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| Average Fixed Costs (AFC) |
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| How can average costs be determined? |
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| By dividing the firm’s costs by the quantity of output it produces. |
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| The average cost is the... |
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| the cost of each typical unit of product. |
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| What does marginal costs measure? |
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| the increase in total cost that arises from an extra unit of production. |
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| What question does Marginal costs help answer? |
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| How much does it cost to produce an additional unit of output? |
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| Change in total cost/change in quantity |
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| What do Economies of Scale refer to? |
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| the property whereby long-run average total cost falls as the quantity of output increases. |
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| What do diseconomies of scale refer to? |
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| the property whereby long-run average total cost rises as the quantity of output increases. |
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| What does constant returns to scale refer to? |
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| the property whereby long-run average total cost stays the same as the quantity of output increases. |
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| How does a firm maximize profit in a perfectly competitive market? |
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| By producing the quantity at which marginal cost equals marginal revenue. |
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| In PERFECT COMPETITION, Price equals? |
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| Average revenue and marginal revenue. |
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| In a PERFECTLY COMPETITIVE MARKET, when MR= MC... |
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| In a PERFECTLY COMPETITIVE MARKET, when MR is greater than MC... |
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| In a PERFECTLY COMPETITIVE MARKET, when MR is less than MC... |
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| For competitive firms, marginal reveenue equals... |
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| the increase in total cost that arises from an extra unit of production. |
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| Change in total cost/change in quantity= |
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| In perfect competition, average revenue equals... |
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| In a PERFECTLY COMPETITIVE MARKET, the price of the good equals... |
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| What does a shutdown refer to? |
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| a short-run decision not to produce anything during a specific period of time because of current market conditions. |
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| What does an Exit refer to? |
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| a long-run decision to leave the market. |
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| The firm shuts down if... |
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| the revenue it gets from producing is less than the variable cost of production. |
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| costs that have already been committed and cannot be recovered.(fixed costs) |
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| When deciding whether to shut down a firm ignores what? |
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| When deciding whether to exit, what does a firm not ignore? |
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| Are sunk costs ignored when deciding to exit? |
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| What is a competitive firm's short-run supply curve? |
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| The portion of the marginal-cost curve that lies above average variable cost |
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| What is the competitive firm's supply curve? |
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| In the long run, the firm exits if? |
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| the revenue it would get from producing is less than its total cost. |
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| The competitive firm’s long-run supply curve is... |
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| the portion of its marginal-cost curve that lies above average total cost. |
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| the sum of the quantities supplied by the individual firms in the market. |
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| What is the sum of the quantities supplied by the individual firms in the market. |
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| If the industry has 1000 identical firms, then at each market price, industry output will how many times larger than the representative firm’s output? |
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| Firms will enter or exit the market until... |
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| profit is driven to zero. |
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| Firms entering a perfectly competitive market increase supply leading to... |
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| In a PERFECTLY COMPETITIVE MARKET, in the long run, price equals... |
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| the minimum of average total cost. |
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| In a PERFECTLY COMPETITIVE MARKET, the process of entry and exit ends only when... |
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| P and ATC are driven to equality. |
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| What is the fundamental cause of monopoly? |
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| Barriers to entry are the fundamental cause of what? |
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| What are the three sources of barriers to entry? |
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| Ownership of a key resource, the government and costs of production. |
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| An industry is a natural monopoly when... |
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| a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms. |
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| A natural monopoly arises when... |
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| there are economies of scale. |
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| What type of firms ate price takers? |
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| What type of firm reduces price to increase sales? |
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| What type of firm is a price maker? |
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| What type of firm faces a horizontal demand curve? |
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| Perfectly competitive firm. |
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| What type of firm faces a downward sloping demand curve? |
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| A monopolist’s marginal revenue is always less than... |
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| When a monopoly drops the price to sell one more unit... |
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| the revenue received from previously sold units also decreases. |
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| If a monopoly wants to sell more it must... |
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| In a monopoly MR is less than... |
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| In a monopolistic market, profit is maximized when |
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| MC= MR which is less than P |
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| What type of laws allow government to prevent mergers? |
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| What is price discrimination? |
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| the business practice of selling the same good at different prices to different customers, even though the costs for producing for the two customers are the same. |
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| Monopolist with Perfect Price Discrimination... |
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| convert their consumer surplus and deadweight loss into profit. |
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| What is the market structure between perfect competition and monopoly? |
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| What are the two types of imperfect competition? |
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| Oligopoly and monopolistic competition. |
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| What is monopolistic competition? |
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| Many firms selling similar but not identical products. |
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| Is there free entry and exit in monopolistic competition? |
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| Are there many sellers in monopolistic competition? |
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| In monopolistic competition what sort of demand curve is faced? |
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| A downward sloping demand curve. |
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| In monopolistic competition firms will enter and exit untill... |
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| Firms are making exactly zero economic profits. |
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| In the long run, there is no excess capacity in... |
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| In the long run there is excess capacity in... |
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| monopolistic competition. |
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| output is less than the efficient scale of perfect competition in what... |
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| monopolistic competition. |
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| price exceeds marginal cost because the firm has some market power for what type of firm? |
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| A monopolistically competitive firm. |
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| A firm has the incentive to advertise when... |
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| firms sell differentiated products and charge prices above marginal cost. |
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| The willingness of a firm to spend advertising dollars can be a signal to consumers about... |
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| the quality of the product being offered. |
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| What type of firms are interdependent? |
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| What is the key feature of oligopoly? |
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| The tension between cooperation and self interest. |
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| A group of firms acting in unison. |
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| the study of how people behave in strategic situations. |
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| What is a Nash Equilibrium |
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| One in which each player has chosen its best strategy given the strategy of the other player. |
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| Oligopolistic firms have an incentive to cooperate when... |
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| games are repeated for an indefinite amount of time. |
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| Perfect information is an assumption of what? |
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| What are the 5 main assumptions of perfectly competitive markets? |
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Many buyers and sellers,
Low entry/ exit barriers,
Homogenous products,
Firms aim to maximise profits,
Perfect information |
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| information asymmetries is a source of... |
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| What is information assymetry? |
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| a difference in access to relevant knowledge |
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| What does Moral Hazard refer to? |
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| the tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behavior |
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| a person who is performing an act for another person, called the principal |
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| a person for whom another person, called an agent, is performing some act. |
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| What is adverse selection? |
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| a problem that arises in markets where the seller knows more about the attributes of the good being sold than the buyer does. As a result, the buyer runs the risk to be sold a good of low quality. |
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| an action taken by an informed party to reveal private information to an uninformed party (advertising, degrees) |
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| an action taken by an uniformed party induces an informed party to reveal information (cars, insurance) |
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| What does it take for an action to be an effective signal? |
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| It needs to be less costly for the person with the higher-quality product. |
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| What is functional income distribution? |
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| The distribution of income between the owners of the various factors of production. Wages accrue to labour, rent to landlords, and interest, dividends, and retained profits of companies to capital. |
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| What is personal distribution of income? |
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| The distribution of income related to characteristics such as the level of human capital, his/her abilities, effort, type of work chosen, etc. |
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| What are the two main sources of information asymmetries? |
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| Hidden action, hidden characteristics. |
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| In what market structure does advertising and branding play a role? |
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| Monopolistic competition. |
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