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11 Cards in this Set

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  • Back
Characteristics of perfect competition?
1) Very easy entry to market
2) Exact same products
3) Price determined by market
4) Many small firms

Profits always zero, since production is at where ATC is minimum: MC = MR
Characteristics of Monopolistic Competition?
1) Brand loyalty is only barrier to entry
2) Product differentiated by marketing -- brand loyalty
3) Some diff. in price due to brand loyalty
4) Many small firms

Everyone breaks even but not at most efficient point; consumers willing to pay more for choice brand
Characteristics of Oligopoly?
1) Barriers to entry/exit like technology, brand loyalty
2) Differientiated products; very few substitutes
3) Firms can set price
4) Few, very large firms

Economic profits in the long run. Just enough comp to avoid govt regulation (ex airline industry)
Characteristics of Monopoly?
1) Entry almost impossible (patents, tech, ownership of resources)
2) Unique product; comp from other markets (AMTRAK)
3) Price doesnt reflect value of good
4) One huge firm

Big profits
Which types of market structures advertise? Why?
Monopolistic competition and oligopoly. They attempt to differentiate their products by establishing brand loyalty.
Law of diminishing returns states that..
MC eventually increases because each additional worker produces a successively smaller addition to output. So to get 1 more unit of output, more and more workers are needed, so the cost of the additional output (MC) must increase.
Why is the supply curve upward sloping?
As price increases, suppliers offer more quantity supplied ("Law of supply") because as price rises above the break even point (MC hits AVC), there are increasing economic profits, so more firms enter.
What changes supply?
1) Change in Input prices (energy, labor, raw materials, excise tax)
2) Technology (change making production more efficient)
3) Expectations
4) Change in price of substitute in production
5) Change in price of resources in production (jet fuel price goes up, supply of air transportation decreases)
What is demand?
All price and quantity combinations consumers are willing and able to purchase
Why is the demand curve downward sloping? Why?
Inverse relationship between price and quantity demanded. 1. Substitution effect 2. Income effect (Real income: what income actually buys- decrease in housing price = increase in real income)
What changes demand?
1. Tastes and preferences
2. Change in income (income elasticity; normal v inferior)
3. Expectations
4. Price of other goods (cross-price elasticity; substitutes, complements)