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56 Cards in this Set
- Front
- Back
what are the four distinct market structures
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pure competition, pure monopoly, monopolistic competition, oligopoly
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what are the characteristics of a pure competition
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-very large numbers of firms
-standardized product -price takers (cannot change market price) -free entry and exit |
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describe the characteristics of a pure monopoly
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-one firm
-unique product; no substitute -considerable control over price -blocked entry and exit -mostly public relations advertising -example: local utilities |
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describe the characteristics of a monopolistic competition
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-relatively large number of firms
-differentiated products -some, but within narrow limits of price -relatively easy entry/exit -considerable emphasis on advertising -example: retail trade, dresses, shoes |
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describe the characteristics of oligopoly
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-few firms
-standardized or differentiated products -control over prices is limited by mutual interdependence; considerable with collusion -significant obstacles with entry/exit -nonprice competition typically a big deal; particularly with product differentiation -examples:automobiles, farm implements, many household appliances |
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what is imperfect competition
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all market structures except pure competition. includes monopoly, monopolistic competition, and oligopoly
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what is marginal revenue
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-the change in total revenue that results from selling one more unit of output
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T/F In pure competition, marginal revenue and price are equal
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true
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The demand seen by a purely competitve firm is ______ elastic and ________ on a graph at the market price
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-perfectly
-horizontal |
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Marginal revenue and average revenue are equal to each other in a ______ _____ firm
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-purely competitive
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In a purely competitive firm, it can maximize its profit or minimize its lost by
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-adjusting its output
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In a _______ industry, no single firm can influence market price. this means that the firms demand curve is perfectly elastic and price equals marginal revenue
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-competitive
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what are the two ways to determine the level of output at which a competitive firm will realize maximum profit or minimize loss
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-compare total revenue and total cost
-compare marginal revenue and marginal cost |
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how does a firm maximize its short-run profit
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-by producing the output at which total revunue exceeds total cost by the greatest amount TR > TC
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in the short run, the firm will maximize profit or minimize loss by
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-producing the output at which MR = MC
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the firm will shut down if
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MR (P) < AVC
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how do you calculate economic profit
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(P-A) X Q
A = average total cost P = product price/marginal revenue Q = output/quantity |
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if the firm is a price taker than the MR curve is
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-horizontal
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in maximizing profits a firm should
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-produce where TR > TC by the greatest amount
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in the long run, _____
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the market price of product will equal the minimum average total cost of production.
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in the long run, at a higher price economic profits
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-causes firms to enter the industry until those profits had been competed away
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in the long run, at a lower price economic profits
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-would force the exits of firms from the industry until the product price rose to equal average total cost
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the long run supply curve is ______ for a constant-cost industry, _____ for an increasing-cost industry, and ____ for a decreasing-cost industry
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-horizontal
-up sloping -downsloping |
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the long run equality of price and minimum average total cost means
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-competitive firms will use the most effecient known technolgy and charge the lowest price consistent with their production cost.
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what is a characteristic of equilibrium in long-run competitive markets?
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Combined consumer and producer surplus is maximized
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Competitive firms maximize
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total profits by producing where price equals marginal cost
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Suppose a decrease in product demand occurs in a decreasing-cost industry. Compared to the original equilibrium the new long-run competitive equilibrium will entail
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a higher price and a lower total output
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A competitive firm is currently producing 2000 units per month at a total cost of $12,000. Its fixed costs are $1,000 and its marginal cost is $5. If the market price is $5.60, this firm:
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should increase production
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For all values above minimum average variable cost, a competitive firm's
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supply curve is coincident with its marginal cost curve
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factors contributing to barriers to entry are
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-economies of scale
-patents and licenses -ownership or control of resources -pricing and other strategic BOE |
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the existence of pure monopoly and other imperfectly competitive market structures is explained by barriers to entry in the form of
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-economies of scale
-patent ownership and research -ownership or control of essential resources -pricing and other strategic behavior |
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the demand curve for the monopolist is
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-the market demand curve
-not perfectly elastic -downsloping |
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the pure monopolist will maximize profit by
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MR = MC
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with the same costs, the pure monopolist will find it profitable to
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-restrict output and charge a higher price than would sellers in a purely competitive industry
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monopoly creates an _______ loss for society
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-efficiency
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monopoly increases income inequality because
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on average, consumers of monopolized products have less income than corporate owners.
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x-ineffiency, the failure to producewith the least costly combination of inputs, is more common amoung ______ than ______ firms
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-monopolies
-competitive |
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a monopolist can increase its profit by
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practicing price discrimination
-segregate buyers on the basis of elasticities of demand -its product/service cannot be readily transferred between the segregated market |
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At a monopolist's current output, ATC = $10, P = $11, MC = $8 and MR = $7. This firm is realizing:
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an economic profit that could be increased by producing less output
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In long run equilibrium, profit-maximizing competitive firms and a monopolistic firms both
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produce the output at which marginal revenue equals marginal cost
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Suppose a monopolist could segment its market into two distinct submarkets and prevent resale between them. Its profits would increase if it charged a higher price to the group whose:
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demand is more inelastic
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The allocative inefficiency of nondiscriminating monopoly arises from the fact that:
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price exceeds marginal cost
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characteristics of monopolistic competition
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-small market shares
-no collusion -independent action -product differentiation |
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name some aspects of product differentiation
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-product attributes
-service -location -brand name and packaging -some control over price |
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whats a four firm concentration ratio
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output of four largest firms/total output in the industry
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the demand curve faced by a monopolistic competitive seller is
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-highly but not perfectly elastic
-because it has many competitors producing similar goods |
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the price elasticity of demand faced by the monopolistic competitive firm depends on
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-number of rivals
-degree of product differentiation |
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the monopolistically competitive firm maximizes its profit in the short run by
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MR = MC
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what are 'competition like elements' in monopolistic competition
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-entry is relatively easy
-only a normal profit in the long run |
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a monopolistic competitor will earn a _______ in the long run
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normal profit
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economic equality requires
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P = MC = minumum ATC
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in monopolistic competition, neither ______ nor ______ efficiency occurs in long run equilibrium
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-productive
-allocative |
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An industry whose Herfindahl index is 5300, producing a standardized product, is most likely an example of:
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oligopoly
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Suppose several firms in a purely competitive industry begin to experiment slightly with their product designs. This product differentiation allows them to modestly increase their prices and increase their short-run profits. The industry now more closely resembles:
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monopolistic competition
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Suppose only three airlines service a particular route. One of the airlines typically signals its price intentions through a daily posting on its internet site, which the other two quickly match. This best describes:
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price leadership
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If an oligopolist's demand curve is kinked at the going price:
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The loss in revenue from reducing output by one unit exceeds the gain in revenue from expanding output by one unit
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