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ECON 202 Exam Three
| Question | Answer |
|---|---|
| What is the equation for profit? | Total Revenue - Total Cost |
| What is the equation for total revenue? | Price x Quantity |
| What is the equation for economic profit? | Total Revenue - (Explicit Costs + Implicit Costs) |
| What is the equation for accounting profit? | Total Revenue - Explicit Costs |
| What is the equation for total cost? | Fixed Cost + Variable Cost |
| What is the equation for per unit cost? | FC/Q + VC/Q |
| What is the equation for average total cost? | TC/Q |
| What is the equation for average fixed cost? | FC/Q |
| What is the equation for average variable cost? | VC/Q |
| What is the equation for marginal cost? | Change in TC/Change in Q |
| What is the shape of the marginal cost line? | Nike Swoosh |
| What is the shape of the average total cost line? | U-Shape |
| What is efficient scale? | The point in which a firm is producing at a quantity that minimizes average total cost. |
| What happens to average total cost when marginal cost is less than it? | It is decreasing. |
| What happens to average total cost when marginal cost is more than it? | It is increasing. |
| What are the characteristics of a competitive market? | There are many buyers and sellers, firms take the price and markets make the price, there are no barriers to enter the market, and the prices/products are homogenous. |
| Where are profits maximalized on a graph? | Where marginal cost meets marginal revenue. |
| What is the formula for profit? | (Price - Average Total Cost) Quantity |
| What should a firm do in the short-run when the average variable cost is more than the total revenue? | Shutdown |
| What should a firm do in the long-run when the total revenue is less than the total cost? | Exit the Market |
| What is the effect of competition on price? | Competition forces down price. |
| What is a loss-leader? | Firms break-even on competitive products and make profits on non-competitive products. |
| What is the equation for marginal revenue? | Change in TR/Change in Q |
| What is market power? | The ability to control the price of a good. |
| What is a monopoly? | A market with a single seller and no close substitutes. |
| What is an oligopoly? | A market with a few sellers (more than 1 and less than 9). |
| What is Hotelling's Model of Spatial Competition? | The tendency of firms to locate themselves close to one another. |
| What are the characteristics of a monopolistically competitive market? | There are many buyers and sellers, there is free entry and exit to the market, and there are differentiated products. |
| What causes monopolies? | Monopoly of Resource (one firm has exclusive access to a resource), government regulation can create monopolies through patents, and a Natural Monopoly (too large of a cost to join a market). |
| In a perfectly competitive market, who makes the price? | The Market |
| In a perfectly competitive market, who takes the price? | The Sellers |
| What is the tradeoff in a monopoly? | The more the monopolist wants to sell, the lower the price has to be. |
| How do you find the maximum profit for monopolies? | Find the quantity where MR = MC, go up to demand and find out how much buyers are willing to pay, and use the formula (Price - Average Total Cost) Quantity. |
| Is there long-run economic profit in monopolies? | Yes |
| What do monopolies produce? | Deadweight Loss |
| What is price discrimination? | Selling a product at different prices to different people. |
| How can a firm implement price discrimination? | Through release dates, mark downs, special sales, and paperback/hardback books. |
| What can policy makers do to stop monopolies? | Turn the monopolies public, regulate monopoly behavior, force competition (antitrust laws), or do nothing at all. |
| If marginal revenue is greater than marginal cost, what should a firm do to the quantity? | Increase the quantity to raise profit. |
| If marginal revenue is less than marginal cost, what should a firm do to the quantity? | Decrease the quantity to raise profit. |
| What is a shutdown? | A short-run decision not to produce anything because of market conditions. |
| What is the key difference between a shutdown and exiting the market? | If a firm shuts down in the short-run, they must still pay fixed costs, but if the firm exits in the long-run, there is zero cost. |
| What is a sunk cost? | A cost that has already been committed and cannot be recovered (short-term fixed costs like rent). |
| When should a firm exit the market? | If TR < TC or P < ATC |
| When should a firm enter the market? | If TR > TC or P > ATC |
| What are the assumptions of market supply? | All firms have identical costs, costs do not change and the number of firms in the market is fixed in the short-run and variable in the long-run. |
| What is the zero-profit condition? | Long-term equilibrium where remaining firms earn zero economic profit. |
| In what ways is monopolistic competition different than perfect competition and monopoly? | It produces with excess capacity, increasing quantity would lower prices, and there is incentive to gain additional sales. |
| In what ways is monopolistic competition similar to perfect competition? | There is no long-run economic profit and P = ATC. |
| In what ways is monopolistic competition similar to monopoly? | There is a downward sloping demand, profit maximization steps are the same, and there is an insufficient level of production. |
| What are the two externalities associated with monopolistic competition? | The product-variety externality which shows that different products become available to buyers and the business-stealing externality which shows that as new firms enter the market, existing firms lose sales. |
| What are the positives of spatial competition? | If a business doesn't have what you need, go to the one next-door, and businesses cannot rip you off. |
| What are the negatives of spatial competition? | The businesses are usually farther away from you. |
| What is advertising considered? | Conspicuous Consumption |
| What is collusion? | An agreement in a market about a price or quantity. |
| What is cartel? | A group of firms acting in unison. |
| What do antitrust laws prevent? | Explicit Collusion |
| What is Game Theory? | The study of how people behave in strategic situations. |
| What is dominant strategy? | A strategy that is best regardless of an opponent's strategy. |
| What is a nash equilibrium? | An outcome where neither player has an incentive to change their strategy. |
| What do we use to find nash equilibrium and dominant strategy? | Payoff Matrices |
| What is diminishing marginal product? | The marginal product of an input decline as the quantity of that input decreases. |
| What is the shape of the AFC line? | Downward Slope |
| In a monopoly, who makes the price? | The Monopolist |
Created by:
kayleeswilson