Module 6 Market Structure

Question 1

What is the first assumption of perfect competition?

Answer 1

Firms are price takers

Question 2

What can moral hazard lead to?

Answer 2

Market failure

Question 3

What condition signifies profit maximization?

Answer 3

MR = MC

Question 4

When are profits positive?

Answer 4

If P > AC(q*)

Question 5

What happens when price > AC?

Answer 5

Firm makes a profit

Question 6

What happens if P > AC(q*)?

Answer 6

Profits are positive

Question 7

What happens when P < LRAC?

Answer 7

Profits are negative, firm exits

Question 8

What is a monopoly?

Answer 8

One firm dominates

Question 9

What is a natural monopoly?

Answer 9

Barriers other than legal

Question 10

What is the monopolist’s demand curve?

Answer 10

Downward sloping

Question 11

What is the formula for marginal revenue?

Answer 11

MR = ?R/?Q

Question 12

What is the optimality condition for a monopolist?

Answer 12

MR = MC

Question 13

What is the Marginal Cost?

Answer 13

COSTS

Question 14

What is Social Surplus (SS) under Monopoly?

Answer 14

SS = WTP - costs

Question 15

What is the second assumption of perfect competition?

Answer 15

Consumers are price takers

Question 16

What does marginal revenue equal?

Answer 16

Market price

Question 17

When are profits negative?

Answer 17

If P < AC(q*)

Question 18

What does q* represent?

Answer 18

Optimal quantity

Question 19

What happens when P >= LRAC?

Answer 19

Profits are zero or positive

Question 20

Condition for optimal q=0

Answer 20

P < AC

Question 21

Why can monopolies set their own prices?

Answer 21

No competition

Question 22

How is revenue calculated for a monopolist?

Answer 22

REV = Price x Quantity

Question 23

What is the optimality condition for profit maximization?

Answer 23

P = MC

Question 24

Under what condition can a firm cover some fixed costs?

Answer 24

P > AVC

Question 25

For a monopolist, how does marginal revenue compare to market price?

Answer 25

Lower than price

Question 26

What does perfect information imply?

Answer 26

Full price and quality info

Question 27

What happens if MR > MC?

Answer 27

Raise output

Question 28

What is the formula for calculating profits?

Answer 28

PROFIT = REVENUE � COST

Question 29

What does price = AC indicate?

Answer 29

Firm breaks even

Question 30

When should a firm shut down?

Answer 30

P < AVC

Question 31

What are examples of crown corporations that can be monopolies?

Answer 31

Post office, telecoms

Question 32

What does it mean for firms to be price takers?

Answer 32

Market price unaffected by single firm's activities

Question 33

What is adverse selection?

Answer 33

High risk individuals buy insurance. Can make insurance markets fail

Question 34

What does MR stand for?

Answer 34

Marginal Revenue

Question 35

Formula for Revenue

Answer 35

R = P q

Question 36

When are profits zero?

Answer 36

If P = AC(q*)

Question 37

What does it mean if P = AC(q*)?

Answer 37

Zero profits

Question 38

What causes strong economies of scale?

Answer 38

Big firms low average costs

Question 39

When is marginal cost low?

Answer 39

Adding customers is cheap

Question 40

What are the components of the change in revenue?

Answer 40

Price effect & Output effect

Question 41

What does PMONO > AC indicate?

Answer 41

Positive profits

Question 42

What happens if PMONO < AC?

Answer 42

Negative profits

Question 43

What is the calculation for Social Surplus?

Answer 43

WTP - costs

Question 44

What is needed to calculate Social Surplus, given Monopoly Price Output?

Answer 44

WTP and costs

Question 45

What is the acronym for willingness to pay?

Answer 45

WTP

Question 46

What does DWL represent in monopoly?

Answer 46

Deadweight loss (DWL)

Question 47

What does it mean for consumers to be price takers?

Answer 47

Market price unaffected by single consumer's activities

Question 48

How is Marginal Revenue (MR) calculated?

Answer 48

MR = ?R /?Q

Question 49

What costs does a firm incur in the short-run?

Answer 49

FC and VC

Question 50

What must monopolies consider when setting prices?

Answer 50

Consumer preferences

Question 51

What is an example of control over a scarce physical resource in small towns?

Answer 51

Petro stations

Question 52

For a perfectly competitive firm, what is ?R/?Q?

Answer 52

Market price (P)

Question 53

What is the term for the cost associated with Social Surplus?

Answer 53

Costs

Question 54

What does MC stand for?

Answer 54

Marginal Cost

Question 55

Give examples of legal monopolies.

Answer 55

Patents, licenses

Question 56

Why is ?P negative for a monopolist?

Answer 56

Downward demand

Question 57

What is another term for Demand?

Answer 57

MR

Question 58

What is the definition of Marginal Cost (MC)?

Answer 58

Change in costs by output change. It is the additional costs incurred by selling one more unit of output.

Question 59

How does producing more affect MC?

Answer 59

MC rises

Question 60

How does producing more affect MR?

Answer 60

MR falls

Question 61

What occurs when price < AC?

Answer 61

Firm makes a loss

Question 62

Can a firm quickly re-enter after exiting?

Answer 62

No

Question 63

Examples of natural monopolies?

Answer 63

Telecoms, aircraft, military