Economic exam 2 part 1
The profit per unit ?
(π/Q)= P-ATC
To calculate the profit
- ATC - Price - Quantity of output
These would be considered a decision that is made "at the margin" by a firm?
- a firm decides to produce an additional output. - a firm decides to hire an additional worker
the characteristics of a perfectly competitive market.
- a large number of buyers and sellers - producers who are price takers - easy entry and exit - a standardized product
The market produces the right goods in the correct amounts, using the fewest resources possible when
- allocative efficiency - productive efficiency
Private companies often find it difficult to earn a profit by providing a good that is nonexcludable due to:
- consumers who consume the good without paying for it - the free rider problem
At the optimal level of pollution to be cleaned up,
- marginal benefit of preventing pollution equals marginal cost of preventing pollution - welfare gains from pollution prevention are maximized
______ implies that monopolistically competitive firms should expand production up to the pop where the marginal revenue ____ the marginal cost.
Profit maximization, equals
The Herfindahl-Hirschman Index (HHI) refers to
a concentration index that measures the sum of the squared percentage of sales from all firms in a particular industry
A situation in which a particular strategy yields the highest payoff, regardless of the other player's strategy is :
a dominant strategy
if the wage rate is constant, the marginal resource cost associated with hiring one additional worker is
a horizontal line at the wage
The marginal product is the:
additional output produced as a result of utilizing one more unit of a variable resource
marginal product is the:
additional output produced as a result of utilizing one more unit of a variable resource.
The market interaction between buyers and sellers results in ______ and ______ efficiency.
allocative, productive
the external marginal benefit is the benefit of:
an additional unit of a good or service that is enjoyed by people other than the direct consumer of the good or service
When firms want to produce additional output, they make decisions ________.
at the margin
Impediments that prevent firms from entering a market or industry are known as:
barriers to entry
second degree price discrimination is aka
block pricing
Social demand is the demand for a good or service that reflects
both the private and external benefits of its consumption
nonexcludable
consumers cannot be prevented form consuming these goods
From an economic perspective, pollution involves _________ and _____
costs, benefits
The optimal level of resource utilization ____ when the marginal resources cost increases.
decreases
If consumers develop a taste for sushi, there will be a____ ___ for sushi chefs
derived demand
the demand for labor is:
derived from its marginal revenue product
a condition in which the long run average total cost of production decreases as production increases is called:
economies of scale
in the long run, _____
firms earn a normal profit
Excludable goods
firms use prices to determine who can consume this type of good
In the circular flow model, _____ and ______ interact in the resource market and the product market
firms, households
When economists evaluate the prevention of crime instead of crime, they are
flipping the analysis
When people consume a nonexcludable good without paying for it, it called
free rider problem
rival goods
if i consume this good, another person cannot consume it at the same time
capital
interest
The shape of the marginal cost curve is dependent on the ___
law of diminishing marginal returns
the change in total product associated with hiring an additional worker is called
marginal product
for a perfectly competitive firm, the market price is equal to:
marginal revenue, average revenue, demand
When the market does not produce an output level that maximize total surplus, it is called:
market failure
in a constant cost industry, the long run supply curve is a horizontal line originating at the ____ that generates normal profits for the firms in the industry.
market price
the demand for a perfectly competitive firm's product is a horizontal line originating at the ____
market price
one common feature of ________ is that firms invest heavily in product development and innovation, which benefits ________ greatly
monopolistically competitive markets, consumers
When a firm lacks the ability to prevent people from consuming a good or service, the good is called
nonexcludable good
nonrival goods
one person's consumption of this good does not affect another person's consumption of it
Resource Utilization and marginal resource costs move in ________ .
opposite directions
A _________ is the unpaid benefit of an activity that is enjoyed by a third party.
positive externally
When a_____ externally exists, the socially optimal level of output will be greater than that resulting from a ____ market.
positive, private
The demand for a perfectly competitive firm's product is a horizontal line originating at the market ________
price
The supply of a good or service that reflects only the private costs of its production is called
private supply
_____ is producing output at the lowest possible average total cost of produce.
productive efficiency
__________ is using the fewest resources possible to produce a good or a service
productive efficiency
in the long run, perfectly competitive firms achieve ______ and ____ efficiency.
productive, allocative
all firms maximize ____ by producing the quantity of output at which the marginal revenue is equal to the marginal cost.
profit
enterpreneurial ability
profits or losses
The clayton act of 1914
prohibits mergers that would substantially lessen competition or create a monopoly
______ involve the exclusive right to determine how a resource is used
property rights
Private markets fail to provide the optimal amount of public goods because
public goods are non rival and non excludable
land
rent
In monopolistically competitive markets, which of the following allow consumers to be more responsive to price changes?
the availability of close substitutes
An externality is:
the benefit enjoyed by or cost imposed on a third party not directly involved in the production or consumption of a good or service
A production decision at the margin includes
the decision to increase output
When externalities exist:
the outcome observed may not be the most efficient outcome.
