Week 7a

Question 1

Short run

Answer 1

Period of time where there’s at least one factor of production fixed

Question 2

Long run

Answer 2

All factors(land and labour) are variable

Question 3

What happens to average cost and average variable costs curves when output increases? And why

Answer 3

Curves coverage because average fixed cost becomes less significant

Question 4

What does the law of diminishing returns state

Answer 4

Total output increases at a decreasing rate
As additional units of the variable factor are added to a fixed factor of production, marginal product of variable factor falls

Question 5

Marginal product?

Answer 5

Marginal product increases so the total product increases at an increasing rate

Question 6

Marginal cost calculation

Answer 6

Change in total cost / change in output

Question 7

Economies of scale

Answer 7

Exist when a firm experience a fall in unit cost with an increase in output

Question 8

Diseconomies of scale occur when ?

Answer 8

A firm experiences an increase in unit cost with a decrease in output

Question 9

Increasing returns to scales

Answer 9

Where a % increase in input brings a greater % increase in output

Question 10

Decreasing return of scales

Answer 10

Where a % increase in input brings about a smaller % increase in input

Question 11

Constant return of scales

Answer 11

%increase brings same % increase in output

Question 12

Types of economies of scale

Answer 12

Technical
Purchasing
Managerial
Financial

Question 13

Reasons for diseconomies of scale

Answer 13

Motivation
Communication
Coordination
Control

Question 14

Two barriers of entry

Answer 14

Legal requirements
Costs of entering

Question 15

Why is a monopolist allocatively inefficient

Answer 15

The price is greater than the marginal costs where it profit maximises

Question 16

How does monopolistic competition differ from perfect competition

Answer 16

Price maker
Has barrier to entry
Long run abnormal profits

Question 17

Porters five forces

Answer 17

Entry threat
Substitute threat
Buyer and supplier power
Rivalry-these forces affect profitability

Question 18

How can firms influence the five forces

Answer 18

Can combine with other firms to pressurize
Can take over other firms to reduce rivalry
Can differentiate to reduce substitute threat

Question 19

Why do monopolistic firms earn normal profits in the long run

Answer 19

If abnormal profits are made, more firms enter until normal profits are made, if a loss is made firms leave the industry

Question 20

Feature of perfect competition

Answer 20

Products are homogeneous

Question 21

When does a monopoly occur

Answer 21

When one firm dominates a market

Question 22

Monopolist graph

Answer 22

Faces a downward sloping demand curve

Question 23

Profit maximising monopolist produces when ?

Answer 23

Marginal revenue = marginal costs

Question 24

Productively inefficient

Answer 24

It isn’t producing at the minimum of the average cost

Question 25

Allocatively inefficient

Answer 25

It isn’t producing where price=marginal cost

Question 26

Against monopoly

Answer 26

Welfare loss
Productive inefficiency
Allocative inefficiency
Lack of incentive

Question 27

For monopoly

Answer 27

Encourages others to innovate
Prevent wasteful duplication

Question 28

Barriers of entry

Answer 28

Legislation
Technology
The learning effect
Entry costs
Fear of retaliation

Question 29

Price discrimination

Answer 29

Occurs when a firm offers the same product to different customers at different prices (nightclubs)

Question 30

Markets can be separated in which ways

Answer 30

Time
Age
Region
Status
Income

Question 31

What happens with price discrimination

Answer 31

Reduces consumer surplus and increases producer surplus

Question 32

What happens with price discriminating

Answer 32

A higher price is charged where demand is more price elastic

Question 33

What is perfect price discrimination

Answer 33

Consumer surplus is reduced to zero

Question 34

Oligopoly

Answer 34

Occurs when a few firms dominate

Question 35

What does an oligopoly create

Answer 35

Interdependence

Question 36

Nash equilibrium

Answer 36

Occurs in a game with two or more players, in which each player is assumed to know the equilibrium strategies of the other players