Section 7 Flashcards

1
Q

Four Market Structures

A
  1. Pure competition (least common)
  2. Monopolistic competition (imperfect competition)
  3. Oligopoly (imperfect competition)
  4. Monopoly (least common and imperfect competition)
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2
Q

Differentiating Characteristics

A
  1. Number of firms
  2. Type of product
  3. Ease of entry
  4. Market power or price control
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3
Q

Monopoly Characteristics

A
  1. High market power (Price Maker)
  2. One firm
  3. Blocked entry
  4. Unique product
    i. e. local utilities
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4
Q

Oligopoly Characteristics

A
  1. Interdependence (Price Maker)
  2. A few large firms
  3. High barriers to entry
  4. Homogeneous or differentiated products
    i. e. steel, oil, automobiles
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5
Q

Monopolistic Competition

A
  1. Limited market power (Price Maker)
  2. Large number of firms
  3. Low barriers to entry/exit
  4. Differentiated products
    i. e. restaurants, hotels
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6
Q

Pure (perfect) Competition

A
  1. No market power (Price Taker)
  2. Large number of firms
  3. No barriers to entry/exit
  4. Homogeneous product
    Have perfect information
    i.e. farmers
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7
Q

Pure Competition Demand (individual firms)

A

Demand is perfectly elastic at the market price

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8
Q

Pure Competition Demand (market)

A

downsloping curve

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9
Q

Marginal - Average - Total Revenue - Price

A
Price = MR = AR 
TR = Price * quantity
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10
Q

How to Maximize Profit

A

Maximize economic profit by adjusting output

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11
Q

How to Determine Level of Output

A
  1. Total Revenue - Total Cost

2. MR = MC (any point where MR > MC)

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12
Q

Break Even Point

A

When a firm makes a normal profit

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13
Q

Maximize Profit

A

MR = MC
Greatest different between TR and TC
- produce the last full unit for which MR exceeds MC
- Applies to all industries
- Also called P = MC in pure competition only

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14
Q

Calculating Economic Profit

A

Quantity times price minus average total cost

Q * (P - ATC)

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15
Q

Minimize Loss

A

Where MC = MR

- As long as price exceeds minimum AVC and less than ATC

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16
Q

Shutdown

A

MC is greater then minimum AVC

17
Q

Law of One Price

A

Where this is one price for a commodity if transaction costs are zero

18
Q

Perfect Information

A

Know the exact the price in a competitive market

19
Q

Short-run Supply Curve

A

The part of the MC curve that is above the AVC

20
Q

Equilibrium Price for Market

A

Find an individual supply schedule and multiply that by the number of firms in the industry
* This assumes that all industries have the same supply schedule

21
Q

Shutdown in Short-run

A

Firms can not shut down in the short run - they can stop producing to minimize losses, but they won’t exit until the long-run

22
Q

Long-run Characteristics

A
  • Entry and exit of firms
  • Identical costs of all firms
  • Constant-cost industry
  • Product price will be equal to minima average total cost
23
Q

Constant-Cost Industry

A

Industry expansion and contraction will not affect resource prices or production costs
Horizontal line - perfectly elastic

24
Q

Increasing-Cost Industry

A

(Most industries)

ATC curves shift upwards as the industry expands production

25
Decreasing-Cost Industry
(computer industry) | ATC curve shifts downward as the industry expands production
26
Pure Competition and Efficiency
1. Firms may realize economic profit or loss in the short run, but all will have normal profit in the long run 2. Long-run each firm will have P = MR and will produce at the minimum point on ATC curve (identical production)
27
Productive Efficiency
Goods will be produced in the least costly way Each will produce at the minimum average total cost of production
28
Allocative Efficiency
Societies resources are directed toward producing the goods and device that people most want P = MC
29
Triple Equality
P = MC = Lowest ATC MB = MC Maximum willingness to pay for the last unit = minima acceptable price for that unit