Private supply is
the supply of a good or service that reflects only the private costs of its production
The social marginal benefit is the benefit:
to society of consuming an additional unit of a good or service
The amount of a good or service produced by all workers is called
total product
labor
wages
Reasons of breaking average total cost into two components?
- average variable cost is used to determine whether a firm should continue to operate or should shut down in the short run. - the constantly declining average fixed cost is apparent.
in the presence of economic profits, firms enter until the market reaches the point at which the firms are generating a _________, then entry stops, and the market settles into its _______.
- normal profit - long run equilibrium
The choices that firms have for dealing with higher resource costs?
- pay the additional costs, which has the effect of shifting the marginal resource cost curve upwards - deduct more from employees paychecks to pay the higher costs - lower employee wages to compensate for the additional expense
The main determinants of resource demand?
- the demand for the good or service a resource is used to produced - the price of other resources - the productivity of the resource
Economies of scale can result from a variety of factors, including:
-lower costs of inputs as firms purchase larger quantities. - productivity gains from more specialized labor.
In the circular flow model, the two markets are the _____ market and the ____ market.
resource, product
When marginal revenue product equals marginal revenue cost,
resources have been used optimally
accounting profit consists of _______
revenue minus explicit costs
Economic profit consists of _________
revenue minus implicit and explicit costs
Ideally, encouraging the production of goods that generate positive externalities will result in the ______ _____ output level.
socially optimal
The marginal resource cost curve for the firm will shift if
employers pay for part of or all higher resource costs.
Ceteris paribus, what do you expect to happen to the equilibrium quanity of pollution prevented if the marginal cost of pollution decreases?
equilibruim quanity increases
If some people can be prevented or excluded from consuming a good or service, then that good or service is called
excludable
total revenue minus the total ___ costs of production is accounting profit.
explicit
total revenue minus the _____ and _____ costs of production is economic profit.
explicit, implicit
When _____ exist, the outcome observed may not be the efficient outcome.
externalities
Markets characterized by ____ may results in inefficient outcomes.
externality
Pure monopolies do not achieve allocative efficiency, meaning that they do not produce the amount of output that mazimizes the sum of ____ and ________
producer, consumer surplus
marginal revenue is the :
additional revenue associated with the sale of an additional unit of output
by responding to changes in market price, competitive firms produce more of the products we value most and fewer of the products we value least, thereby achieving:
allocative efficiency
the perfectly competitive model is the most efficient type of market and is characterized by both ____ and ____ efficiency.
allocative, productive
average product is the ____
amount of output produced per unit of a resource employed.
The benefit enjoyed by or cost imposed on a third party that is not directly involved in the production or consumption of a good or service is called
an externally
If an industry's CR4 exceeds 40%, it is considered
an oligopoly
Laws designed to prevent firms engaging in behaviors that would lessen competition in a market are called _____
antitrust laws
Anti trust laws:
are designed to prevent firms from engaging in behaviors that would lessen competition
in addition to total cost, it is useful to calculate average cost because
average cost can be compare directly to the price and are more usable for managing.
average total cost equals _____
average fixed cost plus average variable cost.
one potential reason diseconomies of scale could exist is that a firm:
cannot perfectly replicate its production when it expands
A group of competing companies that aim to maximize joint profits by coordinating their policies to fix prices, manipulate output, or restrict competition is called
cartel
monopolistically competitive markets:
combine characteristics of competitive markets and pure monopolies
_____ maximize the availability of goods and services and the consumer's ability to buy them.
competitive markets
A condition in which the long-run average total cost of production remains constant as production increases is called:
constant returns to scale
a condition in which the long run average total cost of production remains constant as production increases is called:
constant returns to scale.
The difference between the economic surplus when the market is at its competitive equilibrium and the economic surplus when the market is not on equilibrium is the:
deadweight loss
Because the products of monoplistically competitive firms are _________ from other companies in their industry, these firms are able to have some control over the _____ of their products.
differentiated, price
If the magrinal revenue associated with selling one more unit of outputs is positive, the demand is:
elastic, because this would increase total revenue
The demand for a monopolistically competitive firm is more _____ than the demand faced by a _______ because of the avaliability of close substitues
elastic, pure monopoly
the marginal cost is the:
extra or additional cost associated with the production of an additional unit of output.
