Term
| What does it mean when we say a firm is a price taker |
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Definition
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Term
How are economic profit and accounting profit related?
Can one exist without the other? |
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Definition
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Term
| In perfect competition how is price related to MC |
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Definition
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Term
| in perfect competition when is profit max |
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Definition
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Term
| what kind of curve does a perfect competition have in a firm? |
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Definition
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Term
| what kind of curve does a perfect competition have in a market? |
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Definition
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Term
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Definition
| a cost that has already been committed and cannot be recovered |
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Term
| how easy is the entry for perfect competition? |
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Definition
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Term
| how many firms does a perfect competition have? |
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Definition
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Term
| is there a SR/LR economic profit for perfect competition |
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Definition
yes for short run
no for long run |
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Term
| for all market structure, when do they shut down |
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Definition
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Term
| for all market structure, when will they exit? |
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Definition
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Term
| does perfect competition advertise |
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Definition
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Term
| does perfect competition innovate? |
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Definition
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Term
| when is it technically efficient for a perfect competition? |
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Definition
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Term
| when is it socially efficient for perfect competition? |
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Definition
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Term
| in monopoly, how are Price related to MC? |
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Definition
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Term
| when is profit max for monopoly |
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Definition
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Term
| what kind of curve does a monopoly have in a firm? |
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Definition
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Term
| what kind of demand curve does monopoly have in a market |
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Definition
| there are no market, just one firm |
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Term
| how easy is the entry for a monopoly |
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Definition
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Term
| how many firms does a monopoly have? |
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Definition
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Term
| does a monopoly have a SR/LR economic profit? |
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Definition
| Yes to short run and long run |
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Term
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Definition
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Term
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Definition
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Term
| whats another characteristic does a monopoly structure have? |
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Definition
| there are no supply curves and there is a dead weight loss |
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Term
| how is price related to MC in Oligopoly? |
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Definition
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Term
| when is profit max in Oligopoly |
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Definition
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Term
| what kind of demand curve does an Oligopoly have in a firm |
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Definition
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Term
| what kind demand curve does an Oligopoly have in a market |
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Definition
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Term
| how easy is it to enter an Oligopoly |
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Definition
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Term
| how many firms are in Oligopoly |
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Definition
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Term
| Are there any SR/LR economic profit in Oligopoly? |
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Definition
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Term
| when will Oligopoly shut down |
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Definition
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Term
| Does Oligopoly advertise? |
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Definition
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Term
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Definition
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Term
| what are some other facts about oligopoly? |
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Definition
| it uses strategies, game playing and nash equilibrium |
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Term
| how are price related to MC in monopolistic competition |
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Definition
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Term
| when is profit max in monopolistic competition? |
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Definition
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Term
| what kind of demand curve does a monopolistic competition have in a firm market |
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Definition
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Term
| what kind of demand curve does a monopolistic competition have |
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Definition
| there are no market and has mini empires |
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Term
| how easy is it to enter a monopolistic competition |
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Definition
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Term
| how many firms does a monopolistic competition have |
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Definition
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Term
| does a monopolistic competition have a SR/LR economic profit? |
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Definition
| it has a SR econ profit but no long run |
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Term
| does monopolistic advertise? |
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Definition
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Term
| do monopolistic competition innovate? |
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Definition
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Term
| what other facts is there about monopolistic competition |
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Definition
| brand loyalty, and excess capacity |
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Term
| what are some barriers to entry. |
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Definition
-barriers to entry: other firms cannot enter the market
1) A single firm owns a key resource (Ex: DeBeers owns most of the world’s diamond mines)
2) The govt gives a single firm the exclusive right to produce the good (Ex: patents, copyright)
3) Natural monopoly |
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Term
| What is the defining characteristic of a natural monopoly? |
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Definition
| -Natural monopoly: a single firm can produce the entire market Q at a lower ATC than could several firms |
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Term
| What happens to the market for certain drugs when their patents fall off? |
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Definition
| -When a patent runs out, the profit from making the drug should encourage new firms to enter the market. As the market becomes more competitive, the price should fall to equal marginal cost. |
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Term
| how do you calculate profit |
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Definition
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Term
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Definition
| the increase in total cost that arises from an extra unit of production |
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Term
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Definition
| costs that vary with the quantity of the output produced |
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Term
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Definition
| costs that do not vary with quantity of output produced |
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Term
| Why are monopolists not efficient? |
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Definition
| -Because a monopoly charges a price above marginal cost, not all consumers who value the good at more than its cost buy it. The quantity produced and sold by a monopoly is below the socially efficient level. |
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Term
