eco105 9-10 Flashcards

1
Q

Marginal Revenue

A

Additional revenue from more sales or from selling one more unit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

The simple rule for smart business decisions

A

choose when marginal revenues are greater than marginal costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Fixed costs ____ affect smart choices

A

don’t

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Marginal revenue equals

A

the price of output, and both are constant as the quantity produced increases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Marginal revenue depends on

A

market structure → how competitive your industry is and whether your business is a price taker or price maker

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Marginal revenue can also be defined in two ways

A

Change in total revenue
Revenue from selling one more unit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

One price rule

A

Most products and services have one price, not a different price for each customer because competitive economic forces tend to equalize prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

In perfect competition, what effects does producing more have on the market

A

no effect on the market because as a small producer, the increase in supply does not affect market supply or market price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What creates pricing power

A

Barriers to entry, brand loyalty or advertising

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

For price makers, the marginal revenue curve is

A

different from the demand curve because marginal revenue is less than price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

For price takers, the marginal revenue curve is

A

the demand curve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Diminishing returns

A

as output increases, decreasing productivity increases marginal costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

When increases in output lead to lower (diminishing) productivity

A

marginal costs increase

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Most businesses that are not operating near capacity have

A

constant marginal costs as they increase output, looks like a horizontal line

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Recipe for Profits

A

estimate marginal revenues and marginal costs and then set the highest price that allows you to sell the highest quantity for which marginal revenue is greater than marginal cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Fixed costs

A

costs that do not change with the quantity of output produced

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Price discrimination

A

charging customers different prices for the same product or service, increases a business’s total profits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Price discrimination breaks the one-price rule, and is possible only when a business can:

A

Prevent low-price buyers from reselling to high-price buyers and
Control resentment among high-price buyers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

How do businesses control resentment among the high-price buyers?

A

Discount: businesses describe the higher price as the “regular” price, and the lower price as the “discounted” price

20
Q

Discriminate by Elasticity

A

set a lower price for the customers who have elastic demands, and a higher price for the customers with inelastic demands

21
Q

Recipe for Price Discrimination

A
  1. Prevent resale of the product or service
  2. Charge a lower price to the elastic demand group (lower willingness to pay)
  3. Charge a higher price to the inelastic demand group (higher willingness to pay)
  4. Control resentment among higher price buyers
22
Q

Why is perfect competition efficient

A

the price in the market is equal to the minimum of the long-run average cost curve.

In other words, goods are being produced and sold at the lowest possible average cost

23
Q

Price-making power is inefficient

A
  1. Must lower price to sell more
  2. marginal revenue is less than price due to one-price rule
  3. monopolist is producing less and charging a higher price, inefficient for the economy as a whole
  4. Deadweight loss present, signaling an inefficient market outcome
  5. Price-making power allows businesses to restrict output and raise prices to maximize their profits, but creates deadweight loss
24
Q

Natural monopoly

A

economies of scale allow only a single seller to achieve lowest average total cost

25
Q

ECONOMIES OF SCALE

A

when more units of a good or service can be produced on a larger scale with (on average) fewer input costs

As a business’s scale of production increases, average total costs decrease with increasing quantities

26
Q

Market Failure

A

when markets produce outcomes that are inefficient or inequitable

27
Q

Crown corporations

A

publicly owned businesses in Canada

Created by the federal/provincial governments, which own 100% of the corporation’s assets

28
Q

Regulated Private Monopoly

A

allow a single private business, but have the government regulate it, like banks

29
Q

Rate of return legislation

A

sets a price allowing the regulated monopoly to just cover average total costs, including normal profits (principle)

30
Q

Rate of return legislation

A

sets a price allowing the regulated monopoly to just cover average total costs, including normal profits (principle)

31
Q

Game theory

A

a mathematical tool for understanding how players make decisions, taking into account what they expect rivals to do

32
Q

Prisoner’s dilemma

A

a game with two players who must each make a strategic choice, where results depend on the other player’s choice

33
Q

Nash equilibrium

A

outcome of a game in which each player makes her own best choice given the choice of the other

34
Q

Smart choices – game theory

A

confess if you don’t trust the other, or deny if you can trust the other

35
Q

Collusion

A

conspiracy to cheat or deceive others

36
Q

Cartel

A

association of suppliers formed to maintain high prices and restrict competition

37
Q

OPEC

A

Organization of Petroleum Exporting Countries, best-known international cartel, acted like a single monopoly

38
Q

The Competition Act

A

maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy, anti-combine law

39
Q

Criminal offenses

A

include price fixing, bid rigging, and false or misleading advertisement → penalties include prison sentences and fines

40
Q

Civil offenses

A

less serious, include mergers abusing a business’s dominant market position, and other actions that lessen competition → penalties are fines and legal prohibitions of mergers and anti-competitive business practices

41
Q

Caveat emptor

A

let the buyer beware

42
Q

3 major forms of government regulation in Canada

A
  1. Federal and provincial government departments regulate certain industries or roles
  2. Governments appoint independent agencies and boards (commissions) to regulate another type of industry
  3. Governments give professional associations the authority to regulate themselves
43
Q

Public-interest view

A

government regulation eliminates waste, achieves efficiency, and promotes the public interest

44
Q

Capture view

A

government regulation benefits the regulated businesses, not the public interest

45
Q

Government Failure

A

when regulations fail to serve public interest