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Econ Exam 2
| Question | Answer |
|---|---|
| In a market with perfectly competitive firms, the market demand curve is usually ______ and the demand curve facing each individual firm ______ | downward sloping; horizontal |
| For a perfectly competitive firm, marginal revenue equals average revenue because the | firm's demand curve is horizontal |
| The competitive firm has no influence over price because | its output is so insignificant relative to the market as a whole |
| at a perfectly competitive firm's short run equilibrium level of output | P=MR=MC |
| A firm in short run equilibrium always earns positive profits if | P>AC |
| A firm earns a profit of exactly zero at its optimal output level in the short run only if | P=AC |
| A perfectly competitive firm should continue to expand output until | marginal revenue equals marginal costs |
| The perfectly competitive firm's short run shutdown rule is to shut down immediately if | TR |
| The firm will shut down in the short run if | P |
| if a firm shuts down int the short run, its losses are equal to | total fixed costs |
| The short run supply curve of the perfectly competitive firm is the firm's | MC curve above the minimum point on the AVC curve |
| In the short run, if the price falls below minimum AVC, the quantity supplied by the firm will be | zero |
| The short run supply curve of the perfectly competitive industry is found by summing the | MC curves about the AVC of the individual firms in the industry |
| Firms entering a perfectly competitive industry will cause the price of a product to | fall |
| perfectly competitive firms ______ earn zero economic profit in long run equilibrium because _____ | Always; forms enter whenever their economic profit is positive and exit whenever it is negative, so in long run equilibrium economic profit must always be 0. |
| a perfectly competitive firm would be willing to remain in the industry in the long run at zero economic profit because | revenue is equal to all costs, including the opportunity cost of capital and labor. |
| A long run supply curve of an industry equals the industry's | long run average cost curve |
| A perfectly competitive industry in long run equilibrium is describes as efficient because firms | produce at the low point on their average cost curve |
| A pure monopoly is | only one supplier, with no close substitutes, and exists when entry and survival of potential competitors is extremely unlikely |
| What are examples of entry barriers | legal restrictions, patents, control of scarce resources or inputs |
| Sunk costs mean | that the costs involved cannot be recouped for a considerable period of time. |
| A natural monopoly is defined as an industry in which one firm | can produce the entire industry output at a lower average cost than a larger number of firms could. |
| The marginal revenue curve for a monopolist is | always below the demand curve |
| A monopoly firms supply curve | does not exist |
| Compared to perfect competition, monopoly | provides less output, charges higher prices, and results on higher costs. |
| Providing medical serves for smaller fees to the poor than the rich is an example of | price discrimination |
| A price discriminating firm will always maximize profit by following the condition that | MRa=MRb=MC |
| Forms that engage in price discrimination | will earn more profit than those who do not discriminate |
| Monopolistic competition is characterized by | many firms selling slightly different products |
| Monopolistic competitors and perfect competitors are like in | zero economic profit in the long run |
| Monopolistic competition is different from perfect competition in that every manufacturer | has a small monopoly, and differentiates the product |
| The demand curve for a monopolistic competitor slopes down because | there are close by not perfect substitutes for the product |
| the force that leads to zero economic profits for monopolistically competitive firms in the long run is | entry by new firms |
| what is the long run effect on the demand cure of a monopolistically competitive firm when more firms enter the market? | demand curve shifts to the left |
| A firm in a monopolistically competitive market makes no economic profit in the long run because | long run price will be equal to long run average cost |
| to maximize profit a monopolistically competitive form produces at the output level at which | MR=MC |
| A monopolistically competitive firm in the long run will have a demand curve tangent to what | its AC curve |
| According to the excess capacity theorem, if every firm under monopolistic competition expanded its output then what would happen to its cost per unit of output | it would dec. |
| What is an oligopoly | dominated by a few sellers |
| The difficulty in analyzing oligopolistic behavior arises from the | interdependent nature of oligopolistic decisions |
| If a firm decides to ignore the reactions of its rivals to its policies, the appropriate model to analyze its behavior is | monopoly |
| in an economists view a cartel usually offers to society | none of the cost benefits of a large scale production and all of the allocative inefficiencies of monopoly |
| cartels usually succumb to divisive forces caused by | members cheating by giving secret discounts |
| When one firm raises its prices and other firms fallow this is called. | price leadership |
| a sales maximizing firm produces the output level at which | MR=0 |
| according to the kinked demand curve model an oligopolist may face | more elastic demand if she raises her price than if she lowers her price |
| the theory of the kinked demand curve is used to explain | sticky prices in oligopolies |
| when firms are faced with making strategic choices in order to maximize profit, economists typically use | game theory to model behavior |
| the prisoners dilemma provides insights into the | difficulty of maintaining cooperation |
| the likely outcome of the standard prisoners dilemma is that | both confess |
| in a game the dominant strategy is by definition | the best strategy for a player to follow, regardless of the strategies followed by other players. |
| what is the reason that players can solve the prisoners dilemma and reach the most profitable outome | the players have played the game many times |
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dtr24