Econ Exam 4 Flashcards
a single seller of a product with no close substitutes
monopolist
the profit-maximizing quantity for both a perfectly competitive firm and a monopoly
Marginal revenue equals marginal cost.
One likely result of monopoly power is ________
a higher price than would exist in a competitive industry
Barriers to entry allow _______ to earn profit in the long run
monopolies
Perfectly competitive firms are price takers because ______
each firm is too small, compared to the market, to affect price
The demand curve for the output of a perfectly competitive firm is ______.
perfectly elastic
The golden rule of profit maximization states that any firm maximizes profit by producing where ________
marginal revenue equals marginal cost
If a perfectly competitive firm shuts down in the short run, they must pay_______.
only fixed cost
- One seller
- Unique product
- Barriers to entry
Monopoly
Government grants one person/firm exclusive right to produce something.
Government Created Monopolies
Ex: Invention Incentives:
- patent
- copyright
- licenses + other restrictions
Government Created Monopolies
A single firm can produce any amount of Q at least cost
Natural Monopolies
There is only “Room in the mkt” for one firm.
Natural Monopolies
Long-run: ATC decreases, Q increases
economies of scale
Ex: Utilities
- water
- electric
- etc
Natural Monopolies
1 firm controls a key resource of production
Ex.: ALCOA, pro sports
Monopoly Resources
Main difference from “Perfect Comp,” is Monopolist control ____
Price
Monopolist: To sell more, must decrease P _______
On all units
P x Q = ______
TR
For a monopolist MR is always _____ P after first unit sold.
<
Profit max occurs where ____
MR = MC
P > AVC: ______
continue producing
P < AVC: _______
shut down
__ = MR = MC
P
When P > MC, firms should ________ production.
Increase
d1 = _______
MR1
When P > ATC there is ______
Profit
The characteristics of a market that influence how trading takes place
Market Structure
- The number of buyers + sellers
- Product uniformity across firms
- Ease of entry/exit
Market Structure
All markets sit between _____ and _______
Monopolistic Competition and Oligopoly
Each is very small relative to the market
Many buyers + sellers
- Perfect substitutes
- Standardized products
Firms sell commodity
Over time firms + resources can easily enter or leave the market with no penalty or obstacle
Free entry/exit
Buyers + sellers are fully informed about prices and availability of all resources and products
Perfect Information
Price is determined by Market S + D
Ex.: Agriculture markets
Basic commodities
Widely traded stock
Foreign Exchange
B + S are Price Takers
Profit = _____ - ______
TR - TC
Only way to change TR is to change ______
Q
A Perfect Competition firms SR S Curve = ______
MC Curve
In a perfect competition, temporarily shut down if ____ < _____
TR < VC
Shut down rule: If P < AVC firm will have a ______ loss if temporarily shut down
Smaller
Decision to temporarily stop production
Short Run (SR)
Decision to go out of business
Long run (LR)
Break even point
PB
When P = min ATC
Break even or PB
The Q level that minimizes ATC
Efficient Scale of Production
- Find Q* (MR = MC)
- At Q*, find ATC
- Find profit or loss at Q*
Short run decision making process
In SR # of firms is ____
Fixed
Profits/losses are the forces driving _____ changes
LR
In LR entry/exit are ______
Important
AR = _____ / ______
TR divided by Q
