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EREC 411 > EREC Final Exam > Flashcards

EREC Final Exam Flashcards

1
Q

Economies of Scale

A

simulation in which long-run average cost declines as the firm increases its level of output

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2
Q

Possible Causes of Economies of Scale

A
  • Specialization of resources
  • More efficient use of equipment
  • Reduced unit costs of inputs
  • Opportunities for the use of by-products
  • Growth of auxiliary facilities
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3
Q

Pure Competition

A

Many buyers/sellers; no “market power”; MR = P = MC = AC

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4
Q

Negatives of Pure Competition

A
  • EOS cost curves for larger firms are lower
  • Consumers desire a variety
  • Due to patents, size, etc, entry into industries is often limited
  • Advertising can cause perceived conduct differences
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5
Q

Imperfect competition

A

Prevails in an industry when individual sellers face their own non-horizontal demand curves, and thereby have some control over price

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6
Q

Monopoly

A
  • One firm industry
  • Single seller
  • No good substitutes
  • High barriers to entry
    - legal /regulatory
    - economic/financial
    - Absolute cost advantage
    - Spatial
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7
Q

Social costs of monopoly

A
  1. Limited options for consumers – reduced competition
  2. Allocative inefficiency – “under production”
  3. Barriers to entry may foster inefficiency
  4. Encourages unproductive “rent-seeking” activities
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8
Q

Oligopoly

A

a market in which most sales are made by few firms, each large enough to effect the market price by its own actions
- Differentiated products: cars, etc.
- Homogeneous products: steel, etc.

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9
Q

Oligopoly Pricing

A
  • Price decreases by one firm tend to be followed by other firms
  • Price increases by one firm are NOT matched by other firms
  • Tendency is for STABLE, INFLEXIBLE prices to exist over time
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10
Q

Imperfect Competitions are

A

monopoly
oligopoly
monopolistic competition

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11
Q

Pure/Perfect Competition are

A

Just pure competition

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12
Q

Pure and Monopolistic Competition Similarities

A
  1. Zero long-run economic profit
  2. Low barriers to entry
  3. Responsive to consumer desires
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13
Q

Pure and Monopolistic Compeittion Differences

A
  1. The equilibrium is not at min. LRAC
  2. Price > MR
  3. Effects of advertising
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14
Q

Four types of market structure

A
  • Pure competition
  • Imperfect competition
    - Monopolistic competition
    - Oligopoly
    - Monopoly
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15
Q

Consequences of Imperfect Competition

A
  1. Misallocation of resources
  2. Suboptimal production levels
  3. Deadweight loss – Welfare losses to society that needn’t occur
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16
Q

How do we measure concentration?

A

Four-firm concentration ratio: % of sales by the four largest firms
= (X1+ X2 + X3 + X4) / total sales by industry

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17
Q

Merger types

A

Horizontal – similar firms
Vertical – “linked” firms
Conglomerate – unrelated firms

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18
Q

Sherman Antitrust Act (1890)

A
  • “Every person who shall monopolize or attempt to monopolize… any part of the trade or commerce among the several states… shall be deemed guilty of a felony
  • Led to the 1911 breakup of American Tobacco Co. and Standard Oil
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19
Q

Clayton Act (1914)

A

Outlaws typing contracts: bans interlocking directorates;
bans mergers via acquiring common stock, primarily only if these practices lessen competition

20
Q

FTC (1914)

A

Prohibits “unfair methods of competition”

21
Q

Size offense

A

Related to structure…illegal if they provide “unreasonable” restraints to trade

22
Q

Conduct Offenses

A
  1. Retail price “maintenance”
  2. Predatory pricing – selling goods for less than the production cost
  3. Tying contracts
  4. Price discrimination
23
Q

Predatory pricing

A

cutting prices in order to drive competitors from the industry (illegal)

24
Q

Factor markets

A

markets in which businesses demand factors of production – as opposed to consumer goods - from household suppliers in order to produce goods and services for final demand
- The factor is the intermediate goods
- Ex. ink for a pen

25
Q

Derived demand

A

The demand for a factor of production

26
Q

Increase in a derived demand leads to:

A
  1. Substitution away from the input by producers
  2. Substitutions away from the (now) more expensive final product by consumers
27
Q

Marginal revenue product

A

the additional revenue a producer earns from increased sales when using an additional unit of input

28
Q

Maximum profits

A

occur where the marginal revenue product of each input used is equal to the cost of that unit of input

29
Q

MPP

A

change in TPP from adding one more unit of input (factor)

30
Q

MRP equation

A

MPP*MR

31
Q

VMP equation

A

MPP*(output) price

32
Q

If pure competition (what is the =)

A

MRP = VMP

33
Q

Shifts in factors demand are caused by

A
  1. Change in demand for the final product
    - (what would change MRP=MP*P)
  2. Change in productivity of the resource
  3. Change in the price of a substitute resource
34
Q

Least Cost Rule and Equation

A

Producing a certain level of output at the least cost
MRPk/Pk = MRPL/PL

35
Q

In general for equations

A

MRP1/P1 = MRP2/P2 = MRP3/P3 ……

36
Q

In general

A
  1. An increase in resource prices leads to
    - substitution in production
    - Substitution in Consumption
  2. The price elasticity of a resource usually increases with time
  3. Shifts in derived demand caused by
    - Change in demand for a product
    - Change in productivity of resource
    - Change in price of substitute
  4. Production costs are minimized when:
    - MRP1/P1 = MRP2/P2 = MRP3/P3….. = MRPn/Pn
  5. Long-run equilibrium in a factor market
    - S = D
    - Resource owners must be earning a market rate of return
37
Q

The Interest Rate factors

A
  • Risk premium
  • Inflationary premium
  • Pure(/or real) interest
38
Q

Inflation

A

a sustained rate of increase in the general price level

39
Q

Inflation Rate

A

% rate of increase of the general price level over a specified period of time

40
Q

Present value

A

current worth of future income after it is discounted back to the present by an appropriate cost of capital-the “opportunity cost” of capital

41
Q

Nominal r

A

real interest rate + inflation

42
Q

Four-firm concentration ratio:

A

% of sales by the four largest firms
= (X1+ X2 + X3 + X4) / total sales by industry

43
Q

Morrill Land Grant Act of 1862 (and 1890)

A

Created
- U.S. department of agriculture
- Land grant universities
Created schools

44
Q

Hatch Act (1887)

A

Agricultural Experiment Stations
- Experiments

45
Q

Smither Lever Act 1914

A

Cooperative extension
Outreach

46
Q

How do land grants different from other universities?

A
  1. Clientele - being farmers, rural communities
  2. Outreach - extension element
  3. Funding - federal v. state, private
47
Q

Why is Justin Morrill important?

A

Created a program that set aside federal lands in order to establish public institutions of higher education in every state (more colleges with more equal opportunities)

EREC 411 (9 decks)

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