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Econ 101 - Exam 2 Review
Economics 101 Exam 2 Review Set
32
Economics
Undergraduate 1
04/02/2014

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Term
In a perfectly competitive market, all producers _______ meaning they don't believe they can influence the price (take market price as given)
Definition
price-takers
Term
Some firms have ______, meaning they can influence market prices
Definition
market power
Term
The _________ is the sum of the individual firm's supply curves
Definition
market supply curve
Term
Producers are ______, and they are ______
Definition
many, small
Term
Products are __________
Definition
homogeneous
Term
New firms can easily enter and existing firms can easily exit
Definition
free entry
Term
3 perfectly competitive markets
Definition
1) agricultural commodities
2) stock exchanges
3) computer memory
Term
3 nowhere near perfectly competitive markets
Definition
1) mobile telephony in the US
2) automobiles
3) hospitals
Term
For firms in competitive markets, the key decision is _________
Definition
how much to produce
Term
marginal benefit
Definition
revenue from selling one more unit of a good
Term
marginal cost
Definition
cost of making one more unit of a good
Term
profit = _____
Definition
revenue - cost
Term
the optimal output level is where ________
Definition
marginal revenue equals marginal cost (MR = MC)
Term
for a firm in a perfectly competitive industry, ____________
Definition
marginal revenue is equal to price (MR = P)
Term
in perfectly competitive industries, ___________
Definition
firms produce where price equals marginal cost (P = MC)
Term
in the short run, sellers will choose to produce if _______
Definition
Price is greater than or equal to minimum average variable cost

price >= min(AVC)
Term
minimum average variable cost (AVC) is called the _______
Definition
shutdown price
Term
individual firm's short-run supply curve is the ____, above the ________
Definition
marginal cost curve, minimum average variable cost
Term
minimum average total cost (ATC) is the _______
Definition
break-even price
Term
in the long run, if P < min(ATC) then firms will ____
Definition
exit
Term
ITLR, if P > min(ATC) then firms will ____
Definition
enter
Term
higher prices in a market => ____ => ____
Definition
profits, induce entries
Term
a long-run equilibrium is a point at which:
Definition
- Quantity supplied equals quantity demanded
- no new firms want to enter or existing exit
Term
_______ -> produce up to point where MR = MC
Definition
marginal analysis
Term
additional output is sold, generating additional revenue
Definition
quantity effect
Term
selling more output will reduce market price, so all output will be sold at a lower price than before
Definition
price effect
Term
firms in competitive markets: (2 things)
Definition
- charge price = market price
- make zero economic profit
Term
monopolies: (2 things)
Definition
- charge price above marginal cost
- make positive economic profit
Term
price discrimination
Definition
the practice of selling an identical product at different prices to different buyers
Term
Hirschman-Herfindahl Index
Definition
sum of all firms' squared market shares
Term
dominant strategy
Definition
a strategy that's best no matter what the rival player chooses to do
Term
Nash equilibrium
Definition
set of strategies such that erey player's strategy is a best response to other players' strategies
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