Micro exam 4
What happens if a number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes?
the industry would more closely approximate pure competition
Economies of scale
factors that cause a producer's average cost per unit to fall as output rises
What is another name for the MRP curve for labor?
firm's demand curve
Labor unions may attempt to raise wage rates by doing what?
forcing employers, under the threat of strike, to pay above-equilibrium wage rates.
perfect competition
a market structure in which a large number of firms all produce the same product
Resource pricing is important because.....
1. Resource prices are a major determinant of money incomes 2. Resource prices allocate scarce resources among alternative uses 3. Resource prices, along with resource productivity, are important to firms minimizing their costs
Know how cartels operate
A formal agreement among firms (or countries) in an industry to set the price of a product and establish the outputs of the individual firms (or countries) or to divide the market for the product geographically
Monopoly
A market in which there are many buyers but only one seller.
Remember
A profit maximizing firm employs resources to the point where MRP=MRC
What happens when two resources are complementary and there is an increase of P in one?
An increase in the price of capital will reduce the demand for labor if capital and labor are complimentary resources
Why do critics of minimum wage argue that is a poorly target device?
Critics of the minimum wage argue that as an antipoverty device it is "poorly targeted." By this they mean that: many who benefit from the minimum wage are teenagers or not poor. a surplus of labor.
What is the impact of wages (P) in a purely competitive labor market?
Critics of the minimum wage contend that, in purely competitive labor markets, the effect of imposing such a wage is to (increase, decrease) the wage rate and to (increase, decrease) employment.
Inter-industry competition
Interindustry competition is a type of rivalry which emerges between companies and businesses operating in different industries
In the short run, a profit-maximizing monopolistically competitive firm sets price (P) at what? What about the long run?
May realize either profits or losses in the short run, but realize normal profits in the long run
Why are monopolistically competitive industries inefficient
Neither productive or allocative efficiency occur in long run equilibrium; under monopolistic competition, price exceeds marginal cost, indicating an underallocation of resources to the product. Price also exceeds minimum average total cost, indicating that consumers do not get the product at the lowest price that cost conditions might allow.
What is one of the major problems that four firm concentration ratios fail to take into account?
The localized market for products
Is education a form of human capital?
True
oliogopoly
a few dominant firms and substantial entry barriers; industry's output is shared by a small number of firms
What does marginal revenue product measure?
amount by which extra production of one more worker increases a firm's total revenue
Monopolistic competition resembles pure competition in what way.
barriers to entry are either weak or nonexistent and relatively large number of sellers
Why would the market supply curve for labor be upward sloping?
because employers as a group must pay higher wage rates to obtain more workers
In the United States professional football players are paid more than professional soccer players? What would explain this differential?
consumers have a greater demand for football games than for soccer games.
Know how the price elasticity of a monopolistically competitive firm's demand curve varies in relation to product differentiation and the number of firms
directly with the number of competitors, but inversely with the degree of product differentiation
The labor demand curve for a purely competitive seller slopes which direction?
downward because the elasticity of demand is always less than unity
What does mutual interdependence mean within the context of oligopolies?
each firm's profit depends not just on its own price and sales strategies, but also on those of the other firms in its highly concentrated industry. Therefore, oligopolistic firms will base their decision on how they think their rivals will react.
Non-price competition refers to...
goal is to make price less of a factor in consumer purchases and to make product differences a greater factor; advertising, product promotion, and changes in the real or perceived characteristics of a product
What have real wages in the United States done in the long run?
have increased at about the same rate as increases in output per worker
What is the benefit to offering commissions or royalties to workers as pay?
may be an inexpensive way of reducing shirking on a job when the costs of monitoring work performance are high
The restaurant, legal assistance and clothing industries are each illustrations of what type of market structures?
monopolistic competition
monopolistic competition
monopolistic up to the point at which consumers become willing to buy close-substitute products and competitive beyond that point
In long run equilibrium, a monopolistically competitive producer achieves product efficiency, allocative efficiency, neither or both
neither
What happens to Price (P) when an oligopolist's competitors follow its price cuts, but ignores its prices increases?
the oligopolist would end up holding its price constant even if its marginal cost changes
Herfindahl Index =
the sum of the squared percentage market shares of all firms in the industry;
What is the long run trend of real wages?
upward; increasing
Homogenous oligopoly exists when
where a small number of firms are: producing virtually identical products
Why has the productivity and real wages of workers in industrially advanced economies risen historically?
workers have been able to use larger quantities of capital equipment.