Chapter 9 Midterm 2

Question 1

What is Market power?

Answer 1

a firm that can influence the price of their product has MARKET POWER

Question 2

WHAT IS A COMPETATIVE MARKET?

How does market power affect competition

Answer 2

MORE MARKET POWER IN FIRMS = LESS COMPETATIVE MARKET

LESS MARKET POWER IN FIRMS = MORE COMPETATIVE MARKET

Question 3

HOW DOES A PERFECTLY COMPETATIVE MARKET AFFECT FIRM’S PRICING?

Answer 3

PRICES MUST REFLECT SUPPLY AND DEMAND CURVES FOR THE PRODUCT WITH LITTLE ROOM FOR VARIANCE.

Question 4

WHAT IS AN EXAMPLE OF TWO PERFECTLY COMPETATIVE behaviour

Answer 4

MASTERCARD AND AMERICAN EXPRESS;

they can adjust their fees accordingly and still attract customers

Question 5

TOTAL REVENURE FORMULA?

Answer 5

TR = p x Q

Total Revenue = price$ x # of units sold

Question 6

AVERAGE REVENURE FORMULA ?

Answer 6

AR = TR/Q = (pxQ)/Q = p

OR JUST THE FUCKING PRICE THAT THE PRODUCT IS SOLD

Question 7

MARGINAL REVENUE FORMULA:

Answer 7

MR = ▲TR/▲Q

Question 8

WHAT IS A “PRICE TAKER?”

Answer 8

meaning that the firm can alter its output and sales without affecting the market price of its product

Question 9

What does a FIRM’s demand curve look like in a PERFECTLY COMPETETIVE MARKET?

Why?

Is the INdustry curve the same?

Answer 9

Its horizontal

because variations in the firm’s outputs have no significant effect on market price.

No, the industry’s curve is negatively slopped as usual

Question 10

For a competitive price-taking firm, the market price is the______________

firm’s marginal (and average) revenue.

Firms marginal/ average costs.

Firms choice of salad dressing.

Answer 10

firm’s marginal (and average) revenue.

Question 11

Firms (profit maximizing) will only produce at a level of output in which … (2)

Answer 11

Price is at least as great as AVC and marginal cost = Marginal revenue

Question 12

in perfect competition, firms will choose its outputs so that MARginal Costs = ?

why?

Answer 12

market price

Because firms are price takers so marginal revenue is = price

Question 13

(π = TR - TC) solves what?

Answer 13

economic profits

Question 14

What is necessary for a firm to decide to produce/ output (not shut down)

Answer 14

the ability to find and create some level of output for which revenue IS GREATER than variable costs

Question 15

sometimes companies are not profitable at all given circumstances at which point they should _____ ?

Answer 15

produce at ZERO output to maximize profits / minimize losses

Question 16

Rule 1: A firm should not produce at all if, for all levels of output, total revenue (TR) is less than total variable cost (TVC). Equivalently, the firm should not produce at all if, for all levels of output, the market price (p) is less than average variable cost (AVC).

Answer 16

YEAH

Question 17

what is shut down price =

Answer 17

firms average variable costs (given revs is lower)

Question 18

IN A PERFECTLY FUCKING COMPETATIVE MARKET, IF it is worht while for firms to produce, what level should they produce at?

Answer 18

at a level of output where marginal costs of production = market price of the product ( as long as price exceed Avc)

Question 19

IF it is worht while for firms to produce, what level should they produce at?

Answer 19

at a level of output where marginal revenue = marginal costs

Question 20

HOW DOES A PERFECTLY COMPETATIVE FIRM ADJUST ITS LEVELS OF OUTPUT?

Answer 20

in Response to changes in market determined prices

Question 21

wher is the supply curve located for a competative FIRM?

where os the INDUSTRY supply curve located in a perfectly competative market?

Answer 21

portion of its MC curve above the avc curve

horizontal sum of the marginal cost curves (above AVC)
(f1 + f2 + …)

Question 22

What is the short run equilibrium in a competative market?

Answer 22

Qd = Qs AND each firm is maximizing profits at given market price (MC = Market price)