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ECON111 > Module 6 Market Structure > Flashcards

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
Q

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

A

Lower than price

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26
Q

What does perfect information imply?

A

Full price and quality info

27
Q

What happens if MR > MC?

A

Raise output

28
Q

What is the formula for calculating profits?

A

PROFIT = REVENUE � COST

29
Q

What does price = AC indicate?

A

Firm breaks even

30
Q

When should a firm shut down?

31
Q

What are examples of crown corporations that can be monopolies?

A

Post office, telecoms

32
Q

What does it mean for firms to be price takers?

A

Market price unaffected by single firm’s activities

33
Q

What is adverse selection?

A

High risk individuals buy insurance. Can make insurance markets fail

34
Q

What does MR stand for?

A

Marginal Revenue

35
Q

Formula for Revenue

36
Q

When are profits zero?

A

If P = AC(q*)

37
Q

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

A

Zero profits

38
Q

What causes strong economies of scale?

A

Big firms low average costs

39
Q

When is marginal cost low?

A

Adding customers is cheap

40
Q

What are the components of the change in revenue?

A

Price effect & Output effect

41
Q

What does PMONO > AC indicate?

A

Positive profits

42
Q

What happens if PMONO < AC?

A

Negative profits

43
Q

What is the calculation for Social Surplus?

A

WTP - costs

44
Q

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

A

WTP and costs

45
Q

What is the acronym for willingness to pay?

46
Q

What does DWL represent in monopoly?

A

Deadweight loss (DWL)

47
Q

What does it mean for consumers to be price takers?

A

Market price unaffected by single consumer’s activities

48
Q

How is Marginal Revenue (MR) calculated?

A

MR = ?R /?Q

49
Q

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

50
Q

What must monopolies consider when setting prices?

A

Consumer preferences

51
Q

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

A

Petro stations

52
Q

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

A

Market price (P)

53
Q

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

54
Q

What does MC stand for?

A

Marginal Cost

55
Q

Give examples of legal monopolies.

A

Patents, licenses

56
Q

Why is ?P negative for a monopolist?

A

Downward demand

57
Q

What is another term for Demand?

58
Q

What is the definition of Marginal Cost (MC)?

A

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

59
Q

How does producing more affect MC?

60
Q

How does producing more affect MR?

61
Q

What occurs when price < AC?

A

Firm makes a loss

62
Q

Can a firm quickly re-enter after exiting?

63
Q

Examples of natural monopolies?

A

Telecoms, aircraft, military

ECON111 (34 decks)

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