly?

When a single firm can supply a good or service to an entire market for cheaper than 2+ firms could

What is the price effect in a monopoly?

When price falls (P is lower)

What is the diminishing marginal product

When the marginal product of an input declines as the quantity of the input increases. (Like Microsoft)

When does a natural monopoly arise?

When there are economies of scale over the relevant range of output

In the short run, what do PC firms decide?

Whether to continue to produce or shut down temporarily

In the long run, what do PC firms decide?

Whether to stay or exit the market permanently

When MC is more than ATC, ATC is...

rising


Related study sets

Topic 5) Formulae, equations and moles

View Set

Blood supply (Upper Limb) / Transitions and sections (Upper Limb) (page 40-48)

View Set

Linear Questions (1) (ALGEBRA UNIT 3)

View Set

The Indo-European Family of Languages

View Set

ISDS 3115 Quiz 1 Conceptual Questions

View Set

Foundations Test 2 PrepU questions

View Set

Genetics(H): Chapter 15 Practice Test(Relevant Questions)

View Set

Биохимия крови норма🤙

View Set