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AP Micro > unit 4 > Flashcards

unit 4 Flashcards

1
Q

revenue maximizing quantity for a monopoly or monopolistically competitive firm is when

A

MR = 0

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2
Q

where is the collusion outcome in a payoff matrix

A

the quadrant where both firms decide to do the same thing

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3
Q

how would you explain that a firm has a dominant strategy

A

Firm A would chose to do X no matter what Firm B does

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4
Q

what is collusion in a oligopoly

A

when producers secretly set production low and prices high

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5
Q

when imperfectly competitive firms produce more output, what must happen to the price they charge

A

price decreases (MR below D)

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6
Q

what is the profit like in the long run for a monopolistically competitive firm

A

in the long run, they break even so P = ATC

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7
Q

where is allocatively efficient point

A

where P = MC

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8
Q

Why does an oligopoly not have a dominant strategy

A

Firm A’s best choice depends on what Firm B does

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9
Q

Nash equilibrium is

A

outcome where each player has made the best decision possible, given the actions of others
- likely choice for both firms

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10
Q

why are monopolies and monopolistically competitive firms not allocatively effiecint

A

because they will price above marginal cost, P > MC

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11
Q

if a monopoly engages in perfect price discrimination, what happens to the MR curve

A
  • merges with demand curve
  • No DWL
  • firm is allocatively efficient if a monopoly perfectly price discriminates
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12
Q

if a monopoly is producing at profit maximizing point, what is true

A

Marginal Revenue = Marginal cost < price

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13
Q

why are oligopolies not allocatively efficient

A
  • they charge price above MC, P > MC
  • higher price, lower quantity ( creates DWL)
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14
Q

why are oligopolies not productively efficient

A
  • they operate on the downward sloping portion of the ATC curve
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15
Q

what do the numbers in a pay off matrix represent

A

the amount of economic profit the firm could earn depending on the outcomes

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16
Q

how do you solve for the collusion outcome, the best outcome fir both businesses

A

just find the highest combined profit, add up the two numbers in the squares and the highest is the collusion outcome

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17
Q

a firm does not have a dominant strategy when

A

the firm has two different things they would decide to do when taking into consideration what the other firm might do

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18
Q

if a firm is in Long run equilibrium, the ATC is

A

tangent to the Qf, PF point on the demand curve

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19
Q

firms must lower their product prices to sell additional sells in what market structure

A

Monopolistically competitive

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20
Q

in perfect price discrimination, price is equal to

A

P =MR

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21
Q

a monopoly is allocatively efficient when

A

they perfectly price discriminate

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22
Q

why do firms engage in perfect price discrimination

A

creates more profit opportunity than any other pricing mechanism

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23
Q

why doesn’t every firm perfectly price discriminate?

A

1) you need to know a lot about your customer
2) if there is competition, it prevents competing firms from charging the highest price

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24
Q

where is allocative efficiency on a graph

A

where MC intersects Demand

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25
Q

what is excess capacity

A

when demand for a product is less than the amount of product that a business could potentially supply to the market

amount by which actual production falls short of the minimum ATC output

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26
Q

When a monopolistically competitive firm is in long-run equilibrium

A

marginal revenue equals marginal cost and price equals average total cost

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27
Q

Advertising can hinder economic efficiency in an industry when it

A

increases entry barriers

28
Q

pure monopolists obtain profits in the long run because

A

of high barriers to entry in a monopoly

29
Q

a pure monopolists demand curve is relatively elastic where

A

in the price range where Marginal revenue is positive

30
Q

if the price of your product is less than min AVC, you should

A

close down because, by producing, your losses will exceed your total fixed costs

31
Q

if the price is lower than AVC in a perfectly competitive firm, what should the firm do

A

shut down

32
Q

do all firms maximize where MR = MC

A

yes

33
Q

where do imperfectly competitive firms price

A

above MC, which is why they are not allocatively efficeint and there is a DWL

34
Q

where is the ATC curve in a monopoly graph when the firm is breaking even

A

the ATC curve is tangent to the Pe, Qe point intersection on the demand curve
ATC = P –> zero economic profit

35
Q

where is the ATC curve in a monopoly graph when the firm is making a profit

A

the min ATC would be in between the MR = MC and MC = D point
ATC < Demand –> Profit

36
Q

where is the ATC curve in a monopoly graph if the firm is earning a loss

A

the ATC graph is higher from the breaking even curve so not touching any curve besides MC

37
Q

where is the socially optimal point on a graph

A

at the intersection of MC and D curve

38
Q

where is productively efficient on a graph

A

where P = min ATC

39
Q

what type of imperfect competition always captures economies of scale

A

a natural monopoly

40
Q

what does price discriminating do to the consumer surplus

A

it turns into profit

41
Q

what does perfect price discrimination do to the firm

A
  • no DWL
  • consumer surplus into profit
  • MR = MC is the allocatively efficient point because Price of the last unit produced = MC
42
Q

what market structure has excess capacity

A

a monopolistically competitive market

43
Q

what does a monopolistically competitive firm have for profits in the long run

A

zero economic profits

44
Q

how would you find out the quantity of where a firm is earn zero economic profit

A

find the point where ATC equals demand, and drop down to the x axis

45
Q

if the firm is experiencing economies of scale, the LRATC curve will be like what at that quantity

A

it will be downward sloping as output increases

46
Q

which market structure is prone to collusion or the formation of cartels

A

Oligopolies, they can do these and form a monopoly outcome

47
Q

When a perfectly competitive firm sells additional units of output, its total revenue will

A

increase at a constant rate

48
Q

The condition for allocative efficiency is violated when

A

firms have price setting power

49
Q

Which of the following statements is true for a monopolist at the profit-maximizing output level?

A

price exceeds marginal revenue

50
Q

if LRATC is upward sloping, the firm is experiencing

A

diseconomies of scale

51
Q

if LRATC is downward sloping, the firm is experiencing

A

economies of scale

52
Q

in cross price elasticity, if the value is negative the good is a

A

complement

53
Q

in income elasticity, if the value is negative the good is

A

an inferior good

54
Q

where is the unit elastic point on a graph

A

where MR = 0

55
Q

if cross price elasticity of demand is positive it is what type of good

A

substitutes

56
Q

if you have less time for a good, is it elastic or inelastic

A

its more einelastic

57
Q

if P goes up and TR goes up, the good is

A

inelastic

58
Q

if P goes up and TR goes down, the good is

A

elastic

59
Q

if a monopolist is producing in the inelastic region of the demand curve, they will increase profits if they do what

A

decrease quantity and increase price

60
Q

what is P equal to for a monopolistically competitive firm in the long run

A

P = ATC

61
Q

what are the characteristics of a perfectly price discriminating monopoly

A

MR=D
CS and profit all become PS

62
Q

Why does the monopolist not want to produce in the inelastic section of its demand curve?

A

because MR is negative

63
Q

if the monopolist raises its prices in the elastic portion of the curve, what will happen to its total revenue

A

decrease

64
Q

price discriminating monopolies charge multiple different prices and convert what into what

A

CS into profit

65
Q

if consumers demand is more elastic (sensitive to changes in price) the firm will charge them

A

less because they are price discriminating

66
Q

if consumers demand is more inelastic (not sensitive to changes in price) the firm will charge them

A

more because they will pay that price

AP Micro (6 decks)

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