Micro Econ Quiz 5

Front 1

What are the distinguishing characteristics of market structures?

Back 1

1. Number of sellers
2. Typo of product? Is it the same or different?
3. Entry/ exit into industry.
4. Firms influence over price
5. Advertising

Front 2

What creates barriers to entry?

Back 2

Control of resources-If you control the raw materials you can produce and have a monopoly.
Patent-If you're the one who holds patent you have exclusive right to make it.
Cost to enter-If there's a high cost to get in there may not be alot of ppl in that field.
Name Brand recognition-Everybody knows microsoft so it's hard to break into that market.
REquires lisences/franchises and only so many are granted.

Front 3

Characteristics of perfect competition

Back 3

Lots of buyers and sellers, homogenous product, everyone's products are the same. Easy entry and exit. Not much influence over price.
They don't advertise because the product is all the same and they have no control over price.

Front 4

Characteristics of monopolistic competiton

Back 4

Many sellers, they have a real or percieved different products, like Heinz ketchup is better than best choice they're actually the same but percieved differnetly. Easy to enter/exit. They can set price to the extent that they can convince you their product is better. LOTS OF ADVERTISING since they're trying to make you think theirs is better. Examples retail stores.

Front 5

Characteristics of oligopolies

Back 5

A fes sellers less than 5. Could have the same product or they chould be different. Haarder to get into. Influence on price depends on what competitor does. That's how they set prices. Advertising yessssss! THey do! Examples airlines, cell phones.

Front 6

Characteristics of a monopoly

Back 6

ONE SELLER, unique one of a kind product, hard/ impossible to enter/exit field. You can set any price you are only limited by govt. restrictions and by demand. No advertisning is necessary.

Front 7

Questions to keep in mind regarding market structure:

Back 7

1. How does the firm make pricing and output decisions?
2. What are profits at the optimal level of output?
3. How does the industry adjust in the long run?
4. How efficient is the long run equillibrium?

Front 8

Profit equation

Back 8

Profits equal TR-TC

Front 9

Shutting down general rule

Back 9

In the short run fixed costs are sunk so they are irrelevant for short run decision making. Therefore, in deciding whether or not to produce if TR is greater than or equal to TVC we should operate. IF TR is less than TVC then we should shut down. As long as you can cover variable costs you should operate to minimize losses.

Front 10

Marginal Revenue

Back 10

The change in TR when you sell one more unit. MR=change in TR/change in Q. Everytime you sell another unit it changes by price when you have perfect competition.

Front 11

Where are profits maximized or losses minimized?

Back 11

@ the output level where MR=MC.

Front 12

Shut down rule for Marginal cost

Back 12

P is less than AVC then you shut down.

Front 13

3 steps to find PQ

Back 13

1. Find Q by setting MC=MR where MR=P.
2. Do we produce? If P >AVC then yes. If P<AVC then no we shut down.
3. What are profits/losses? If P>ATC economic profit, if P<ATC economic loss if P=ATC breakeven.

Front 14

Long run equillibrium

Back 14

IN the long run there are no profits, no losses, no incentive to enter or exit, and normal profits.

Front 15

The 4 economic questions answers from a perfect competition standpoint.

Back 15

1. How does firm make p and Q decision? THey are price takers they don't make price decisions. Q is set where MC=MR=P.
2. What are profits at optimal level of output? Long run-breakeven is norma profit.
3. How does the industry adjust in the long run? If there is economic profit, more firms will enter and supply goes up and p goes down and eliminates the profits. If there is econ loss, firms exit supply decreases price goes up and heads toward break even point.
4. How efficient is long run equillibrium? Productive efficiency=minimum ATC point producing at lowest cost possible. Allocative efficiency- P=MC then the price and value exactlu equal cost.

Front 16

Criticisms of perfect competiton

Back 16

!. No profits so there is no incentive to create anything new because everyone will do the same thing.
2. Economies of scale-Long run average costs fall as production expands if this is true, we should have one company producing all of it. That way we could have a cheaper price instead of having a bunch of firms produce it at high costs. These are called natural monopolies.
3. Rante of consumer choices is limited. If everything were the same it wouldn't be fun to shop.
4. Externalities-Negative externality-A cost imposed on the 3rd party of the transaction. Uncompensated cost imposed on third parties as a result of consumption or production by others. For example, pollution. I buy a candle from a factory. I benefit, however you live down from the street and have to deal with the pollution the plant produces. You are not compensated.

Front 17

Economies of scale.

Back 17

Long run average costs fall as production expands if this is true, we should have one company producing all of it. That way we could have a cheaper price instead of having a bunch of firms produce it at high costs. These are called natural monopolies.

Front 18

Negative externality.

Back 18

A cost imposed on the 3rd party of the transaction. Uncompensated cost imposed on third parties as a result of consumption or production by others. For example, pollution. I buy a candle from a factory. I benefit, however you live down from the street and have to deal with the pollution the plant produces. You are not compensated.

Front 19

Productive Efficiency

Back 19

P=minimum ATC. We're producing at the lowest cost possible.

Front 20

Allocative efficiency

Back 20

P=MC
The price consumers are willing to pay is exactly equal to the cost of production.

Front 21

Characteristics of monopoly

Back 21

ONE FIRM, unique product, barriers to entry, and price control.

Front 22

Pricing in monopolies

Back 22

They will charge whatever they can get away with because the price is set by demand. Demand=MR+-K.
AS compared to perfect competition, monopolists restrict production so they can charge higher prices.

Front 23

If you have a monopoly why would you charge a lower price?

Back 23

You would charge a lower price to keep them from investigating pluys you can keep competitors out by charging a price that would put them out of business.

Front 24

4 questions answered according to Monopolies?

Back 24

1. How does monopolist make price and output decisions? Where MC=MR and set the price wherever demand is.
2. WHat are profits at optimal level of output? Potential econ profit because competitors cannot get in b/c entry is restricted by entry barriers.
3. How does the industry adjust in the long run? Entry barriers so they continue to profit.
4. How efficient is long run level of output? Output is restricted by producing too little and price is higher than cost of production so tey should produce more but they won't. So it's not very efficient.

Front 25

Criticisms of monopolies

Back 25

1. inefficient.
2. Resources are wasted because you try so hard to keep other people out.
3. Customer service- If you are the only one who has it you don't have to treat people well because you know they cannot go anywhere else and they have to come back and buy from you.
4. Technology innovation-You may have no reason to innovate and do new things. Competitoin forces you to do new things.