econ final elzenga Flashcards
Zero-profit case
when minimum of ATC = MR=P =MC
Shutdown Point:
the point below which the firm will be better off if it temporarily shuts down than it will if it stays in business
Firm continues to produce in short run
If P > minimum of AVC
Firm shuts down
If P < minimum of AVC
Possible profit in the long run
zero-profit equilibrium
Normal Profit:
the amount owners of business would have received in the next-best alternative; opportunity cost
Monopoly:
a market structure in which one firm makes up the entire market; exist because of barriers to entry into a market that prevent competition; can be legal, sociological, natural barriers, technological barriers, customs or traditions; price controls can lower price, increase output, and reduce deadweight loss
Monopoly:
marginal revenue is always
marginal revenue is always below its price
Monopolist gains profit by increasing output
If MR > MC
Monopolist gains profit by decreasing output
If MR < MC
Monopolist is maximizing profit
If MR = MC
Normal Monopolist
o Society gains the opportunity cost of the resources that are freed up form reducing production
o There is a transfer of surplus from the consumer to the monopolist
o The net cost to society from the decrease in production is the deadweight or welfare loss triangle
o One of the reasons that people oppose monopolies is because of the welfare loss
Monopoly barriers to entry
o Natural ability
o Economies of scale
o Government restrictions
Natural Monopoly:
an industry in which a single firm can produce at a lower cost than can two or more firms; Occurs when technology is such that indivisible setup costs are so large that average total costs fall within the range of possible outputs; think public utility
