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WHAT is Marginal product?
THE output obtained by adding one extra unit of a variable input factor
NOTE: Marginal cost is at a minimum when marginal product is at a maximum
IN what situation would a surplus arise in a competitive model of supply and demand?
IF there is a minimum price above the equilibrium price
WHY? - Because government intervention in this situation would cause an artificial price floor
Consumers would be less willing to buy at this price creating a surplus of a product
WHAT affect would a rent control law in a competitive housing market establishing a maximum or ceiling rent above the market or equilibrium rent have?
This will have no effect on the rental market
WHY? - Because the market equilibrium rate is less than the maximum allowed
Hence a rent control law will have no effect on the market
WHAT concept can best describe oligopoly behavior?
Game theory model
WHY? - Because Game Theory is an interactive decision theory
Thus, this model can best be used to understand the interaction between firms as well as decision-making and strategic behavior
Identify Market for the following Characteristic:
The Long-Run Profitability is Zero
Pure Competition and Monopolistic Competition
WHY? - Because no barriers to entry exist and firms sell homogeneous products
Identify Market for the following Characteristic:
Firms have control over price and positive long-run profitability
Monopoly and Oligopoly
WHY? - Because only in these markets do firms control price and have long-run profitability
Identify Market for the following Characteristic:
Firms sell differentiated products
Monopolistic Competition and Oligopoly
WHY? - Because products are differentiated in Monopolistic Competition and may be differentiated in Oligopoly markets
Identify Market for the following Characteristic:
Elasticity of Demand is most inelastic
Monopoly
WHY? - Because a single firm controls output
Thus, in a monopoly, elasticity of demand is most inelastic (relative to other market structures)
Identify Market for the following Characteristic:
Price discrimination is not an effective strategy
Pure Competition
WHY? - Because in pure competition, each firm can satisfy only a small part of the demand and must accept the market price
Thus, this market cannot afford to be discriminatory
Identify Market for the following Characteristic:
Firms have control over quantity produced
Pure Competition, Monopoly, Monopolistic Competition and Oligopoly
WHY? - Because Firms have control over quantity produced in all market structures
True or False
Marginal Costs will increase with Total Fixed Costs
False:
Fixed costs do not affect marginal cost because total fixed costs do not vary as output varies
True or False
Total Variable Costs will increase with an increase in Total Fixed Costs
False:
An increase in fixed costs has no effect on total variable costs
True or False
Total Fixed Costs vary with output in the Short Run
False:
In the short run, fixed costs do not vary with output
True or False
A change in average variable costs will effect total fixed costs
False:
The change in average variable costs has no effect on total fixed costs
If increase in demand > increase in supply, equilibrium quantity will ________.
Increase
WHY? - Because if an increase in demand is greater than an increase in supply, equilibrium quantity and equilibrium price will both increase
