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AP MicroEconomics Exam > Chapter 9 > Flashcards

Chapter 9 Flashcards

1
Q

What’s perfect competition? (4)

A

perfect competition

  1. many independent and small producers and consumers
  2. make the same product
  3. no barriers to entry or exit
  4. firms are PRICE TAKERS
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2
Q

what’s a price taker?

A

a price taker accepts the market price and produces as much as they want at that price

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3
Q

What’s the demand curve like for each perfectly competitive firm?

A

the demand curve is PERFECTLY ELASTIC

- horizontal line

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4
Q

How do you calculate the economic profit with total values?

A

economic profit = total revenue - total economic cost

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5
Q

What is the demand curve of perfectly competitive firms?

A

the demand curve is equal to PRICE and MARGINAL REVENUE

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6
Q

What’s the shut down point?

A

the shut down point is the lowest AVERAGE VARIABLE COST price

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7
Q

When does a firm continue to produce and when does it shut down?

A
  1. if total revenue is greater than or equal to the total variable cost, it continues
  2. if total revenue is less than the total variable cost, it SHUTS DOWN
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8
Q

What happens in short run equilibrium?

A

firms can’t exit or enter the industry

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9
Q

What happens in long run equilibrium?

A

firms can enter and exit the industry

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10
Q

What’s normal profit?

A

zero economic profit

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11
Q

What’s a constant cost industry?

A

the entry an exit of firms has NO IMPACT on cost curves of other firms in the market.

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12
Q

What’s an increasing cost industry?

A

the entry of new firms increases the price of resources

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13
Q

What’s a decreasing cost industry?

A

the entry of new firms decreases the price of resources

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14
Q

What’re the characteristics of a monopoly? (3)

A

monopoly:

  1. no close substitutes
  2. barriers to entry
  3. market power
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15
Q

What’s a natural monopoly?

A

when it’s less costly for one firm to supply the entire demand

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16
Q

example of a natural monopoly

A

power plants

17
Q

Monopolies are price ____

A

monopolies are PRICE MAKERS.

- they have complete control over the price.

18
Q

What’re the demand curves like in perfect competition and monopolies?

A
  1. perfect competition: demand is HORIZONTAL

2. monopoly: demand is DOWNWARDS SLOPING.

19
Q

What’s price discrimination?

A

the selling of the same good at different prices to different consumers

20
Q

What conditions make it possible to price discriminate?

A

price discriminating power:

  1. the firms has monopoly pricing power
  2. firm can separate groups of consumers
  3. firm can prevent resale.
21
Q

What’re the characteristics monopolistic competition? (3)

A

monopolistic competition:

  1. there’s a relatively LARGE number of firms
  2. there sell DIFFERENT products
  3. there are NO BARRIERS to entry and exit
22
Q

What’s EXCESS CAPACITY?

A

excess capacity is the difference between the monopolistic competition output and the output at minimum ATC

23
Q

How do you calculate excess capacity?

A

excess capacity

- monopolistic competition output - minimum ATC

24
Q

What’re the characteristics of an oligopoly? (4)

A

oligopoly:

  1. a few large producers
  2. can sell either same or different products
  3. barriers to entry and exit
  4. mutual interdependence
25
Q

What’s a cartel?

A

a formal agreement firms have not to compete with each other.

26
Q

What’s the marginal revenue product of labor?

A

the marginal revenue product of labor measures how much each additional resource contributes to revenue

27
Q

How to calculate the marginal revenue product of labor?

A

MRPL=
change in total revenue
———————————-
change in the number of resources.

28
Q

in competitive markets, the marginal revenue product is ____

A

firm’s DEMAND curve

29
Q

in competitive markets, wage is the ____

A

firm’s SUPPLY curve

30
Q

How does an increase in demand increase the amount of labor hired?

A
  1. demand increases for product
  2. price of product increases
  3. marginal revenue product increases
  4. firm hires more labor
31
Q

How to find the best cost minimizing combination of two inputs?

A

marginal product of labor of good A MPL of good B
—————————————————- = ———————-
price price

32
Q

What happens in a monopsony?

A

the employer must increase the wage to increase the quantity of labor that’s supplied
- supply is upwards sloping.

33
Q

What’re private goods?

A

rival and excludable

34
Q

what’re public goods?

A

nonrival and non excludable

AP MicroEconomics Exam (4 decks)

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