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11 Cards in this Set

  • Front
  • Back
MR=P=MC
Profit maximization under perfect competition
How do owners of many firms compensate their managers to promote profit maximization?
By giving them a share of the firm's profits
What is the price of shares of stock in a firm based upon?
Firm's profitability
What is the short term shutdown rule?
P<AVC
What is the long term shutdown rule?
P<ATC
What are the four causes of monopolies?
1. Scarce Resources
2. Legal Barriers
3. Network Externalities
4. Economies of Scale
P>MR=MC
Profit maximization under a monopoly
P[1-1/|E|]
Marginal Revenue of Monopoly
P-MC/P=1/|E|
Profit-Maximizing Markup
What is the social inefficiency of monopolies?
failure to price discriminate perfectly
5 Policy Alternatives for Natural Monopolies:
1. State Ownership and Management
2. State Regulation of Private Monopolies
3. Exclusive Contracting for Natural Monopoly
4. Vigorous Enforcement of Antitrust Laws
5. Laissez-Faire Policy