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Micro Exam 3 Review

question
What is the adjustment to long-run equilibrium from short-run profit?
answer
Firms will enter industry, increase in supply.
Decrease in Pe to zero economic profit
question
What is the adjustment to long-run equilibrium from short-run losses?
answer
Firms exit industry.
Decrease in S, increase in P to zero economic profit
question
What is the adjustment to long-run equilibrium from long-run equilibrium?
answer
Zero economic profit (P=ATC)
Efficiency: MB=MC
question
What is the definition of monopoly?
answer
A single producer of a product for which there are no close substitutes
question
What are the characteristics for a monopoly?
answer
1. Downward-sloping demand
2. Market Demand=Monopoly Demand
3. D does not equal MR
4. Price setter
5. Barriers to entry (descriptions)
question
What are the different barriers to entry for a monopoly?
answer
1. Patents (drugs) / copyrights (music, movies...)
2. Ownership of scarce resources
3. Govt. franchise/licensing requirements
4. Economies of scale
question
Study for profit-max/loss-min (short run) STUDY IN NOTES
answer
...
question
What is the inequality for loss?
answer
P < ATC
question
What is the shutdown rule?
answer
1. If P is greater than AVC, continue to operate
2. If P is less than AVC, shut down
question
Profit max (long rule) rules
answer
1. Positive economic profit
2. Inefficient MB greater than MC
question
What is the definition of price discrimination?
answer
The practice of charging different prices to different customers for the same product not based on cost differences
question
What are the conditions for successful price discrimination?
answer
1. Firms must have some control over price (price setters)
2. Firms must have ability to segment market based on elasticity
3. No resale possible
question
How do you solve TR with no price disc in a single price firm?
answer
P X Q
question
How do you solve TR in a perfect price disc?
answer
(P X Q) + the past cues
question
What is the public policy toward monopoly?
answer
1. Regulation
2. Antitrust Laws (Sherman Act)
3. Government operating monopoly
question
What is the definition of monopolistic competition?
answer
A market structure made up of many firms producing similar but not identical products
question
What are the characteristics of monopolistic competition?
answer
1. Product differentiation (perceive a product to be better)
2. Easy entry/exit
3. Price setter
4. Advertising
question
Profit Max (long run) for monopolistic competition?
answer
1. Zero economic profit
2. Inefficient: MB greater than MC
question
What is the definition of an oligopoly?
answer
A market structure made up of a few large firms producing identical or differentiating products
question
What are the characteristics of an oligopoly?
answer
1. Some barriers to entry
2. Mutual interdependence
3. Highly concentrated industry (concentration ratio)
question
Definition of concentration ratio?
answer
Percentage of total industry sales accounted for by the largest firms
question
What are the models of oligopoly?
answer
1. Cartel
2. Price leadership
3. Game theory
question
Definition of a cartel and an example?
answer
Def: A group of producers that work together collectively to restrict their production levels in order to raise price
EX: OPEC
question
Definition of price leadership?
answer
A dominant firm in an industry sets price and the smaller firms in the industry follow the lead
question
Definition of game theory?
answer
A means of analyzing the pricing behavior of oligopolists with strategies designed to anticipate rival firms decisions, nash equilibrium
question
Definition of nash equilibrium?
answer
John Nash - a situation in which each firm has chosen its best strategy given the strategies the other firms have chosen
question
Study market vs. firm curves Ch 14
answer
...
question
Definition of derived demand?
answer
The demand for a resource like labor depends on the demand for the output labor helps to produce
question
Value of the marginal product (VMP) definition?
answer
The additional revenue earned from hiring one more worker; VMP=MP x P
question
Optimal Quantity of labor equation?
answer
VMP=W
question
Marginal product equation:
answer
Change in Q/Change in L
question
When does law of diminishing returns set in?
answer
At the L when MP starts to decrease
question
What's the difference in shift vs. movement along firm's demand for labor (VMP)
answer
1. Movement - wage (price of labor)
2. Shift: price of output and productivity/technology is a positive relationship.
Substitutes (+): increase in capital, increase in labor
Compliments (-): increase in capital, decrease in labor
1 of 33
question
What is the adjustment to long-run equilibrium from short-run profit?
answer
Firms will enter industry, increase in supply.
