Final Market Power
(Figure: Marginal Revenue) What is the marginal revenue of the fifth unit in the following example?
$0
(Figure: Marginal Revenue) What is the marginal revenue of the fourth unit in the following example?
$2
Pamela sells 10 bottles of olive oil per week at $5 per bottle. She can sell 11 bottles per week if she lowers the price to $4.50 per bottle. The quantity effect would be:
$4.50.
positive externality
- MSB exceeds MPB - subsidy (underproduction) - curve decreases
If a firm faces a downward-sloping demand curve:
P > MR.
How is the result of the Rational Rule for Sellers different for companies with market power versus companies with no market power?
The price is higher for companies with market power.
A externality is NOT:
a price change
The demand curve for a monopoly is:
above the MR curve.
the demand curve for a monopoly is
above the marginal revenue curve
a firm in an oligopoly knows that its ___affect its ___ and that the reactions of its rivals will affect it
actions, rivals
both emissions taxes and tradable emissions permits
are efficient methods of pollution reduction
In monopoly settings, it's possible for the firm to earn positive profits in. .
both the short run and long run
When trade is based on comparative advantage...
both trading partners end up better off than when there is no trade.
Candice's stand-up paddleboard company will earn profits producing and selling at any output level where the company's:
demand curve is above its average curve
Recall, price elasticity of demand is about how responsive consumers are to pricechanges. The more substitutes available for a firm's products, the market powerthe firm has and the elastic the demand for its goods
less, more
As long as people have different ________, everyone has a comparative advantage in something.
opportunity costs
proft margin =
price -average cost
External benefits are generated by garden supplies that are used to beautify gardens and yards in neighborhoods. In equilibrium, the market will:
price garden supplies at less than the marginal social benefit
In a perfectly competitive market, a company's marginal revenue equals _____. For a company with market power, marginal revenue is _____. Correct!
price; less than price
Georgia-Pacific, one of the world's largest manufacturers and distributors of paper products operates throughout the United States. The process of converting wood pulp into paper releases, air pollutants. However, if new technology enabled zero-emission paper production, the marginal:
private cost would equal the marginal social cost
the marginal social cost of a unit of pollution is:
the marginal private cost plus external cost from one extra unti of pollution
One of the market failures caused by market power is
underproduction
Cornell can type reports faster and more accurately than Alice, so Cornell has a(n) ____ in typing reports
absolute advantage
Which benefit could a company gain form using internal markets
better allocation of its resources and more accurate predictions
which benefit could a company gain from using the internal market?
better allocation of its resources and more accurate predictions
in the long run, each firm in an industry will
earn only enough to cover the opportunity costs of all resources used in production.
Chantell grows tomatoes and sells them at a farmers market. Because the price of the tomatoes rises, she is encouraged to grow and sell more. This is an example of price functioning as an
incentive
Apple produces accessories such as charger, cases, and ear plugs that are specific to Apples iPhone and that are incompatible with iPhones of other companies. What strategy is Apple using to create a barrier to entry?
increasing switching costs to ensure demand for its product
The output in a market with market power is
inefficient because the marginal benefit to society of extra output exceeds the marginal cost.
Price is functioning as a message when it:
is a line of communication between buyers and sellers in a market
If a monopolist is producing a quantity that generates MC = MR, then profit:
is maximized
Marginal social cost equation
marginal private cost + marginal external cost
the socially optimal outcome occurs where the _____ benefit equals the ___ cost
marginal social; marginal social
During the coronavirus pandemic, global supply chain causes the supply of new cars to shift to the left. Which role did price play in the new car market? Price was a
message to potential buyers that the marginal cost of manufacturing new cars is rising
more market power =
more inelastic curve (steep)
if there are external costs in a competitive market
resources will be over allocated to the production of goods
On hot summer days, parking. Lots at Disneyland are usually full by early morning, even though one must pay to park. Parking at such lots is ___ in consumption and ____
rival, excludable
In perfectly competitive settings, it's possible for firms to earn positive profits in...
