Chapter 10-12

Question 1

Market Power

Answer 1

the ability of a firm to raise and maintain price above the level that would prevail under competition (restricting output in order to increase price)

Question 2

Monopoly

Answer 2

the exclusive possession or control of the supply of or trade of a good or service

Question 3

Oligopoly

Answer 3

when the industry is dominated by a few firms

Question 4

Economic Cost

Answer 4

the economic cost of producing a good is the opportunity cost of the firm’s production

Question 5

Fixed Cost

Answer 5

costs that don’t change as output increases

Question 6

Variable Cost

Answer 6

costs that change as output increases

Question 7

Marginal Cost

Answer 7

the cost to produce one more unit

Question 8

Total Cost

Answer 8

TC = VC + FC for a certain output produced

Question 9

Factors of Production

Answer 9

Land
Labor
Capital
Entrepreneurship

Question 10

Explicit Costs

Answer 10

a direct payment made to others in the course of operating a business

Question 11

Implicit Costs

Answer 11

the opportunity cost equal to what a firm must give up in order to use a factor of production for which it already owns

Question 12

Normal Profits

Answer 12

zero profits

Question 13

Abnormal Profits

Answer 13

positive profits

Question 14

Losses

Answer 14

negative profits

Question 15

Corporate Social Responsibility (CSR)

Answer 15

when the business includes the public’s interest in its decision making
- workforce
- consumers
- local community
- environment

Question 16

Assumptions of Perfect Competition

Answer 16

• industry is made of a lot of firms
• firms have zero market power
• all firms are small
• products are homogeneous
• no barriers to entry
• everyone has perfect knowledge
• perfectly elastic demand curve
• long run all profits fall to zero

Question 17

Assumptions of an Imperfect Market

Answer 17

When there is
- competition for market share
- differentiated products
- small number of suppliers (relevant to industry as a whole
- barriers to entry exist
- abnormal profits are possible in the long run

Question 18

Stakeholders

Answer 18

any group affected by an industry

Question 19

Non Price Competition

Answer 19

changes in ones business to attempt to gain an edge on competitors (non price involved)

Question 20

Economies of Scale

Answer 20

the cost advantages that enterprises obtain due to their scale of operation

Question 21

Satisficing

Answer 21

when an economic agent aims to perform satisfactorily rather than to a maximum level, in order to pursue other goals in life

Question 22

Growth Maximization

Answer 22

companies set their target for growth in the short run instead of profit in hopes of becoming a more dominant figure in the market in the long run

Question 23

Profit Maximizing Level of Output

Answer 23

producing where MC = MR

Question 24

Revenue Maximizing Level of Ouptput

Answer 24

producing at a rate when MR = 0

Question 25

Productively Efficient Level of Output

Answer 25

producing at a rate where MC = AC - resources are not being wasted

Question 26

Allocatively Efficient Level of Output

Answer 26

producing at a rate where MC = AR - when suppliers produce at the optimal amount for consumers - socially optimal

Question 27

Assumptions of Monopolistic Competition

Answer 27

- industry made pf fairly large number of firms - goods are differentiated - each firm is relatively small - each firm has a little bit of market power - perfect information - no barriers to entry - elastic demand - normal profits in the long run

Question 28

Assumptions for Monopolies

Answer 28

- when they are the only firm producing a good - barriers to entry exist - abnormal profits in the long run - not socially optimal - no close substitutes of products - very high market power, can control price or output - profit maximizing level of output

Question 29

Long Run

Answer 29

period of time in which all factors of production are variable (all planning takes place in the long run)

Question 30

Short Run

Answer 30

period of time in which at least one factor of production is a fixed factor (all production takes place in the short run)

Question 31

Anti Competitive Behaviour

Answer 31

business or government practices that prevent or reduce competition in a market

Question 32

Specialization - EOS

Answer 32

having managers specialize into different areas of expertise

Question 33

Division of Labor - EOS

Answer 33

breaking down a production process into small easy tasks to increase efficiency

Question 34

Bulk Buying - EOS

Answer 34

negotiating discounts to buy large amounts of resources for cheaper prices

Question 35

Financial Economies - EOS

Answer 35

large firms are able to raise capital easier

Question 36

Transport Economies - EOS

Answer 36

large firms making bulk orders get charged less for transport or they may even create their own transport fleet

Question 37

Large Machines - EOS

Answer 37

by owning large machinery, firms can save more money over time

Question 38

Promotional Advertising - EOS

Answer 38

when advertisement is successful promotion cost per good falls

Question 39

Natural Monopoly

Answer 39

when there are only enough economies of scale to support one firm

Question 40

Legal Barriers

Answer 40

when a firm is given a legal right to be the only producer in an industry (the legal right to be a monopoly)

Question 41

Barriers to Entry

Answer 41

factors that can prevent or impede newcomers into a market or industry sector

Question 42

Brand Loyalty

Answer 42

customers who would choose a firm's product of another cheaper alternative

Question 43

Assumptions of an Oligopoly

Answer 43

- few firms dominate a majority of the market share - barriers to entry usually exist - goods may be homogeneous - there is interdependance - price is very rigid - abnormal profits possible in the long run - not socially optimal

Question 44

Collusion

Answer 44

when firms in an oligopoly collude to set higher prices

Question 45

Formal Collusion (Cartel)

Answer 45

when firms openly agree on a price they will charge (OPEC)

Question 46

Tacit Collusion

Answer 46

when firms in an oligopoly charge the same prices without any collusion

Question 47

Examples of Non-Price Competition

Answer 47

- brand name - packaging - special features - advertising - sales promotion - personal selling - publicity - sponsorship deals - special distribution features