Decrease in Pe to zero economic profit
question
What is the adjustment to long-run equilibrium from short-run losses?
answer
Firms exit industry.
Decrease in S, increase in P to zero economic profit
question
What is the adjustment to long-run equilibrium from long-run equilibrium?
answer
Zero economic profit (P=ATC)
Efficiency: MB=MC
question
What is the definition of monopoly?
answer
A single producer of a product for which there are no close substitutes
question
What are the characteristics for a monopoly?
answer
1. Downward-sloping demand
2. Market Demand=Monopoly Demand
3. D does not equal MR
4. Price setter
5. Barriers to entry (descriptions)
question
What are the different barriers to entry for a monopoly?
answer
1. Patents (drugs) / copyrights (music, movies...)
2. Ownership of scarce resources
3. Govt. franchise/licensing requirements
4. Economies of scale
question
Study for profit-max/loss-min (short run) STUDY IN NOTES
answer
...
question
What is the inequality for loss?
answer
P < ATC
question
What is the shutdown rule?
answer
1. If P is greater than AVC, continue to operate
2. If P is less than AVC, shut down
question
Profit max (long rule) rules
answer
1. Positive economic profit
2. Inefficient MB greater than MC
question
What is the definition of price discrimination?
answer
The practice of charging different prices to different customers for the same product not based on cost differences
question
What are the conditions for successful price discrimination?
answer
1. Firms must have some control over price (price setters)
2. Firms must have ability to segment market based on elasticity
3. No resale possible
question
How do you solve TR with no price disc in a single price firm?
answer
P X Q
question
How do you solve TR in a perfect price disc?
answer
(P X Q) + the past cues
question
What is the public policy toward monopoly?
answer
1. Regulation
2. Antitrust Laws (Sherman Act)
3. Government operating monopoly
question
What is the definition of monopolistic competition?
answer
A market structure made up of many firms producing similar but not identical products
question
What are the characteristics of monopolistic competition?
answer
1. Product differentiation (perceive a product to be better)
2. Easy entry/exit
3. Price setter
4. Advertising
question
Profit Max (long run) for monopolistic competition?
answer
1. Zero economic profit
2. Inefficient: MB greater than MC
question
What is the definition of an oligopoly?
answer
A market structure made up of a few large firms producing identical or differentiating products
question
What are the characteristics of an oligopoly?
answer
1. Some barriers to entry
2. Mutual interdependence
3. Highly concentrated industry (concentration ratio)
question
Definition of concentration ratio?
answer
Percentage of total industry sales accounted for by the largest firms
question
What are the models of oligopoly?
answer
1. Cartel
2. Price leadership
3. Game theory
question
Definition of a cartel and an example?
answer
Def: A group of producers that work together collectively to restrict their production levels in order to raise price
EX: OPEC
question
Definition of price leadership?
answer
A dominant firm in an industry sets price and the smaller firms in the industry follow the lead
question
Definition of game theory?
answer
A means of analyzing the pricing behavior of oligopolists with strategies designed to anticipate rival firms decisions, nash equilibrium
question
Definition of nash equilibrium?
answer
John Nash - a situation in which each firm has chosen its best strategy given the strategies the other firms have chosen
question
Study market vs. firm curves Ch 14
answer
...
question
Definition of derived demand?
answer
The demand for a resource like labor depends on the demand for the output labor helps to produce
question
Value of the marginal product (VMP) definition?
answer
The additional revenue earned from hiring one more worker; VMP=MP x P
question
Optimal Quantity of labor equation?
answer
VMP=W
question
Marginal product equation:
answer
Change in Q/Change in L
question
When does law of diminishing returns set in?
answer
At the L when MP starts to decrease
question
What's the difference in shift vs. movement along firm's demand for labor (VMP)
answer
1. Movement - wage (price of labor)
2. Shift: price of output and productivity/technology is a positive relationship.
Substitutes (+): increase in capital, increase in labor
Compliments (-): increase in capital, decrease in labor
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