short run only
Minglewood hall, a music venue in Memphis Tennessee. Often hosts loud concert that play late into the night. Minglewood provides an annual allotment a free concert tickets to residence who live in the house is directly behind the venue. Which solution to externality problem does Minglewood use.
side payment
When a manager uses comparative advantage to assign tasks in a workplace, then each
task is assigned to the worker with the lowest opportunity cost for performing the task
Kendrick, a recent high school graduate, is trying to decide between going to college or running his family's food catering business. Which would be an implicit opportunity cost of going to college?
the profit he would esnr running the catering business
Economists generally believe that a person should specialize in the production of a good or service if:
they can produce the product while forgoing fewer alternatives products than any other person
oppurtunity cost
time the task takes/time required to produce alternative
average cost is:
total cost divided by quantity
economic profit
total revenue - explicit costs - implicit costs ( forgone wage - interest x invest)
accounting profit =
total revenue - explicit financial costs
average revenue
total revenue divided by the quantity sold
According to the Rational Rule for Sellers, the manager of this company should choose to produce _____ of output and charge a price of _____.
two units; $450
which statement BEST describes a negative externality
your neighbor has an ornamental pind that breeds mosquitos
negative externality
- MSC exceeds MPC - tax (overproduction) - curve increases
When existing competitor EXITS
- gains customers, increase in demand, shifts right - gain market power, steepens demand curve, more inelastic - sell at higher price - exits at negative profits - demand is Lowe than ATC
When a new competitor ENTERS
- lose customers, decrease in demand, shifts left - lose market power, flattens demand curve, more elastic - sell at lower price - enter at positive profits
Which statement illustrates an environmental policy that uses cap and trade?
Allowing drivers to buy and sell rights to omit specified levels of vehicle emissions
How does marginal revenue compare to price for a seller with market power?
Beyond the first unit sold, marginal revenue is below price.
Profit Scenarios
MR>AC: Economic proft (+) MR=AC: Break even point (0) MR<AC: Shutdown point (-)
You pay a plumber to install a new dishwasher in your home. Which statement is FALSE?
Only the plumber experiences gains from trade because they received money.
how does output for a seller who has market power compare to output for a seller who does not have market power
Output is higher for the seller without market power than the one with market. power
output - discount
Price of extra item you sell - PxQ (discount)
Why does Apple design the iPhone in California but assemble the iPhone in China?
The US has a comparative advantage in iPhone design
On camping trips, Katie is much faster than her husband, Brett, at putting up a tent and starting a fire. Who should do each task if they want to maximize their time sitting around the campfire?
They should first each focus on that task in which they have a comparative advantage. When one finishes the assigned task, they should help each other
(Figure: Demand, Revenue, and Cost Curves for Thneeds) Use Figure: Demand, Revenue, and Cost Curves for Thneeds. Thneeds and Things is a monopolist in the thneed ("things we need") market. If the government wants to regulate Thneeds so that an efficient outcome is reached, it would impose a price ceiling of:
$40
Mr. Parker sells 10 bottles of wine per week at $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity effect of the sale of an additional bottle would be _____, whereas the price effect of the sale of an additional bottle would be _____.
$45; -$50
(Figure: Pay Per View Movies on Xfinity Cable) Use Figure: Pay Per View Movies on Xfinity Cable. The figure shows the demand and marginal revenue curves for on-demand movie rentals on Xfinity. Assume that marginal cost and average cost are constant at $20. If the cable company has market power, what price will it charge?
$60
If Penelope, a monopolist, is producing a quantity where MC = P, then profit:
can be increased by decreasing production.
If Penelope, a monopolist, is producing a quantity where MC > MR, then profit:
can be increased by decreasing production.
If a monopolist produces a quantity that generates MC < MR, then profit:
can be increased by increasing output.
If a monopolist produces a quantity that generates MC > MR, then profit:
can be increased by increasing price.
If Penelope, a monopolist, is producing a quantity where MC < MR, then profit:
can be increased by increasing production.
