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Econ Exam 3
| Question | Answer |
|---|---|
| allocative efficiency (socially optimal quantity) | where D=MC. the equality of price and marginal cost yields AE. The right amount of society's scarce resources is being devoted to this specific use. |
| productive efficiency | P=MC=minimum ATC (equality of price and minimum average total cost yields productive efficiency) "the good is being produced in a least costly way and the price is just sufficient to cover average total cost including normal profit. |
| why do monopolistic firms under produce? | they want the maximum profit. |
| excess capacity | firm can produce more at a lower cost but they hold back production |
| does monopolistic competition make economic profit in the long run? | no |
| types of market structures | (1)perfect competition (2) monopolistic competition (3) oligopoly (4) pure monopoly |
| # of firms for monopolistic competition | large # |
| # of firms for pure competition | large # |
| # of firms for oligopoly | small # |
| # of firms for monopoly | one |
| product type for monopolistic competition | differentiated (highly substitutable) |
| product type for pure competition | identical (highly substitutable) |
| product type for oligopoly | identical or differentiated |
| product type for monopoly | unique (no close subs) |
| price comparison between all market strurctures | Ppc < Pmc < Po < Pm |
| quantity comparison between all market structures | Qpc > Qmc > Qo > Qm |
| short run profit maximization for all market structures | is the same for all market structures (profit max. <, >, or = 0) |
| long run profit maximization for all market structures | perfect and monopolistic competitions is normal profit (profit max. = 0); in oligopoly and monopoly profit max is > or = 0 |
| entry/exit for all market structures | perfect & monopolistic competition is easy entry/exit. for oligopoly it is difficult but not impossible and for monoploy it is nearly impossible |
| what causes high barriers for monopoly structure? | patents and copyrights. |
| type of market power for all market structures | PC=no mrkt pwr (price taker), MC=small mrkt pwr, O=lg amount mrkt pwr and M=complete mrkt pwr (price setter). |
| how is output determined | where MR=MC |
| what makes profit | keeping ATC below price |
| monopolistic differentiated products | (1)product attributes (2)service (3)location (4)brand names & packaging (5)some control over price (6)easy entry/exit (7)advertising (nonprice competition) |
| productive efficiency | |
| is there productive or allocative efficiency in monopolistic competition (long-run) | No, monopolistic competition causes an underallocation of resources. |
| efficiency loss (deadweight loss) | occurs becuase of the underallocative resources between ATC=D MD=ATC & MR=MC (triangle). |
Created by:
chapina2maggie