Micro CH 8,9

Question 1

Threats of Entry

Answer 1

Economies of Scale
Product differentiation
Cost advantage
Government regulations

Question 2

Demand curve in PC?

Answer 2

Market: normally downward sloping

Single firm: horizontal, d=MR=P. This horizontal demand curve is called residual demand curve

Question 3

Profit Maximization for a PC firm?

Answer 3

P=MC=MR

Question 4

Profit in PC?

Answer 4

Profit = Q (P-ATC)

Question 5

When operate?

Answer 5

Operate if: TR>=VC or P>=AVC

FC need to be paid whether the plant operates or not

Question 6

What is the short run supply curve?

Answer 6

The short run supply curve is the portion of MC curve that is above the AVC.

Question 7

PS for a firm in PC?

Answer 7

can be represented by a square.
Reaches until MC=P
Calculation:
TR-VC

Question 8

economic rent

Answer 8

returns to specialized inputs above what firms paid for them

Question 9

Antitrust (competition law)

Answer 9

laws designed to promote competitive markets by restricting for example mergers and acquisitions

Question 10

Patents, Licenses and Copyrights

Answer 10

the government encourages innovation by giving monopolies on products. –> Firms can recover FC to innovate, otherwise they would stop innovating

Question 11

Why is TR linear in PC?

Answer 11

Because TR=P*Q and P is constant. Each firm in perfect competition is a small part of the market, and so it can increase the quantity it brings to the market without creating a downward pressure on price.