Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

EC 260 > Lesson 2.2 > Flashcards

Lesson 2.2 Flashcards

1
Q

what price and output level does monopolist choose?

A

one that results in largest difference between TR and TC, where MR = MC where MR = P(1+1/n)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

is P > MR or P < MR, in monopoly and what does MR depend on

A

P > MR, depends on Q, unlike perfect competition

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

where will a monopolist produce?

A

where MR is positive, where |n| > 1, where demand is elastic

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what is market demand of a monopolist?

A

firm demand = market demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

where should a monopolist shut down?

A

if Price < AVC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

define cost plus pricing

A

simplistic strategy of setting price that guarantees that price is higher than estimated average cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

does cost plus pricing optimize profits, in monopoly

A

not guaranteed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

formula for markup, in monopoly

A

price - cost / cost = profit margin / cost (cost is individual cost)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

formula for price with cost plus pricing, in monopoly

A

price = cost (1 + markup)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

define target return, in monopoly

A

what managers hope to earn and what determines the markup

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

4 potential flaws of cost plus pricing, in monopoly

A

1) does not consider how much demand there is for the product
2) does not consider the own price elasticity of demand of the product
3) ignores pricing behaviour or rival product sellers
4) looks at average and not marginal cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

relationship between price elasticity of demand and optimal markup, in monopoly

A

the smaller in absolute terms the price elasticity of demand, the larger the optimal markup. the less sensitive demand is to change in price, the higher price you should charge

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

if a company sells product x and y, what is TR. in monopoly

A

TR_x + TR_Y

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

if a company sells product x and y, what is MR of x? in monopoly

A

dTR_x/dQx + dTRy/dQx

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

what is the demand interrelationships of products?in monopoly

A

dTRy / dQx or dTRx/dQy (last term in MR x and y equation)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

explain demand interrelationship in monopoly

A

effect of an increase of quantity x sold on the TR from product Y with MRx or vice versa

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

demand interrelationship for complement goods in monopoly

A

effect is positive - increase in quantity of one sold on the total revenue of the other will be positive

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

demand interrelationship for substitute goods in monopoly

A

effect is negative - increase quantity of one sold on the total revenue of the other will be negative

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

what happens with joint products produced in fixed proportions in monopoly

A

if MR obtained from each product > MC, should expand output; optimal production where total MR = MC; surplus of quantity should be avoided (total Mr < MC); total MR is the vertical summation of MR curve of individual products; where MR of both products is positive at optimal level of output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

define isocost curve

A

curve showing amounts of goods produced at the same total cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

define isorevenue line

A

lines showing the combinations of outputs of products that yield the same total revenue

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

for monopoly firms that produce joint products in variable productions, where is optimal production?

A

where isorevenue line is tangent to isocost curve and where profit level is highest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

what is a monopsony

A

industry with one buyer

24
Q

in a monpsony, who controls the price?

A

the buyer

25
Q

demand for labour of a monopsony

A

marginal benefit of hiring an additional worker

26
Q

marginal benefit of hiring an additional worker = demand for labour of a monopsony formula

A

MR * MP of labour

27
Q

labour supply curve of a monopsony

A

upward sloping line; P = c + eQ, P is wage rate, Q is # of workers willing to work at that wage

28
Q

total expenditure of labour on a monopsony

A

C = PQ = cQ +eQ^2

29
Q

marginal expenditure/marginal cost of a monopsony

A

dc / dQ = c + 2eQ

30
Q

how will monopsonist maximize profit?

A

where marginal benefit of hiring another worker = marginal expenditure of hiring another worker

31
Q

in a monopolistic competition, what type of products does the firm sell and define it

A

product group - similar but not identical products ex. toothbrushes

32
Q

5 conditions for an industry to be in monopolistic competition

A

1) product differentiation
2) product groups are produced by many firms
3) # of firms must be large enough so that each firm expects its actions will be unheeded by rival firms and unimpeded by retaliation
4) entry into the product group industry must be relatively easy
5) no collusion (price fixing) takes place within the product group

33
Q

demand curves of monopolistic competition?

