ECON 2010: Midterm 2
36 Cards in this Set
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A good sold in a perfectly competitive market can be best characterized as having...
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Many sellers and buys (so many that no one/group can affect price)
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The short-run elasticity of supply is more inelastic than the long-run elasticity of supply because...
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in the SR, a firm can't alter fixed inputs of machines and buildings
in the SR, new firms can't enter/exit industry
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Diminishing marginal utility means that...
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The willingness to pay for an extra unit decreases as more of a good is consumed
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According to Law of Diminishing Returns (aka Law of Diminishing Marginal Product)...
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As more of one input is employed, holding other inputs constant, the added output decreases
each additional employee provides less and less
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At an output level where the marginal cost curve is below the average cost curve...
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The average cost curve is downward sloping
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Average revenue...
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Equals PRICE for either a competitive or monopoly form
(TR/Q=P for either)
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A firm will exit a competitive market whenever...
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The market price is below the min. average cost at which the firm can produce
(shut-down isn't an exit)
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Mike spends all his income on burgers and cokes. His marginal utility for another burger is 6 utils and the price of a burger is $3. His marginal utility for another coke is 2 utils and the price of coke is $.50. To max. his utility Mike should...
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Buy more cokes and fewer burgers
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If a monopoly firm has fixed costs, but no variable costs, it should operate...
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where it maximizes total revenue
where marginal revenue is zero
(if no variable costs, MC=0, hence MR=0, which is at "top" of TR, its max.)
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"MC = MR" is the rule for maximizing profits for firms in which market structures...
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ALL (perfect competition, monopolistic competition, monopoly, and oligopoly)
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Barriers to entry...
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don't exist in perfect competition
are seldom illegal
allow firms in industry to continue to earn econ. profits
don't alter the profit max. condition that MR = MC
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A group of companies that act jointly to maximize profits is...
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a cartel
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In perfect competition, the demand curve facing the firm is...
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flat
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Compared to perfect competition, monopolies...
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Produce LESS and charger MORE
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A competitive firm will shut down in the short run when...
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Price falls below the min. average variable cost
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Price exceeds marginal cost for...
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a profit-maximizing monopolist
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Total costs are the sum of...
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Total Variable Costs and Total Fixed Costs
(TC = TVC + TFC)
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If ATC is falling at current output, hence P>ATC at the optimal larger output level, firm should...
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Increase production and experience positive economic profits
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A competitive firm's output in long-run equilibrium will satisfy...
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P=MC
MR=MC
P=MR
(P=ATC in long-run)
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The single-priced monopolist selects their quantity where MR = MC, and charges price at...
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the optimal quantity sold, from the demand curve (*go up to demand curve from MR=MC point)
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If an optimizing monopolist is taxed 50% of its econ. profits, it will...
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Not change its behavior
(50% of max. is larger than 50% of anything else... tax doesn't affect neither marginal costs nor marginal revenue, hence can't rationally affect behavior)
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MC curve may be rising or falling when it is...
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BELOW the ATC curve
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In the short run, a profit-maximizing monopolist with a NEGATIVE econ. profit (loss) of $100 and fixed costs of $50, would want too...
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SHUT DOWN in short run
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A profit-maximizing competitive firm will produce up to the point at which...
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P = MC
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An unregulated single-priced monopolist...
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NEVER operates in INELASTIC portion of the market demand curve it faces
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In the long run under perfect competition, equilibrium is best described as...
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Each firm would earn zero econ. profit
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If P=$70/unit, and perfectly competitive firm is maximizing its profit at an output level where TC=$5000, TFC=$3000, and output=80, then...
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its MC=70
it makes pos. profit
it would stay in market in long run
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Monopolistic competition...
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occurs when each of a great many competitors has a slightly differentiated product in the same 'product group'
is very much like perfect competition, except for slightly HIGHER costs for more DIVERSE set of goods
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Perfect competition
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all firms sell an IDENTICAL PRODUCT
all firms are PRICE TAKERS (can't control market price of their product)
all firms have a relatively SMALL MARKET SHARE
buyers have COMPLETE INFO about product being sold and prices charged by each firm
FREE to ENTER and EXIT
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Elasticity
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degree to which individuals CHANGE their demand/supply in response to price/income changes
(E = % change in Q/% change in P)
E>1 -- demand for good/service is affected by price
E<1 -- demand is insensitive to price
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If there are no variable costs...
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MC = 0 = MR
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fixed cost
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a cost that does not change as output is increased or decreased
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Average total cost (ATC)
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total cost per unit of output
ATC=TC/Q or
ATC=(TFC/Q + TVC/Q) or
ATC=AFC=AVC
*u=shaped*
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Long Run Features
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Every LR is a sequence of short runs
The firm has all the options in the LR that it did in the SR plus more
The Long run average total cost (LRATC) will envelop (touch from below) the SRATCs
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Monopoly
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A firm that is the only seller of a good or service that does not have a close substitute.
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Marginal Cost
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The additional cost to a firm of producing one more unit of a good or service
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ECON 2010: EXAM 1