the firm and it's customers

Question 1

demand curve d

Answer 1

The demand curve gives the quantity consumers will buy at each possible price

Question 2

where is the feasible set in relation to the demand curve

Answer 2

to the left of the demand curve / under it

Question 3

where is the profit maximising point in relation to the demand curve

Answer 3

the isoprofit line that is a tangent to the demand curve (isoprofit lines are L shaped but smooth curves)

Question 4

what is the slope of the isoprofit curve

Answer 4

mrs - represents trade off willing to make between p and q

Question 5

what is the slope of the demand curve

Answer 5

mrt - trade off that you are constrained to make (transform q into p)

Question 6

economies of scale d

Answer 6

economies of scale occur when increasing output leads to lower long run average total costs

Question 7

increasing returns d

Answer 7

when an increase in input results in a more than proportionate increase in output

Question 8

decreasing returns d

Answer 8

when an increase in input leads to a less than proportionate increase in output

Question 9

example of economies of scale

Answer 9

fixed costs (r&d fall as output increase),
purchasing (bulk buy),
financing (credit),

Question 10

marginal cost equation

Answer 10

∆C/∆Q

Question 11

what is the difference between the price and marginal cost called

Answer 11

profit margin

Question 12

slope of isoprofit curve equation

Answer 12

• (P-MC)/Q,

- profit margin/quantity

Question 13

how do you calculate mr

Answer 13

gain in revenue (21st car $6320, 6320)
loss of revenue ($80 on each of 20 cars, -1600)
marginal revenue=$4720,

or

q=20 p=6400 128000
q=21 p=6320 132720
mr=4720

Question 14

what is the profit maximising output (think back to a level)

Answer 14

mr=mc

Question 15

why is the profit maximising output mr=mc

Answer 15

profit = total revenue - total cost,

marginal profit = mr - mc

Question 16

where is the producer and consumer surplus

Answer 16

consumer above and producer below

Question 17

consumer surplus d

Answer 17

The consumer’s willingness to pay for a good minus the price at which the consumer bought the good, summed across all units sold

Question 18

producer surplus d

Answer 18

The price at which a firm sells a good minus the minimum price at which it would have been willing to sell the good, summed across all units sold

Question 19

where is the deadweight loss

Answer 19

triangle between where curves cross and the actual p and q and then draw down

Question 20

deadweight loss d

Answer 20

loss of total surplus relative to a pareto efficient allocation

Question 21

ped d

Answer 21

The percentage change in demand that would occur in response to a 1% increase in price

Question 22

when elasticity is higher than 1 what is mr

Answer 22

mr>0

Question 23

when elasticity is below 1 what is mr

Answer 23

mr<0

Question 24

firm will always choose a point where the elasticity is _____ than one

Answer 24

greater,

because below 1, mr<0 so would be better to decrease the quantity to raise revenue and decrease costs

Question 25

profit margin d

Answer 25

The difference between the price and the marginal cost

Question 26

where is the pareto efficient outcome on the demand curve and marginal cost diagram

Answer 26

where the demand curve meets the marginal cost curve and neither the consumer nor producer surplus can be increased

Question 27

the lower the elasticity of demand the ____ a firm will ____ price _____ the marginal cost to a achieve a high profit margin

Answer 27

more,
raise,
above

Question 28

monopoly d

Answer 28

firm that is the single seller of a product without close substitutes

Question 29

example of monopoly regulation

Answer 29

ibm

Question 30

the lower the elasticity of demand, the _____ the profit margin and the deadweight loss

Answer 30

higher

Question 31

cartel d

Answer 31

A group of firms that collude in order to increase their joint profits

Question 32

competition policy d

Answer 32

Government policy and laws to limit monopoly power and prevent cartels

Question 33

why is competition policy not always a good solution

Answer 33

domestic utilities such as water have high costs associated with providing the supply network

Question 34

natural monopoly d

Answer 34

industry which requires substantial fixed costs such that LRATC curve is sufficiently downward sloping to make it impossible to sustain competition among firms in the market

Question 35

what is an alternative to natural monopolies

Answer 35

public ownership