Unit 3

Question 1

accounting profit

Answer 1

revenue - explicit cost

Question 2

economic profic

Answer 2

revenue - economic cost

Question 3

short run
(long run guidelines)

Answer 3

no change in capacity

1. total product
2. Marginal product (extra)
3. Avg. Product (per workers) = TP/#workers

Question 4

law of diminishing marginal returns

Answer 4

labor added until pt where marginal product decreases, why demand curve goes down

Question 5

fixed cost

Answer 5

short run

Question 6

variablle cost

Answer 6

long run

Question 7

total cost

Answer 7

fixed+variable, starts at FC in graph

Question 8

average costs

Answer 8

AFC = TFC/C
AVC = TVC/Q
AVT = TC/Q

Question 9

marginal cost

Answer 9

MC=TC/Q; intersects AVC and ATC at minimum

Question 10

LRATC/planning curve

Answer 10

long run, multiple factories, connects short runs at tangent

Question 11

market structure

Answer 11

perfect competition-monopolistic competition-oligopoly-pure monopoly

Question 12

pure competition

Answer 12

1. large # producers
2. Standardized product
3. Price takers
4. Free entry/exit

Question 13

MC=MR

Answer 13

max profit:

1. produce at last unit
2. prefer no shutdown
3. all structures
4. in PC, P=MR (break even pt)

Question 14

pure monopoly

Answer 14

1. single seller
2. No close substitute
3. Price maker
4. Blocked entry
5. non-price competition

Question 15

barriers to entry

Answer 15

1. economy to scale
2. legal barriers (patents, licences)
3. ownership of resources
4. price strategy (monopolist created monopoly)

Question 16

economy to scale

Answer 16

produced at lowest possible cost, competition can’t pay

Question 17

pure monopoly assumptions

Answer 17

1. barrier to entry exists
2. no gov. regulations
3. Single price monopolists

Question 18

pure monopoly misconceptions

Answer 18

1. want to charge highest price
2. total profit not per unit profit
3. profit is not guaranteed

Question 19

price discrimination types

Answer 19

1. charge max their willing to pay
2. Different sets(# of items determines $)
3. Charging different prices to everyone

Question 20

price discrimination requirements

Answer 20

1. monopoly power
2. market segregation
3. No resale

Question 21

regulated monopoly

Answer 21

government sanctioned;
fair return where ATC=D
socially economic where MC=D

Question 22

monopolistic competition

Answer 22

1. large # sellers (no collusion)
2. no interdependence
3. differentiated product
4. easy entry/exit
5. use of advertising

Question 23

differentiated product

Answer 23

1. attributes
2. service (knowledge/reputation)
3. location
4. brand name
5. some control over price

Question 24

long run

Answer 24

normal profit, break even

Question 25

concentration ratio

Answer 25

output of top 4 firms;
>40% olgiopoly
<40% monopolisitc competition

Question 26

herfindahl index

Answer 26

range 0 (pure comp. ) to 10,000(pure mono.)
(%a) squared + (%b) squared ...etc...

Question 27

oligopoly

Answer 27

1. few large producers
2. homogenous or differentiated product
3. control over price, mutually interdependent,
4. entry barriers
5. mergers

Question 28

oligopoly shortcomings

Answer 28

1. localized markets
2. interindustry competition
3. world trade
4. dominant firms

Question 29

game theory

Answer 29

study strategic situations

Question 30

payoff matrix

Answer 30

dominant vs dominated strategy, nash equillibrum

Question 31

dominant strategy

Answer 31

best payoff for individual regardless

Question 32

dominated strategy

Answer 32

whichever isn’t dominant

Question 33

nash equilibrium

Answer 33

both have same dominant strategy

Question 34

economies of scale

Answer 34

downward, advantages of increase plant size

1. labor and managerial specialization
2. ability to purchase/effciently use goods

Question 35

diseconomies

Answer 35

upward, if a firm is too large

1. caused by distant management, problems with communication/coordination