EXAM STUFF

Question 1

characteristics competitive market

1.
2.
3.
4.
5.
6.

What does imply its NOT one?
1.
2.

Answer 1

• many suppliers, firms
• no single has significant impact on market
• products substitutes for customers
• homogenous products
• price taking behaviour
• ## no barriers to entry
• when transportation costs there
• when concentrating of companies around raw material

Question 2

Arguments for oligopoly?
1.
2.
3.

Answer 2

• few suppliers
• barriers to entry (bc of economies of scale)
• strategic interaction and anticipation of competitors

Question 3

Arguments for monopoly?
1.
2.
3.
4.
5.

Answer 3

• market w single supplier
• facing whole market demand
• can set prices or at least affect
• MR is not price -> lowering P to increase demand
• barriers to entry

Question 4

Arguments for monopolistic competition / imperfect competition?

1.
2.
3.
4-

Answer 4

• many suppliers
• heterogenous products
• barriers to entry in SR
• price setting / making behaviour

Question 5

What is the MRTS?

1.
2.
3.
4.
5.

Answer 5

• marginal rate of technical substitution
• amount by which the quantity of one input can be reduced when one extra input is used, so that output remains constant - HOW MUCH CAPITAL IS NEEDED TO REPLACE LABOR
• always measured as positive quantity
• change in capital input Q / change in capital output L
• adding one factor while holding other constant leads to lower and lower incremental input
  (e.g. for capital: by which can capital input be reduced when one extra unit of labor is used so that output remains constant)

Question 6

What is an isoquant?

1.
2.
3.

Answer 6

• curve that shows all possible combinations of inputs that yield the same output
• set = isoquant map
• slope: MRTS

Question 7

What is an isocost curve?

Answer 7

• combinations of L and K with same costs
• slope in absolute terms (w/r)
• for each level of TC, c=wxL + rxK describes isocost curve

Question 8

Calculate MC?

Answer 8

• VC´
• TC´
• delta VC / delta Q
• decrease with qty if MPL increases (learning effects)
• increase with quantity if MPL decreases (competition for the fixed factor)

Question 9

Marginal Revenue?

Answer 9

• slope of revenue curve

Question 10

Producer Surplus?

Answer 10

Revenue - VC

Question 11

Profit Maximization Competitive Market

Answer 11

1. P = MC
2. 0 < MC´
3. P größer gleich AVC

Question 12

Monopolist Profit Maximization

Answer 12

1. MR = MC
2. MR´< MC´(profits max if slope of MR smaller than slope of marginal costs | additional revenue of increasing production is smaller than additional costs)
3. P größer gleich AVC (no negative contribution margin)

Question 13

Monopolistic Competition Profit Maximization (wathc out! third condition in SR and LR)

Answer 13

1. MC = MR < P
2. MC´> MR`
3. SR: P > ATC ||| LR: P = ATC

short run like monopoly with extraordinary profits: (P-ATC) x Q

Question 14

Isoquant becomes steeper when….

Isoquant becomes flatter when….

Answer 14

…. more capital is added in place of labor

….. more labor is added in place of capital

Question 15

1. Convex shaped isoquant
2. Linear isoquant
3. L shaped isoquant

Answer 15

1. kurve: substitutes aber nicht perfect, MRTS decreasing, no intersections
2. linie, perfect subsititues, MRTS constant, intersections
3. L shaped isoquant, each output requres specific labor input and capital input, one qty for same outputs, MRTS = 0

Question 16

Isoquants and returns to scale

Answer 16

• isoquants equally spaced: constant returns to scale
• isoquant more closer and inputs are increasing: increaasing returns to scale (less than twice amount needed to…)