| What is social efficiency? |
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Definition
| Social efficiency is the optimal distribution of resources in society, taking into account all external costs and benefits as well as internal costs and benefits. Social Efficiency occurs at an output where Marginal Social Benefit (MSB) = Marginal Social Cost (MSC). |
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Term
| What is technical efficiency? |
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Definition
| Technical efficiency is the effectiveness with which a given set of inputs is used to produce an output. A firm is said to be technically efficient if a firm is producing the maximum output from the minimum quantity of inputs, such as labor, capital and technology. |
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Term
| What competitor(s) are socially and technically efficient? |
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Definition
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Term
| Specifically, what is the social cost of monopoly? |
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Definition
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Term
| what is concentration ratio |
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Definition
| the percentage of the market’s total output supplied by its four largest firms. The higher the concentration ratio, the less competition |
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Term
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Definition
| a group of firms acting in unison |
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Term
| What typically happens to cartels in the long run? |
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Definition
| It is difficult for oligopoly firms to form cartels and honor their agreements |
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Term
| To increase their profits, what do cartels usually do? |
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Definition
| choose their combined output at the level where combined MR = MC. It’s hard to maintain a cartel because some firms like to cheat, so they would break off and no longer stay in a cartel. |
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Term
| What is a Nash equilibrium? |
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Definition
| a situation in which economic participants interacting with one another each choose their best strategy given the strategies that all others have chosen |
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Term
| What is a dominant strategy? |
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Definition
| -a strategy that is best for a player in a game regardless of the strategies chosen by the other players |
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Term
| Of the four market structures, which are price makers? |
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Definition
| a monopoly is a price maker |
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Term
| Which competitor operates with excess capacity? |
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Definition
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Term
| How do all of the competitors decide on the profit maximizing level of output? Where is it? |
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Definition
If P > MC, selling more output raises profits
They produce a quantity of output greater than the level produced by monopoly less than the level produced by competition. The oligopoly price is less than the monopoly price but greater than the competitive price (which equals marginal cost) |
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Term
| Which competitors experience lasting long run econ profit? |
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Definition
| monopoly experience positive long run econ profit |
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Term
| Which have long run zero econ profit? |
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Definition
| Monopolistic competition and perfect competition have zero long-run econ profits |
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Term
| Why do firms use advertising? |
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Definition
| to differentiate products and inform people about the product. |
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Term
| Which competitor(s) probably will not advertise? |
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Definition
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Term
| What is the signaling theory of advertising? |
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Definition
| a firm’s willingness to spend huge amounts on advertising may signal the quality of its product to consumers, regardless of the content of ads |
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Term
| What is accounting profit |
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Definition
| total revenue minus total explicit costs |
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Term
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Definition
| total revenue minus total cost, including both explicit & implicit costs |
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Term
| What is the relationship between marginal cost an d marginal product? |
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Definition
| marginal cost curve is the inverse of a marginal product curve, the marginal cost curve is like a ‘u.’ If your marginal product is high, then your marginal cost is low. |
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Term
| what are economies of scale |
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Definition
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Term
| constant returns of scale |
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Definition
| ATC stays the same as Q increses |
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Term
| what is diseconomies of scale |
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Definition
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Term
| How is the long run different from the short run? |
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Definition
short run: some inputs are fixed (factories, land) these inputs are FC
-long run: all inputs are variable (firms can build more factories or sell existing ones) |
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Term
| What are compensating differentials? |
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Definition
| difference in wages that arises from nonmonetary characteristics of different jobs |
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Term
| what is the signaling theory of education |
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Definition
| education does not enhance productivity, so raising all workers’ educational levels would not affect wages |
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Term
| What is the human capital theory? |
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Definition
| increasing educational levels for all workers would raise all workers’ productivity and thereby their wages |
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Term
| Is human capital typically a public or private good? |
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Definition
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Term
| What are some few things that might cause wages of some workers to be higher than others |
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Definition
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Term
| What are efficiency wages? |
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Definition
above-equilibrium wages paid by firms to increase worker productivity
Firms may pay higher wages to reduce turnover, increase worker effort, or attract higher-quality job applicants. |
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Term
| What affect do unions have on wages? |
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Definition
| Unions use their market power to obtain higher wages; most union workers earn 10-20% more than similar nonunion workers. |
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Term
| what is discrimination differential wages |
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Definition
| the offering of different opportunities to similar individuals who differ only by race, ethnicity, gender, or other personal characteristics |
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Term
| what is compensating differential wages |
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Definition
| a difference in wages that arises to offset the nonmonetary characteristics of different jobs |
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Term
| What is the “natural remedy” for discrimination in competitive markets? |
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Definition
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Term
| What is the pattern of income variation over a person’s lifetime called? |
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Definition
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Term
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Definition
| argues that govt should choose policies to maximize society’s total utility. Because of diminishing marginal utility, redistributing income from rich to poor increases utility of the poor more than it reduces utility of the rich |
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Term
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Definition
| that govt should choose policies deemed to be just by an impartial observer behind a “veil of ignorance.” Calls for more redistribution than utilitarianism (though still not complete equalization of incomes). |
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Term
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Definition
| argues that govt should punish crimes and enforce voluntary agreements but not redistribute income. If the income distribution is achieved fairly, govt should not interfere, even if unequal. |
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Term
| What is negative income tax? |
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Definition
| a tax system that collects revenue from high-income households and gives transfers to low-income households |
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