ECN 476

Question 1

Pareto Efficiency

Answer 1

When a market is both productively and allocatively efficient. In other words, one firm cannot be made to benefit without forcing another firm to be worse off.

Question 2

Productive Efficiency

Answer 2

When firms are producing at minimum ATC

Question 3

Allocatively Efficient

Answer 3

Consumer and producer surplus are maximized and willingness to pay is equal to the cost to produce at the margin.

Question 4

Monopoly Theory

Answer 4

1. Barriers to entry/ exit
2. One seller: complete control of price
3. Perfect or imperfect info regarding price and quantity
4. Unique Good

Therefore: firms are price setters

Question 5

Perfect Competition Theory

Answer 5

1. No barriers to entry/ exit
2. Many buyers and sellers such that no individual can influence price
3. Perfect information with regards to price and quantity
4. Homogeneous goods

Therefore: firms are price takers

Question 6

CR_n

Answer 6

Σ S_i

S = market share

PC ⇒ 0

Monopoly ⇒ 100

Question 7

HHI

Answer 7

Σ S_i²

S = market share

PC ⇒ 0

Monopoly ⇒ 10,000

Question 8

Lerner Index

Answer 8

LI = (P - MC) / P

Measure of price mark-up

Question 9

Economies of Scale

Answer 9

S = AC / MC

S = 1 ⇒ Econ of Scale are exhausted

S > 1 ⇒ Econ of Scale (few firms)

S < 1 ⇒ Disecon of Scale