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ECON 101 > Section 7 > Flashcards

Section 7 Flashcards

1
Q

Four Market Structures

A
  1. Pure competition (least common)
  2. Monopolistic competition (imperfect competition)
  3. Oligopoly (imperfect competition)
  4. Monopoly (least common and imperfect competition)
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2
Q

Differentiating Characteristics

A
  1. Number of firms
  2. Type of product
  3. Ease of entry
  4. Market power or price control
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3
Q

Monopoly Characteristics

A
  1. High market power (Price Maker)
  2. One firm
  3. Blocked entry
  4. Unique product
    i. e. local utilities
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4
Q

Oligopoly Characteristics

A
  1. Interdependence (Price Maker)
  2. A few large firms
  3. High barriers to entry
  4. Homogeneous or differentiated products
    i. e. steel, oil, automobiles
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5
Q

Monopolistic Competition

A
  1. Limited market power (Price Maker)
  2. Large number of firms
  3. Low barriers to entry/exit
  4. Differentiated products
    i. e. restaurants, hotels
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6
Q

Pure (perfect) Competition

A
  1. No market power (Price Taker)
  2. Large number of firms
  3. No barriers to entry/exit
  4. Homogeneous product
    Have perfect information
    i.e. farmers
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7
Q

Pure Competition Demand (individual firms)

A

Demand is perfectly elastic at the market price

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8
Q

Pure Competition Demand (market)

A

downsloping curve

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9
Q

Marginal - Average - Total Revenue - Price

A 
Price = MR = AR 
TR = Price * quantity
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10
Q

How to Maximize Profit

A

Maximize economic profit by adjusting output

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11
Q

How to Determine Level of Output

A
  1. Total Revenue - Total Cost

2. MR = MC (any point where MR > MC)

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12
Q

Break Even Point

A

When a firm makes a normal profit

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13
Q

Maximize Profit

A

MR = MC
Greatest different between TR and TC
- produce the last full unit for which MR exceeds MC
- Applies to all industries
- Also called P = MC in pure competition only

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14
Q

Calculating Economic Profit

A

Quantity times price minus average total cost

Q * (P - ATC)

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15
Q

Minimize Loss

A

Where MC = MR

- As long as price exceeds minimum AVC and less than ATC

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16
Q

Shutdown

A

MC is greater then minimum AVC

17
Q

Law of One Price

A

Where this is one price for a commodity if transaction costs are zero

18
Q

Perfect Information

A

Know the exact the price in a competitive market

19
Q

Short-run Supply Curve

A

The part of the MC curve that is above the AVC

20
Q

Equilibrium Price for Market

A

Find an individual supply schedule and multiply that by the number of firms in the industry
* This assumes that all industries have the same supply schedule

21
Q

Shutdown in Short-run

A

Firms can not shut down in the short run - they can stop producing to minimize losses, but they won’t exit until the long-run

22
Q

Long-run Characteristics

A
  • Entry and exit of firms
  • Identical costs of all firms
  • Constant-cost industry
  • Product price will be equal to minima average total cost
23
Q

Constant-Cost Industry

A

Industry expansion and contraction will not affect resource prices or production costs
Horizontal line - perfectly elastic

24
Q

Increasing-Cost Industry

A

(Most industries)

ATC curves shift upwards as the industry expands production

25
Q

Decreasing-Cost Industry

A

(computer industry)

ATC curve shifts downward as the industry expands production

26
Q

Pure Competition and Efficiency

A
  1. Firms may realize economic profit or loss in the short run, but all will have normal profit in the long run
  2. Long-run each firm will have P = MR and will produce at the minimum point on ATC curve (identical production)
27
Q

Productive Efficiency

A

Goods will be produced in the least costly way

Each will produce at the minimum average total cost of production

28
Q

Allocative Efficiency

A

Societies resources are directed toward producing the goods and device that people most want

P = MC

29
Q

Triple Equality

A

P = MC = Lowest ATC
MB = MC
Maximum willingness to pay for the last unit = minima acceptable price for that unit

ECON 101 (8 decks)

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