The pure monopoly extracts all surplus form consumers, yielding higher profits than any other pricing method when it employs?
first- degree price discrimination
when profit exceed zero, the firm is
generating an economic profit
the opportunity costs of using owned resources are _____ costs.
implicit
Total revenue minus the ___ costs and ____ costs of production is economic profit
implicit, explicit
natural monopolies are rare and tend to be regulated by the government is
true
Productive efficiency is:
using the fewest resources possible to produce a good or service.
costs that change with the amount of output produced are _____ costs
variable
In a pure monopoly, the firm is willing to sell to anyone willing and able to pay at least the marginal cost of production. the result is that output is produced where D=MC
which is allocatively efficient
in addition to total cost, it is useful to calculate average cost because:
- average cost can be compared directly to the price and more usable for managing.
The characteristic of a perfectly competitive market
- easy entry and exit - standardized product - large number of buyers and sellers - producers who are price takers
in making a decision about how much output it should produce to maximize its profits, which two pieces of information does a firm need?
- extra cost associated with producing an additional unit of output. - extra benefit of producing that unit or - marginal cost, marginal revenue
Indicate the two most common numerical indicators of market concentrations:
- four firm concentration ratio (CR4) - HHI
Through advertising and branding, monopolistically competitive firms ______ the demand for their products and make those demands relatively more ______, allowing them to charge _____ and generate large economic profits
- increase - inelastic - higher prices
identify the conditions that guarantee consumers will enjoy the lowest prices possible.
- individual firms are price takers, - every firm produces the exact same product
characteristics of a perfectly competitive market?
- large number of sellers - no control over price
characteristics of a contestable firm
- no real barriers to entry - single firm
A number of entry barriers are present in oligopolistic markets, including:
- patents - control of the resources needed to produce output - pricing strategles - economies of scale that may allow only a small number of firms to operate in a market - significant costs of capital
The practice of charging each and every consumer the price that she is willing and able to pay for a good or service describes
- perfect price discrimination - first degree price discrimination - personal pricing
Characteristics of an oligopoly competitive market are:
- producers who are price makers - either standardized or differentiated products - operation in industries with extensive entry barriers - a few large producers
Measure a firm's profit-
- profit per unit x output - TR=TC - (P-ATC) x Q
a person who has been managing a dry cleaning store for $30,000 per year decides to open his own dry cleaning store. The expenses are $35,000 for salaries(excluding the owner's), $10,000 for supplies, $8,000 for rent, $2,000 for utilities and $5,000 for interest on a bank loan. The explicit costs include:
- rent, salaries, utilites, interests on the bank loan.
By charging consumers the highest price they are willing and able to pay, the pure monopoly,
- yields higher profits than any other pricing method available to the firm - extracts all surplus from consumers
total revenue minus the explicit cost of production is ____ profit.
accounting
A table showing the potential outcome arising from the choices made by decision makers is
a payoff matrix
one reason for diseconomies of scale is:
increasing opportunity costs.
Mutual __________ is a situtation in which the strategy followed by one producer will likely affect the profits and behavior of another producer
interdependence
As the market price decreases, all esle held constant, a profit maximinzing firm will ___ its production
lower
minimum- efficiency scale refers to the _____
lowest level of output at which the long run average total cost is minimized
The extra or additional cost associated with the production of an addition unit of output is the ____
marginal cost
the extra or additional cost associated with the production of an additional unit of output is the ______
marginal cost.
the additional output produced as a result of utilitzing one more unit of a variable resource is called:
marginal product
monopolistic competition and a monopoly are:
not the same market structure
The practice of selling the same good or service to different consumers at different prices is called
price discrimination
to calculate profit, we need to identify three pieces of information:
price, average total cost, quantity of output
Private markets fail to provide the optimal amount of some goods, such as public firework displays, because
private companies will have difficulty getting anybody to pay for them
allocative efficiency is:
producing the goods and services that are most wanted by consumers in such a way to their marginal benefit equals their marginal cost.
The strategy of distinguishing one firm's product from the competing products of other firms is called
product differentiation
monopolistic competition and perfect competition have one main characteristic in common:
relatively easy market entry and exit
The practice of charging different prices per unit for different quantites, or blocks, of a good or service called
second- degree price discrimination
when it shuts down temporarily in the short run, a perfectly competitive firm, _______
still incurs its total fixed costs
given that oligopolistic firms face other competitions in their markets, their behavior must definitely be ___
strategic
The percentage of total market sales accruing to one specific firm is called
the market share
For a monopoly, the marginal revenue is below the demand curve because:
the monopoly has to lower the price on all units to sell more
Price discrimination is best described as:
the practice of selling the same good or service to different consumers at different prices
total product is ____
the total amount of output produced with a given amount of resources
total product is _____
the total amount of output produced with a given amount of resources.
economic profit equals ____
total revenue minus explicit and implicit costs of production, and minues economic costs.
