Business Micro Econ Reminders

Question 1

Productive efficiency

Answer 1

Minimising costs (AC lowest point [=MC])

Question 2

Dynamic efficiency

Answer 2

Reinvesting profit into research and development (at Pmax price [MR=MC])

Question 3

Allocative efficiency

Answer 3

Producing where consumer surplus is maximised and at socially optimum or efficient output level(Where MC=D or AR)

Question 4

Profit satisficing

Answer 4

Producing at a level of output which makes enough profit to keep share holders happy

Question 5

Shut down points - LONG RUN

Answer 5

ATC = AC

Question 6

Shut down point - SHORT RUN

Answer 6

AVC = AC

Question 7

Profit discrimination for monopoly

Answer 7

Elastic demand (changes occurring to high prices)
In elastic demand (changes occurring to low prices )

Question 8

Price discrimination (perfect competition)

Answer 8

All firms have perfect information in perfect competition.
This means that firms will know if one firm is making a supernormal profit.
They will enter the market in order to make supernormal profits.
Low barriers to entry : Entrance of more new firms will increase distribution of market share and end up making normal products because AC will increase till AC = D

Question 9

x inefficiency

Answer 9

happens when a lack of effective competition in an industry means that average costs are higher