Module 6 Market Structure Flashcards

1
Q

What is the first assumption of perfect competition?

A

Firms are price takers

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2
Q

What can moral hazard lead to?

A

Market failure

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3
Q

What condition signifies profit maximization?

A

MR = MC

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4
Q

When are profits positive?

A

If P > AC(q*)

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5
Q

What happens when price > AC?

A

Firm makes a profit

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6
Q

What happens if P > AC(q*)?

A

Profits are positive

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7
Q

What happens when P < LRAC?

A

Profits are negative, firm exits

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8
Q

What is a monopoly?

A

One firm dominates

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9
Q

What is a natural monopoly?

A

Barriers other than legal

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10
Q

What is the monopolist’s demand curve?

A

Downward sloping

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11
Q

What is the formula for marginal revenue?

A

MR = ?R/?Q

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12
Q

What is the optimality condition for a monopolist?

A

MR = MC

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13
Q

What is the Marginal Cost?

A

COSTS

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14
Q

What is Social Surplus (SS) under Monopoly?

A

SS = WTP - costs

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15
Q

What is the second assumption of perfect competition?

A

Consumers are price takers

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16
Q

What does marginal revenue equal?

A

Market price

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17
Q

When are profits negative?

A

If P < AC(q*)

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18
Q

What does q* represent?

A

Optimal quantity

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19
Q

What happens when P >= LRAC?

A

Profits are zero or positive

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20
Q

Condition for optimal q=0

A

P < AC

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21
Q

Why can monopolies set their own prices?

A

No competition

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22
Q

How is revenue calculated for a monopolist?

A

REV = Price x Quantity

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23
Q

What is the optimality condition for profit maximization?

A

P = MC

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24
Q

Under what condition can a firm cover some fixed costs?

A

P > AVC

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25
For a monopolist, how does marginal revenue compare to market price?
Lower than price
26
What does perfect information imply?
Full price and quality info
27
What happens if MR > MC?
Raise output
28
What is the formula for calculating profits?
PROFIT = REVENUE � COST
29
What does price = AC indicate?
Firm breaks even
30
When should a firm shut down?
P < AVC
31
What are examples of crown corporations that can be monopolies?
Post office, telecoms
32
What does it mean for firms to be price takers?
Market price unaffected by single firm's activities
33
What is adverse selection?
High risk individuals buy insurance. Can make insurance markets fail
34
What does MR stand for?
Marginal Revenue
35
Formula for Revenue
R = P q
36
When are profits zero?
If P = AC(q*)
37
What does it mean if P = AC(q*)?
Zero profits
38
What causes strong economies of scale?
Big firms low average costs
39
When is marginal cost low?
Adding customers is cheap
40
What are the components of the change in revenue?
Price effect & Output effect
41
What does PMONO > AC indicate?
Positive profits
42
What happens if PMONO < AC?
Negative profits
43
What is the calculation for Social Surplus?
WTP - costs
44
What is needed to calculate Social Surplus, given Monopoly Price Output?
WTP and costs
45
What is the acronym for willingness to pay?
WTP
46
What does DWL represent in monopoly?
Deadweight loss (DWL)
47
What does it mean for consumers to be price takers?
Market price unaffected by single consumer's activities
48
How is Marginal Revenue (MR) calculated?
MR = ?R /?Q
49
What costs does a firm incur in the short-run?
FC and VC
50
What must monopolies consider when setting prices?
Consumer preferences
51
What is an example of control over a scarce physical resource in small towns?
Petro stations
52
For a perfectly competitive firm, what is ?R/?Q?
Market price (P)
53
What is the term for the cost associated with Social Surplus?
Costs
54
What does MC stand for?
Marginal Cost
55
Give examples of legal monopolies.
Patents, licenses
56
Why is ?P negative for a monopolist?
Downward demand
57
What is another term for Demand?
MR
58
What is the definition of Marginal Cost (MC)?
Change in costs by output change. It is the additional costs incurred by selling one more unit of output.
59
How does producing more affect MC?
MC rises
60
How does producing more affect MR?
MR falls
61
What occurs when price < AC?
Firm makes a loss
62
Can a firm quickly re-enter after exiting?
No
63
Examples of natural monopolies?
Telecoms, aircraft, military
64