Midterm 3 Flashcards
What are the different Market Structures in S-R
Pure Competition Market
Monopoly
Monopolistic Competition
Oligopoly
What makes the 4 types of markets different
Whether they are homogeneous or differentiate, number of firms in the industry and ease of entry and exit of the industry.
What is Pure Competition Market
A large number of firms in the industry’s each producing a small fraction of total output.
In Pure Competition Market is it easy or difficult to enter and exit the industry.
There is a easy entry and exit of the industry
What affect does the large number of firms in Pure Competition Market have on the price of products
There is not a lot of control of price
Look at Graphs for Pure Competition Market S-R
Look at graphs for Pure Competition market S-R
Look at Graphs for Pure Competition Market L-R
Look at Graphs for Pure Competition Market L-R
What is Productive efficiency
It exists when firms use the least cost method of production when producing output.
What is Allocative efficiency
Exists when societies scarce resources are directed towards producing the goods most wanted by consumers.
Productive efficiency =?
Min AC
Allocative efficiency =?
P=MC
What is Monopoly Market Structure
There is only one firm in the industry
There are no close substitutes
There are barriers to enter the industry
The firm in this market is a price maker
Examples of Monopoly Markets
Water industry
Electricity Industry
Gas Industry
What kind of barriers are there when entering a Monopoly market
Legal Barriers
Natural Barriers
What are some examples of Legal Barriers
Patent, research and development, licenses, ownership or control of natural resources
Look at Graphs on Monopoly Market Structure
Look at Graphs on Monopoly Market Structure
Do Monopoly Markets have Productive efficiency and or Allocative efficiency
No they do not because Monopoly markets do not produce at the min cost
What are the differences between Pure Competition Market and Monopoly Market
Monopoly markets charge more and produce less
What does a monopolist do?
They transfer income from consumers to stockholders who own the monopoly and impose tax on consumers to gain profit
What is price discrimination
Can make more money if market is separated
What are some conditions for price discrimination
Producers have control on price, elasticity of demand should be different in different market
What is a Monopolistic Market Structure
Relatively large number of firms each producing a small function of total output.
In a monopolistic market what do the firms produce compared to each other
Firms produce similar but differentiated products which comes in form of brand names
Is it easy to go in and out of a Monopolistic market
Its relatively easy
In a Monopolistic market what is one thing that is very important
Advertising
What are some examples of a Monopolistic Market
Kid clothing, mining, grocery stores, gas station
What does it take to be qualified as Monopolistic competition
If the output of the 4 largest firms relative to output of the whole industry is less than 40%
LOOK AT GRAPHS
LOOK AT GRAPHS
In a monopolistic market what will firms do if there is Economic Profit
More firms will enter the industry and the demand curve to shift to the left
In a monopolistic market what will firms do if there is Economic loss
some firms will leave the industry shifting the demand curve to the right for the remaining firms
In a Monopolistic market Productive efficiency exists when
When the firms produce the minimum point of ATC
What is a Oligopoly Market Structure
A market where a few powerful firms produce similar and differentiated products and control the market
What are the two types of Oligopoly Markets
Homogenous Oligopoly
Differentiated Oligopoly
What is mutual Interdependence
In order to set price for products they need to take into consideration the reaction of their rivals
Smaller firms can merge to do what
Enjoy economies of scale
LOOK AT PAY OFF MATRIX
LOOK AT PAY OFF MATRIX
What is Game Theory
Study of how people behave in strategic ways
What are some pricing strategies
Collusion
Price Leadership
How does Collusion happen
When firms in a industry reach an agreement to fix prices and divide up the market to reduce competition
What does Collusion resemble
A monopoly
What are the two types of Collusion
Overt Collusion
Covert Collusion
What is a Overt Collusion
Formal agreement among firms in the industry to set price and share market
OPEC is the best example of what
A Cartel
Most Collusions are what type
Covert
What are examples of Non Price Competition
Advertising and research and devlopment
Price Collusion depends on what
Compromises
What usually happens during a recession
Average cost usually increases
What is Price leadership
Where one firm usually the largest firm will set the price and other follow
What is Demand for factors of production
Demand for input or factors of production in general like labor and capital depend on demand for goods and services that they helped produce
Demand for resources is called what
Derived demand
Why cant the labor force change the price of labor
Because there is a large number of employers each hiring small fractions of total labor force
(Marginal Factor Cost) Marginal Resource Cost =
Change in TC / Change in Labor
Marginal Revenue Product =
Change in TR / Change in Labor
LOOK AT GRAPHS FOR RESOURCE DEMAND
LOOK AT GRAPHS FOR RESOURCE DEMAND
Market Demand of Resources is what
A horizontal salvation of all individual demand curves for firms
Determinants of Demand for Resources
A change in Demand for a product - More cost of resources
A change in productivity for resources - More demand
Change in Price of other resources - Substitute Resource / Complementary Resources
If land and Capital are close substitutes and Pk goes down QDk goes up and DL goes down what is this
Substitution effect
If Pk goes down and Cost of Production goes down and Dk goes up and DL goes up what is this
Output effect
If L and K are complements
PK goes up QDK goes up and DL goes down
What is Least Cost Combination
MPL / PL = MPk / Pk
What is Profit Maximizing Combination
MRPL / PL = MRPk / Pk = 1
