economics chapter 15-18

if there are 1000 identical rice farmers who are each willing to supply 200 bushels of rice at $2 per bushel, what price and quantity combination is a point on the market supply curve for rice

$2 and 200,000 bushels

a single price monopoly can sell ten units of its product at a price of $45 each, but to sell eleven units, the monopoly must cut the price to $44. what is the marginal revenue of the extra unit sold?

$34

When long-run average costs decrease as output increases, it is facing a (1) where (2) exist at the point where LRAC and D intersect

(1) natural monopoly (2) economies of scale

game theory is the tool that economists use to analyze strategic behavior which takes into account the (1) behavior of others and the mutual recognition of (2)

1. expected 2. interdependence

for a perfectly competitive market experiencing good times, in the short run, equilibrium price will (1) and firms will earn an (2)

1. increase 2. economic profit as the new price exceeds average total cost

when marginal revenue is positive, total revenue (1) when output increases and demand is (2)

1. increases 2. elastic

fixed costs are (1) in a natural monopoly, so average total cost (2) as output increases

1. large 2. decreases

With perfect price discrimination the monopoly can extract the (1) price each customer is willing to pay and thereby obtain the entire (2) surplus

1. maximum 2. consumer

rent seeking is the act of obtaining special treatment by (1) to create (2)

1. the government 2 economic profit

What is price discrimination?

Selling your product to one entity for one price and selling the same product to another entity for a different price with the caveat that the product cannot be resold

if the technology for producing a good enables one firm to meet the entire market demand at a lower average total cost than two or more firms could, then the firm has...

a natural monopoly

when economies of scale exist so that one firm can meet the entire market demand at a lower average total cost than two or more firms,

a natural monopoly develops

a perfectly competitive firm will shut down when the price is just below the minimum point on the...

average variable cost curve

what are legal barriers to entry

barriers that prohibit firms from entering a market

Why can a monopoly make an economic profit in the long run?

because the firm is protected by barriers to entry

In contrast to competitive firms, single-price monopolies

can make an economic profit indefinitely

With price discrimination, a monopoly

converts consumer surplus into economic profit.

where to find marginal revenue on a perfectly competitive graph

divide the change in total revenue by the change in the quantity of output

a monopoly can set any price it wants, so why does it still produce at a point where marginal revenue equals marginal cost, just like a perfectly competitive firm

economic profit is maximized where marginal revenue equals marginal cost, so a monopoly has no incentive to charge a higher price

a perfectly competitive firm notices that the market price is greater than marginal cost? what should it do?

expand its output to increase its profits

consider a perfectly competitive market that was in a long run equilibrium when a permanent increase in demand occurs. what will occur as a result? i. the existing firms will start to earn an economic profit ii. new firms will be motivated to enter the market iii. some firms that cannot meet the new demand will exit the market

i and ii

in the short run, a perfectly competitive firm can experience which of the following? i. an economic profit ii. an economic loss but it continues to stay open iii. an economic loss equal to its total fixed cost when it shuts down

i, ii, and iii

if a firm shuts down it...

incurs an economic loss equal to its total fixed cost

in a perfect competition, marginal revenue...

is equal to the market price.

a patent is a...

legal barrier to entry

a perfectly competitive firm can sell its product at a price greater than its average total cost, it will...

make an economic profit

in a perfectly competitive industry, when a firm is producing so that its total revenue equals its total cost, the firm is...

making zero economic profit

a monopoly is free to charge a price that is greater than...

marginal cost

to maximize its profit, a perfectly competitive firm produces so that

marginal revenue equals marginal cost

to maximize its profit, a single price monopoly produces so that

marginal revenue equals marginal cost

a perfectly competitive firm produces the amount of units where...

market price equals marginal cost

what must be the case if a perfectly competitive firm's economic loss is less by shutting down rather than by producing and selling some output

minimum average variable cost must be greater than or equal to price in order for a perfectly competitive firm to shut down

Which market type has the fewest number of firms?

monopoly

four types of markets

monopoly perfect competition monopolistic competition oligopoly

When firms in a perfectly competitive market are earning economic profit, in the long run...

new firms will enter the market

four characteristics of a perfectly competitive market

no barriers to entry/exit identical products large number of firms no advantage to existing firms

if a perfectly competitive firm manufacturing chairs produces 100 more chairs, what happens to the market price of a chair

no change in the market price, because no firm in a perfectly competitive market has an effect on the market price

We define a monopoly as a market with

one supplier with barriers to entry.

examples of legal barriers to entry

patents and copyrights

what type of firms are price takers?

perfectly competitive firms

does a perfectly competitive firm have any incentive to lower its price so it is below the current market price?

perfectly competitive producers have no incentive to lower price because they know they can sell the product at the market price and make a higher economic profit. it is irrational to lower price below current market value

where to find total revenue on a perfectly competitive graph

price x quantity

Each firm in a perfectly competitive industry

produces a good that is identical to that of the other firms

a natural barrier to entry is defined as a barrier that arises because of...

technology that allows one firm to meet the entire market demand at lower average total cost than two or more firms

what is the shape of the demand curve faced by the perfectly competitive firm and why

the perfectly competitive firm will have a horizontal demand curve because demand for the product is elastic, considering if the firm raises its price, customers have many other options

"a single price monopoly charges a higher price and produces more output than a perfectly competitive industry." is the previous statement correct or incorrect?

the statement is incorrect. they charge a higher price, but produce at a lower output than a perfectly competitive market

price discrimination is possible, in part, because

the willingness to pay can vary among groups of buyers

Why do firms price discriminate?

to make more profit while seeming like they are giving the consumer a better deal

what does it mean if a firm is a price taker?

when a firm sells its product at the market price because it cannot sell at a higher price and has no desire to sell at a lower price

where do perfectly competitive firms maximize profit

where average variable cost is lowest

what is a perfectly competitive firm's profit maximizing value

where marginal revenue equals marginal cost

can a monopoly make an economic profit in the long run?

yes, because it has no competitors and blocks the entry of new firms