ECON 142: FINAL EXAM
47 Cards in this Set
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Barriers to entry
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-economies of scale
-ownership of a key input
-government imposed barriers
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economies of scale
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firms average long-run AC falls as output increases
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game theory
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1. payoffs
2. strategies
3. rules
4. players
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firms split market if...
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neither firm discounts, or both firms discout
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Outcome of prisoners dilemma
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both parties end up worse off if they make decision independently
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Nash equilibrium
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-circle and square in same box
-can't make yourself better off by changing
-can be more than one in a game
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dominated strategy
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strategy you never play
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dominant strategy
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strategy you always play
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sequential game
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one player moves first
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models of oligopoly (4)
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Bertrand model
-cartel model
-dominant firm market
-cournot model
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Bertrand model
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-one firm reacts to the price another firm is charging
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Cournot model
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one firm reacts to the quantity of output that another firm is producing
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Dominant firm market
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a single firm sets the price and the competitive fringe must match it
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cartel model
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group of firms that act as a single firm (monopoly) in regards to output or price (price collusion)
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Price collusion
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-agreement among firms to set price at a certain level
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implicit price collusion
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multiple firms make same price decision w/o consulting each other
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explicit price collusion
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price/quantity fixing
-illegal
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Law of one price
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identical products should always sell for the same price
-one if transaction costs are zero
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price discrimination
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charging groups different prices for identical products
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3 conditions for price discrimination
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-firm must possess market power
-consumer have different willingness to pay
-firm must be able to segregate customer into groups and prevent reselling.
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first degree (perfect) PD
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each customer is charged exactly what he is willing to pay
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second degree PD
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the price you pay per unit varies on the number of units you buy
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third degree
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customers split into groups with different prices based on willingness to pay
-differed groups have different elasticities
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3 decisions to max. profits in 3rd degree PD
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-right Q to produce
-right Q to sell to each market
-right P to charge each market
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level of output in each market in 3rd degree
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MR in market 1 =MR in market 2 = MC
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in 3rd degree you charge higher prices to the more ________ market
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inelastic
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cost plus pricing
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1. take average cost of all products
2. add a "mark-up" to that
3. one way to spread fixed-costs over multiple products
BAD IDEA, don't take into account a customers willingness to pay.
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two part tariff
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-customer pays for the right to use buy a related good at another price
-admission to amusment park
-country club admission and then golf
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assumption for 2 part tariff
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ATC=MC
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in a two part tariff, firm continues to lower price until
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PPU=MC
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demand of labor is
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derived
-no demand for product=no demand for labor
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demand for labor is related to_____ and is_____curve
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productivity, a downward sloping
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marginal revenue product
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change in revenue/change in quantity of labor
-change in TR as a result of hiring one more worker
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Marginal Product
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change in output/change in # of inputs
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marginal revenue
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change in TR/change in output
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to get the marginal revenue curve
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put the MRP of each cook on the graph
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the demand curve for labor is also the
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marginal revenue curve
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you continue hiring until________
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MRP>wage
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profits will be maximized with MRP
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comes closest to cost of the input (wage)
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MRP of attornys and professors
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$ value of min. billable hours
-$ value of min. # of students in class
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demand shifters for labor
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1. change in human capital
2. a change in technology
3. a change in price of the product
4. a change in the quantity of other inputs
5. a change in number of firms in the market
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Slope of labor
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upward, eventually bends backwards
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in perfect competition MRP=
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(MP x P) in any other market not so because $ changes as Q changes
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Monopsony
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1 job lots of people want, lower wages and fewer workers
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income inequality
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-one is more productive
-society values what they do more
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4 problems with income equality
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1. slows overall economy growth,
2. wealthiest people have the most political influence.
3.when 99% of consumers income increases by 1% their debt will increase.
4. lower economic mobility, harder to advance economically
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causes for economic inequality
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1. technological advances
2. globalization and outsourcing
3. decline on collective bargaining (unions)
4. Gov. policies including taxes
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ECON 142: Exam 2