Econ 311 Final

Front 1

How do you find implicit costs?

Back 1

Implicit costs are the costs of using owner supplied resources:

1. equity capital

2. opportunity cost of the owners time

3. opportunity cost of using land and capital owner by the firm

Front 2

How is economic cost calculated?

Back 2

Explicit costs + implicit costs

Front 3

How is economic profit calculated?

Back 3

Total revenue - total economic cost

Front 4

What does it mean to have a normal profit?

Back 4

Have NO (or 0) economic profit

Normal profit = economic costs

Front 5

What is the formula for % Elasticity?

Back 5

Price:
%ΔQ/%ΔP

Cross-Price:
%ΔQx/%ΔPr

Income:
%ΔQ/%ΔM

Front 6

What is the ARC elasticity formula?

Back 6

Price:
(ΔQ/ΔP)*(PA/QA)

Cross-Price:
(ΔQx/ΔPr)*(PrA/QxA)

Income:

(ΔQ/ΔM)*(MA/QA)

Front 7

What is the POINT elasticity formula?

Back 7

Price:

(δQ/δP)*(P/Q)

Cross-Price:

(δQx/δPr)*(Pr/Qx)

Income:

(δQ/δM)*(M/Q)

Front 8

How do you know if you are cost minimizing?

Back 8

You are cost minimizing if...

(MPL/w)=(MPk/r)

or

MPL/MPk= w/r

Front 9

What are economies of scope?

Back 9

Reduction of a firm's unit cost by producing two or more goods or services jointly, rather than separately

Front 10

Describe the learning curve?

Back 10

The cost of producing some goods falls as the firm gains experience

-Workers improve their productivity with practice
-The effect is seen as the Short-RUN average Cost curve shifts down

Front 11

What is the DEMAND equation?

Back 11

Q= A - P

or

P= a - Q

Front 12

When do you shut down?

Back 12

Shut down when "w>ARP"

wage rate > Average Revenue Product

Front 13

How do you find P and Q when you price discriminate?

Back 13

Take the market Price or Market Quantity and plug in to the individual Marginal Revenue equations.

Front 14

How do you find a cartels MC?

Back 14

1. Take individual MC equations, solve for Q.

2. Add the equations and divide by 2 so that MC does not have a coefficient larger than 1.

3. Solve for MC. MCt should be in terms of Qt.

Front 15

How do you find total output if there is a price war?

Back 15

Set P=ATC


Inverse demand = ATC=MC

Front 16

What is the MRa of a COURNOT (Cartel)?

Back 16

The inverse the demand with both Qa and Qb.

So:

P= A - Qa - Qb


for MRa you multiply Qa by 2

so the final MRa is:

MRa= A - 2Qa - Qb

Front 17

How do you find a reaction function?

Back 17

Set MCa=MRa and solve for Qa.


It should look like

Qa= A - Qb

Front 18

How do you find Nash equilibrium of a COURNOT (Cartel)?

Back 18

Set MCa=MRa

in this format

A+Q=A-2Q-Q

in this case ignore the a and b next to the Qa and Qb

Front 19

When is there a prisoner's dilemma?

Back 19

1. All rivals posses a dominant strategy

2. Dominant strategy equilibrium

3. Worse off than if they would have cooperated

Front 20

What is a dominated strategy?

Back 20

A strategy never chosen because there is always a better strategy to choose

Front 21

What is strategic stability?

Back 21

Nash equilibrium. No firm can be better off by changing decision

Front 22

What are ways to facilitate firm cooperation of prices?

Back 22

1. Price matching- strategic commitment and must be irreversible
2. Sales price guarantee- receive a sales price during a time period
3. Public pricing
4. Price leadership

Front 23

What is consumer arbitrage?

Back 23

Low-price consumers resell a product to high-price buyers. This establishes a single, uniform price

Front 24

What is first-degree price discrimination?

Back 24

-Every unit is sold for maximum price each consumer is willing to pay.
-Firm captures entire consumer surplus
-This method is impossible in practice

Front 25

What is second-degree price discrimination?

Back 25

When a firm offers lower prices for larger quantities and let's buyer self-select the price they pay by choosing how much to buy

Front 26

What is third-degree price discrimination?

Back 26

-Customers are segregated into different markets and charged based on elasticity of demand
-The segmentation of markets is based on age, location, gender, income, ect.

Front 27

What will deter a firm from entering a market?

Back 27

Building excess capacity

Front 28

A credible move is

Back 28

1. Irreversible
2. A way of become a 1st mover in a sequential game
3.Unconditional strategic move

Front 29

Oligopoly is the only market structure with...

Back 29

Market interdependence

Front 30

What is tacit collusion?

Back 30

Is a form of cooperation without explicit communication