A

downward sloping demand curve - if it raises price, it will lose customer to other firms, if it lowers price, it will gain some customers from competitors

34
Q

short run equilibrium for monopolistic competition:

A

set Q and go above through MC = MR to hit demand curve ; P > AVC for profit to be maximized; identical to monopoly

35
Q

long run equilibrium for monopolistic competition firms

A

economic profit is 0; each firm maximizes profit in long run; where Q goes up through intersection of MC and MR to hit where demand and long run average cost intersect; entry and exit of firms from the product group shifts individual firms demand curves

36
Q

what does advertising expenditures exhibit?

A

diminishing marginal returns

37
Q

gross profit formula for monopolistic competition

A

P - MC

38
Q

how to maximize net profit with advertising expenditures for monopolistic competition

A

set advertising expenditures at level where extra dollar of advertising results in more than a dollar of increase in gross profit, where change in Q(P - MC) = 1 OR where P*change in Q = P / (P - MR) OR where marginal revenue from an extra dollar of advertising = |n|

39
Q

target return price

A

P = L + M + K + (F/Q) + (piA/Q) where L = unit labour cost, M = unit material cost, K = unit marketing cost, F = total fixed cost, Q = quantity, pi = desired profit rate, A = total gross operating assets (L, M, K can be AVC)

40
Q

if demand for product A > product B for optimal pricing for joint products produced in fixed proportions,

A

you should sell B until MR B = 0 if MR A > MC

41
Q

draw CS, PS and social welfare in a monpoly

A

draw demand, MC and MR, Q is through Mc and MR to demand curve and across for P; CS is triangle above Price; PS is below CS to MC curve

42
Q

draw CS, PS and social welfare in perfect competiton

A

draw demand and MC curve, CS is point above halfway of the triangle, PS is below halfway of the triangle

43
Q

isorevenue slope

A

-Px/Py

44
Q

isocost slope

A

dY/dX

45
Q

what should optimal markup be?

A

1/(|n|-1)

46
Q

define total marginal revenue curve

A

vertical summation of the 2 marginal revenue curves for individuals products

47
Q

If elasticity of demand is –2, marginal cost is $4, and average cost is $6, a profit-maximizing markup price is:

A

ignore markup, it’s just MC = P(1+1/n) = 8

48
Q

If John produces joint products A and B and refuses to sell all the A he produces, then:

A

A is a low-demand good

49
Q

When a producer of joint goods refuses to sell all of one good, the producer:

A

must destroy some of the low-demand good

50
Q

A producer refuses to sell some of one joint product. MRA is the marginal
revenue for a low-demand good. If the producer were to sell all its production, what would be true of MRA?

A

MRA < 0

51
Q

Jack O. Trades produces joint products A and B with linear demands DA > DB. Given MRB is marginal revenue for B and MCB is marginal cost of B, Jack’s total marginal revenue curve changes slope at the quantity where

A

MR B = 0

52
Q

For a producer of joint products X and Y with total costs CX and CY, an isocost curve:, and explain isorevenue line too

A

shows points where Cx + Cy is constant (same with isorevenue line except for Rx + Ry)

53
Q

how to solve for optimal wage rate and quantity of labour in a monopsony where supply curve is w = 40+2L and demand curve is w = 200-L

A

1) find total expenditure/total cost which is L*supply curve
2) find MC = dTotal cost / dL
3) equate MC = demand curve
4) find L
5) substitute L in supply curve

54
Q

The ABC Company estimates that a newspaper advertising campaign would cost $25,000 and would generate $35,000 in new revenues. The firm should begin this campaign as long as:

A

1) find MR of advertisting = Revenues/cost

2) absolute price elasticity of demand < MR of advertisting

55
Q

why do firms advertise?

A

to build brand loyalty

56
Q

why do firms offer promotions

A

to appeal to price sensitivity

EC 260 (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions