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Microeconomics > Chapter 9 > Flashcards

Chapter 9 Flashcards

1
Q

Perfectly competitive Market

A

market structure in which a very large number of firms produce a standardized product

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2
Q

Monopoly

A

market structure in which one firm is sole seller of g/s

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3
Q

monopolistic competition

A

market structure in which a relatively large number of firms produce differentiated products

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4
Q

Oligopoly

A

market structure in which a small number of large firms produce standardized or differentiated products, firms affected by rivals decisions when determining P and Q

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5
Q

Perfectly competitive Market

  1. # of firms
  2. type of product
  3. control over price
  4. conditions of entry or exit
  5. Non price competition
  6. examples
A
  1. very very large number
  2. standardized (homogenous-exact same product)
  3. none
  4. easy entry or exit with no obstacles
  5. none
  6. foreign exchange, agriculture, cotton
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6
Q

Monopolistic Competition

  1. # of firms
  2. type of product
  3. control over price
  4. conditions of entry or exit
  5. Non price competition
  6. examples
A
  1. many
  2. Differentiated (similar with substitution)
  3. some but within narrow limits
  4. relatively easy
  5. emphasis on advertising
  6. retail, clothing, shoes
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7
Q

Oligopoly

  1. # of firms
  2. type of product
  3. control over price
  4. conditions of entry or exit
  5. Non price competition
  6. examples
A
  1. few
  2. Standardized or Differentiated
  3. mutual interdependence, much w/collusion
  4. significant obstacles
  5. great deal with product differentiation
  6. steel, automotive, farm capital
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8
Q

Monopoly

  1. # of firms
  2. type of product
  3. control over price
  4. conditions of entry or exit
  5. Non price competition
  6. examples
A
  1. One
  2. Unique, no substitutes
  3. considerable amount
  4. blocked
  5. emphasis on public relations advertisement
  6. Utilities ex manitoba hydro, winnipeg jets, water supply
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9
Q

Perfect Competition Characteristics (4)

A

very large number of firms, price takers, standardized product, easy entry and exit,

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10
Q

very large number of firms means there are lots of ___firms.

A

small

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11
Q

what is price taker

A

industry that have no control over market price so they sell product at given market price

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12
Q

what does it mean for perft.comp firm to have easy or exit in long run and how does entry and exit occur

A

profits attract entry, losses gives rise to exit, no barriers prohibiting entry or exit.

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13
Q

The demand for an individual firm that is perfectly competitive is

A

perfectly elastic

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14
Q

why is the demand of perfectly comp firm perfectly elastic

A

firms are price takers, firms cannot increase or decrease price, firms can only sell if they produce at the market price

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15
Q

why can’t this firm increase or decrease price

A

all other firms in the industry would be selling the good at that level so a consumer would not buy a over priced product and decreasing price would create losses, no need to sell lower as market is higher

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16
Q

perfectly comp firm

  1. Average revenue equation
  2. marginal revenue equation
  3. total revenue equation
A
  1. total revenue divided by output = price of good
  2. change in revenue divided by change in output = price of good
  3. price x quantity
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17
Q

Short Run Maximization of Profit Objective and how they can achieve this

A

firms want to either maximize economic profit or minimize economic loss can do this by adjusting its own output.

18
Q

two approaches to identifying profit maximization quantity

A
  1. total revenue - total cost approach

2. marginal revenue - marginal cost approach

19
Q

3 decisions of firms when deciding to produce using TR-TC approach

A
  1. produce or not produce
  2. what quantity to produce
  3. will I achieve economic profit or a loss
20
Q

TR-TC approach, finding quantity to produce at from a table

A

produce where profit or loss is the highest number POSSIBLE ex can be highest positive or smallest negative number

21
Q

Break Even Point (2)

A

TR=TC

normal profit=accounting profit therefore no economic profit

22
Q

Normal Profit

A

what firm or someone could make in another industry

23
Q

profit maximization TR-TC Approach from Graph

A

find the greatest vertical distance between the TR curve and the TC curve

24
Q

economic profit equation

A

TR-TC

25
Q

why do total cost increase overtime

A

increase with output as more production=more materials and costs

26
Q

describe TC of perfect com firm

A

starts increasing at a decreasing rate as output increase, when output is to large it increases at an increasing rate

27
Q

MR(=P) = MC table approach (2)

A
  1. Produce the quantity units where last MR is just greater then MC, do not produce if MC>MR for first 2-3units
  2. check if P > or equal to Average variable costs
28
Q

3 questions a producer has when the deciding to produce using MR-MC approach

A
  1. Should I produce
  2. Is MR > MC
  3. is P > or equal to AVC
29
Q

When does a firm shut down

A

if P < AVC

30
Q

MR-MC graphical approach (3)

A

find where MR=MC, then see if P > AVC, then calculate profit using TR-TC or Q(P-ATC)

31
Q

Loss minimizing rule

A

find where MR=MC (graph) or last MR > MC (table) Loss would occur if profits are negative but less then TFC.
AVC < P < ATC

32
Q

In a scenario where losses is the profit and

ATC > P > AVC Why minimize losses and not shut down?

A

in long run if they produced nothing their TFC is their loss but if they produce output, their profit is a loss but is less then what they would pay if they didn’t produce, they can still cover variable cost and use remaining to subtract from TFC

33
Q

Shutdown Case of firms

A

same steps as before in this scenario P < AVC so firm cannot cover materials, their loss is now greater then what it would be if they didn’t produce (-profit>TFC)

34
Q

What is a the market short run supply curve in perfectly comp industry (slide 23,24)

A

since we produce where MR=MC or MR>MC, it is the MC curve that equals AVC and the rest above AVC

35
Q

Shifts of the MC (market short run supply curve) (3)

A

change in price of variable inputs
increased technology
change in price of wages

36
Q

MC Law of Diminishing returns

A

MC eventually rises as output increases due to decrease in efficiency so market needs to charge higher price to increase output

37
Q

Firms don’t produce if

A

MR=P < AVC

38
Q

As the price of product sold in the market increases

law of supply

A

quantity of output increases

39
Q

p=avc at MR=MC describe firm indifference

A

firm indifferent as result is same as not producing but we say they produce as output attracts consumers

40
Q

AVC < p < ATC

A

firms produced quantity to minimize short run costs and their economic profit is negative number

41
Q

P>ATC

A

Firm makes economic profit

Microeconomics (8 decks)

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