Economics 300- Exam 2

economies of scale

-Long run average total cost falls as the quantity of output increases -increasing specialization among workers

Oligopoly

-Small number of firms -offer a similar or identical products -Interdependent

What are the key characteristics of a monopoly market structure?

-charge prices for their product that are greater than the marginal cost (they are achieving monopoly profits) -a higher price reduces the quantity purchased -often not the best for society -firm that is the sole seller of a product without close substitutions -price makers -cause: barriers to entry

diseconomies of scale

-long-run average total cost rises and the quantity of output increases -increasing coordination problems

what is total revenue?

-the amount a firm receives for the sale of its output -quantity of output the firm produces times the price at which it sells its output

Short run decisions

12 months or under -cost are fixed -cost curve lies on or above the long-run cost curve

AVC curves have a U shape to them

AVC

Game Theory

How people behave in strategic situations. -choose among alternative courses of actions -must consider how others might respond to the actions takes -applied in international relations and foreign policies -

Average total cost (ATC) and average variable cost (AVC) intersect _______________ at their lowest point.

Marginal cost (MC)

What type of market is the least competitive?

Monopoly

Long run decisions

Over 12 months -cost are variable -cost curves are much flatter than short-run cost curves -greater flexibility

In order, list the competitions from the most competitive to the least competitive

Perfect competition, monopolistic competition, oligopoly, and monopoly

If oligopolists are able to collude, what does their behavior resemble? Does this represent increased market power?

Their behavior would resemble a monopoly. This represents an increased in market power and isn't beneficial to the costumer, which is why the government steps in.

What is the total cost?

a firm fixed cost + its variable cost = total cost

Game Theory: a) is the analysis of how people (or firms) behave in strategic situations b) is best suited for analyzing purely competitive markets c) reveals that mergers between rival firms are self-defeating d) reveals that price-fixing among firms reduces profits

a) is the analysis of how people (or firms) behave in strategic situations

If the Four-Firm concentration ratio for industry X is 80: a) the four largest firms account for 80 percent of total sales b) each of the four largest firms accounts for 20 percent of total sales c) the four largest firms account for 20 percent of total sales d) the industry is monopolistically competitive

a) the four largest firms account for 80 percent of total sales

A monopoly is characterized by all of the following EXCEPT: a) there are only a few sellers each selling a unique product b) entry barriers are high c) there are no close substitutes to the firm's product d) the firm has market power

a) there are only a few sellers each selling a unique product

In the long run, if price is less than average total cost, a) there is an incentive for firms to exit the market b) there is profit incentive for firms to enter the market c) the market must be in long-run equilibrium d) there is no incentive for the number of firms in the market to change

a) there is an incentive for firms to exit the market

Which of the following is the best example of a perfectly competitive industry? a) wheat production b) steel production c) electricity production d) airplane production

a) wheat production

Average fixed cost ( AFC) curve is:

always downward sloping and never goes back up

Peet's Coffee and Teas produces some flavorful varieties fo Peet's brand coffee. Is Peet's a monopoly? a) Yes, there are no substitutes to Peet's coffee b) No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes c) Yes, Peet's is the only supplier of Peet's coffee in a market where there are high barriers to entry d) No, Peet's is not a monopoly because there are many branches of Peet's.

b) No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes

If the firms in an oligopolistic industry can establish an effective cartel, the resulting output and price will approximate those of: a) a purely competitive producer b) a pure monopoly c) a monopolistically competitive producer d) an industry with a low four-firm concentration ratio

b) a pure monopoly

The explicit cost of production is also called: a) variable cost b) accounting cost c) direct cost d) overhead cost

b) accounting cost

A characteristic of the long run is: a) there are fixed inputs b) all inputs can be varied c) plant capacity cannot be increased or decreased d) there are both fixed and variable inputs

b) all inputs can be varied

Which of the following characteristics is common to monopolistic competition and perfect competition? a) firms produce identical products b) entry barriers into the industry are low c) each firm faces a downward-sloping demand curve d) firms take market prices as given

b) entry barriers into the industry are low

A monopolistically competitive firm maximizes profit where: a) price = marginal revenue b) price > marginal cost c) marginal revenue > average revenue d) total revenue > marginal cost

b) price > marginal cost

Which of the following is the best example of the short run adjustment? a) a local bakery purchases another commercial oven as part of its capacity expansion b) your local wal-mart hires two more associates c) Smith University completed negotiations to acquire a large piece of land to build its new library d) Toyota builds a new assembly plant in Texas

b) your local wal-mart hires two more associates

a monopoly remains the only seller in the market

because other firms cannot enter the market and compete with the firm

Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's variable cost per day when she produces 50 gyros using two workers? a) $100 b) $124.40 c) $220 d) $240

c) $220

Which of the following is a factor of production that generally is fixed in the short run? a) raw materials b) labor c) a factory building d) water

c) a factory building

Oligopoly is more difficult to analyze than other market models because: a) the number of firms is so large that market behavior cannot be accurately predicted b) the marginal cost and marginal revenue curves of an oligopolist play no part in the determination of equilibrium price and quantity c) a mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models d) unlike the firms of other market models, it cannot be assumed that oligopolists are profit maximizers

c) a mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models

The price of a seller's product in perfect competition is determined by: a) the individual seller b) a few of the sellers c) market demand and market supply d) the individual demander

c) market demand and market supply

Because a monopoly's demand curve is the same as the market demand curve for its product, a) the monopoly's marginal revenue equals its price b) the monopoly's is a price taker c) the monopoly must lower its price to sell more of its product d) the monopoly's average total cost always falls as it increases its output

c) the monopoly must lower its price to sell more of its product

Which of the following is NOT a characteristic of a perfectly competitive market structure? a) there are a very large number of firms that are small compared to the marker b) all firms sell identical products c) there are no restrictions to entry by new firms d) there are restrictions on exit of firms

d) all firms sell identical products

Both buyers and sellers are price takers in a perfectly competitive market because: a) the price is determined by government intervention and dictated to buyers and sellers b) each buyers and seller knows it is illegal to conspire to affect price c) both buyers and sellers in a perfectly competitive market are concerned for the welfare of others d) each buyer and seller is too small relative to others to interdependently affect the market price

d) each buyer and seller is too small relative to others to interdependently affect the market price

Marginal cost (MC) curve:

drops very rapidly then starts getting higher and higher very rapidly (fish hook)

Any point that represents the lowest point of average total cost (ATC) and average variable cost (AVC) is:

efficient scale

You can't change capital in the short run, but you can change labor and raw materials. What is the fixed cost and the variable cost?

fixed cost= capital variable cost= labor and raw materials

Oligopoly market prices are:

greater than the competitive price (MC), but less than the monopoly price

Average variable cost (AVC) dominates at ___________________

high levels of production

constant returns of scale

long run average total cost stays the same as the quantity of output changes

Average total cost (ATC) dominates at ________________

low levels of production

What is total cost? (TC)

market value of the inputs a firm uses in production

In which structures is it easy for people to get in and out of the market?

perfect and monopolistic competition

The more firms there are in an oligopoly market:

the more the market is like a competitive market

The Clayton Act

used to further strengthen the antitrust laws and to prevent further mergers also used to prevent oligopolists from colluding