Firms

Question 1

Goal of firms

Answer 1

to maximize revenue and minimize costs

Question 2

Inputs

Answer 2

what is needed to produce something: labor, capital, land

Question 3

Production Function Formula

Answer 3

Quantity of outputs = F(inputs/costs)
F= production function

Question 4

Marginal cost

Answer 4

costs in wages

Question 5

marginal revenue

Answer 5

revenue from product

Question 6

marginal productivity

Answer 6

amount of outputs produced

Question 7

Maximize profit

Answer 7

When Marginal costs are equal to Marginal revenues

Question 8

Perfect competition

Answer 8

market of buyers and sellers, firms can enter and exit freely, trade same product, consumer have full information

Question 9

Goal is to maximize profit by…

Answer 9

Marginal costs=Mariginal revenue

Question 10

When do firms exit during perfect competition?

Answer 10

when their costs are more than their revenues

Question 11

when do firms enter during perfect competition?

Answer 11

when they think their revenue will be higher than their costs

Question 12

benefits of perfect competition

Answer 12

prices are low, quantities are high and profit is close to zero

Question 13

why does profit being close to zero important for perfect competition?

Answer 13

When firms make positive profit they try to disturb the first two benefits of perfect competition. manipulate the market to gain more profit through bad behavior such as misinformation.

Question 14

Monopolistic Competition

Answer 14

Mix of perfect competition with one monopoly element

Question 15

features of monopolistic competition?

Answer 15

firms can enter and exit market freely, lots of buyers and sellers, profits close to zero, slight differentiation and firms have some control over prices

Question 16

Why can firms change prices in monopolistic competition?

Answer 16

People do not have access to all information. people may be thinking there is a difference in quality

Question 17

Benefits of Monopolistic competition?

Answer 17

consumers have choice between firms, firms can enter and exit freely, profit is close to zero

Question 18

Negatives of Monopolistic competition?

Answer 18

Excess capacity, markup costs (pay for brand name), firms create illusion of choice by developing different brands

Question 19

Oligopoly features

Answer 19

few firms, products slightly vary, block new firms from entering, lack of price competition

Question 20

How do firms create the illusion of choice?

Answer 20

By creating different brands that they still own.

Question 21

strategies of firm in oligopoly

Answer 21

set and react to prices, outputs, advertising and investments

Question 22

Game strategies

Answer 22

dominant, nash, maximim, random and tit for tat

Question 23

dominant strategy

Answer 23

you do your absolute best at all times

Question 24

nash strategy

Answer 24

you do your best based on what the other company is doing

Question 25

maximin strategy

Answer 25

avoid the worse case senario

Question 26

random strategy

Answer 26

decide randomly at the last second

Question 27

tit for tat strategy

Answer 27

copy/mirror behavior of the other firm

Question 28

Outcomes of oligopolies

Answer 28

few firms, block other firms from joining, illusion of choice, set costs and prices, firms are gaining profits

Question 29

Monopolies

Answer 29

One firm has control of market

Question 30

Monopoly features

Answer 30

block others from joining through resource barriers or legal barriers and create the illusion of choice. Ex: Coned

Question 31

How to maximize profit?

Answer 31

marginal costs and marginal revenues should be equal

Question 32

why are monopolies inefficient?

Answer 32

low quantities, high prices, deadweight loss and high profits

Question 33

solution for monopolies

Answer 33

laws to prevent monopolies and allow competition