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ECO 102 > Final: Chapters 8, 9, 10, 11, 16, 18 > Flashcards

Final: Chapters 8, 9, 10, 11, 16, 18 Flashcards

1
Q

Short run

A

Cannot modify anything except labor

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2
Q

Long-Run

A

Prices held constant, but you can modify anything else

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3
Q

Long-run Average total cost

A

Show’s the firms lowest cost per unit at each level of output

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4
Q

Short-Run average total cost

A

Average fixed cost and average variable cost

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5
Q

What is increasing economies of scale?

A

Production is most efficient here and is shows by the decrease in LRATC in beginning

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6
Q

What is constant returns to scale?

A

LRATC is constant/flat

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7
Q

What is decreasing returns to scale?

A

Production is inefficient because per unit costs are increasing. LRATC increasing

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8
Q

4 Characteristics of a perfectly competitive market

A
  1. Infinite buyers and sellers so they have no influence on market price
  2. Identical products
  3. Free entry and exit into and out of the market
  4. Perfect knowledge/information to all buyers and sellers
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9
Q

What is marginal revenue? Not formula but definition

A

Change in total revenue as a result of an additional unit sold of output

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10
Q

What is the goal of any firm?

A

To maximize profit, which occurs at MR(P)=MC

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11
Q

How can you tell if a firm is operating in the short-run or long-run??

A

If it is in the long run, then there is no fixed cost but at short run- there is a fixed cost, even at 0 quantity

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12
Q

In the short run, for a perfectly competitive market, when should a firm stay in business and when should they leave?

A

Should stay if MR > ATC or if MR=ATC (zero economic profit)

Should leave if ATC>MR

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13
Q

When will firms stop entering in the long-run of a perfectly competitive market?

A

Until every firm has zero economic profit

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14
Q

Characteristics of a monopoly

A
  1. The firm has market power on the price
  2. There is one seller
  3. The product is one without close substitutes
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15
Q

Why does a monopoly face a downward sloping demand?

A

As demand increases, price decreases

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16
Q

Why does marginal revenue go down twice as much as average revenue/demand in a monopoly?

A

The monopoly is giving up revenue on previous units sold

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17
Q

When should a firm produce in a monopoly?

A

If the MR > MC, firm should produce

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18
Q

How does a monopoly determine price?

A

Wherever, MC=MR(price), go up until the demand curve(WTP), and this is the price the monopoly will choose

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19
Q

Where is the profit in a monopoly?

A

The profit is between the max Willingness to pay and the average cost

20
Q

What is bad about a monopoly?

A

Dead weight loss from restricted output

21
Q

Does a monopoly produce at inelastic or elastic demand

A

Only if demand is elastic

22
Q

What is price discrimination?

A

Different people pay a different price for the same good

23
Q

Perfect price discrimination?

A

A firm will charge each unit of the good at a different price depending on what people are milling to pay

24
Q

What is ordinary price discrimination?

A

Charging different customer groups different prices due to differences in elasticity of demand

25
Q

Characteristics of an oligopoly

A
  1. Only a few sellers
  2. Selling identical or similar products
  3. prices are determined by each seller
  4. Can have cartels
26
Q

When should a firm produce in an oligopoly?

A

If MR (Price) > MC

27
Q

What is a dominant strategy in game theory?

A

A strategy consistently chosen by a firm regardless of the strategy chosen by the other

28
Q

What is nash equilibrium?

A

When no firm has an incentive to deviate from its current strategy

29
Q

Characteristics of a monopolistic competition? 4

A
  1. Many buyers and sellers that have market power
  2. Free entry and exit
  3. Perfect information
  4. Differential products
30
Q

Why is a monopolistic competition inefficient?

A

Produces a dead weight loss

31
Q

What does a tax wedge do? 2 things

A

Reduces producer and consumer surplus and creates a DWL

32
Q

Why would there be a tax wedge? 2 things

A

Generates government revenue to finance their expenses

Decreases consumer consumption (ie. cigarettes)

33
Q

How do Deadweight losses change depending if the market is elastic or inelastic?

A

Elastic- larger DWL (but same tax revenue)

Inelastic- Smaller DWL (but same tax revenue)

34
Q

What is market failure?

A

A situation in which the free market, in the absence of government intervention, fails to achieve allocative efficiency

35
Q

What can cause market failure?

A

Positive and negative externalities

36
Q

What is an external cost?

A

Cost paid by bystanders, people other than consumers or producers

37
Q

What is a social cost?

A

The cost to everyone, the price cost + external cost

38
Q

What is a negative externality?

A

When a persons actions has adverse effects on another person (MCS > MCP)

39
Q

What is a positive externality?

A

When a persons action has positive effects on another person (MBS > MBP)

40
Q

Is there over or under production with a negative externality?

A

Overproduction

41
Q

Is there over or under production with a positive externality?

A

Underproduction

42
Q

How do you correct inefficiencies (DWL) in positive externality?

A

Subsidies

43
Q

How do you correct inefficiencies (DWL) in negative externality?

A

Taxes

44
Q

What is a public good?

A

Non-rivalrous + non-excludable

45
Q

What is non-rivalrous?

A

If one person consumes the good, the amount available to others does not go down

46
Q

What is non-excludable?

A

A good or service that we cannot prevent others from consuming

47
Q

How much public goods should be provided?

A

When Marginal cost = the sum of all users marginal benefits of the good

ECO 102 (2 decks)

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