Chapter 9

Question 1

Perfectly competitive Market

Answer 1

market structure in which a very large number of firms produce a standardized product

Question 2

Monopoly

Answer 2

market structure in which one firm is sole seller of g/s

Question 3

monopolistic competition

Answer 3

market structure in which a relatively large number of firms produce differentiated products

Question 4

Oligopoly

Answer 4

market structure in which a small number of large firms produce standardized or differentiated products, firms affected by rivals decisions when determining P and Q

Question 5

Perfectly competitive Market

1. # of firms
2. type of product
3. control over price
4. conditions of entry or exit
5. Non price competition
6. examples

Answer 5

1. very very large number
2. standardized (homogenous-exact same product)
3. none
4. easy entry or exit with no obstacles
5. none
6. foreign exchange, agriculture, cotton

Question 6

Monopolistic Competition

1. # of firms
2. type of product
3. control over price
4. conditions of entry or exit
5. Non price competition
6. examples

Answer 6

1. many
2. Differentiated (similar with substitution)
3. some but within narrow limits
4. relatively easy
5. emphasis on advertising
6. retail, clothing, shoes

Question 7

Oligopoly

1. # of firms
2. type of product
3. control over price
4. conditions of entry or exit
5. Non price competition
6. examples

Answer 7

1. few
2. Standardized or Differentiated
3. mutual interdependence, much w/collusion
4. significant obstacles
5. great deal with product differentiation
6. steel, automotive, farm capital

Question 8

Monopoly

1. # of firms
2. type of product
3. control over price
4. conditions of entry or exit
5. Non price competition
6. examples

Answer 8

1. One
2. Unique, no substitutes
3. considerable amount
4. blocked
5. emphasis on public relations advertisement
6. Utilities ex manitoba hydro, winnipeg jets, water supply

Question 9

Perfect Competition Characteristics (4)

Answer 9

very large number of firms, price takers, standardized product, easy entry and exit,

Question 10

very large number of firms means there are lots of ___firms.

Answer 10

small

Question 11

what is price taker

Answer 11

industry that have no control over market price so they sell product at given market price

Question 12

what does it mean for perft.comp firm to have easy or exit in long run and how does entry and exit occur

Answer 12

profits attract entry, losses gives rise to exit, no barriers prohibiting entry or exit.

Question 13

The demand for an individual firm that is perfectly competitive is

Answer 13

perfectly elastic

Question 14

why is the demand of perfectly comp firm perfectly elastic

Answer 14

firms are price takers, firms cannot increase or decrease price, firms can only sell if they produce at the market price

Question 15

why can’t this firm increase or decrease price

Answer 15

all other firms in the industry would be selling the good at that level so a consumer would not buy a over priced product and decreasing price would create losses, no need to sell lower as market is higher

Question 16

perfectly comp firm

1. Average revenue equation
2. marginal revenue equation
3. total revenue equation

Answer 16

1. total revenue divided by output = price of good
2. change in revenue divided by change in output = price of good
3. price x quantity

Question 17

Short Run Maximization of Profit Objective and how they can achieve this

Answer 17

firms want to either maximize economic profit or minimize economic loss can do this by adjusting its own output.

Question 18

two approaches to identifying profit maximization quantity

Answer 18

1. total revenue - total cost approach

2. marginal revenue - marginal cost approach

Question 19

3 decisions of firms when deciding to produce using TR-TC approach

Answer 19

1. produce or not produce
2. what quantity to produce
3. will I achieve economic profit or a loss

Question 20

TR-TC approach, finding quantity to produce at from a table

Answer 20

produce where profit or loss is the highest number POSSIBLE ex can be highest positive or smallest negative number

Question 21

Break Even Point (2)

Answer 21

TR=TC

normal profit=accounting profit therefore no economic profit

Question 22

Normal Profit

Answer 22

what firm or someone could make in another industry

Question 23

profit maximization TR-TC Approach from Graph

Answer 23

find the greatest vertical distance between the TR curve and the TC curve

Question 24

economic profit equation

Answer 24

TR-TC

Question 25

why do total cost increase overtime

Answer 25

increase with output as more production=more materials and costs

Question 26

describe TC of perfect com firm

Answer 26

starts increasing at a decreasing rate as output increase, when output is to large it increases at an increasing rate

Question 27

MR(=P) = MC table approach (2)

Answer 27

1. Produce the quantity units where last MR is just greater then MC, do not produce if MC>MR for first 2-3units 2. check if P > or equal to Average variable costs

Question 28

3 questions a producer has when the deciding to produce using MR-MC approach

Answer 28

1. Should I produce 2. Is MR > MC 3. is P > or equal to AVC

Question 29

When does a firm shut down

Answer 29

if P < AVC

Question 30

MR-MC graphical approach (3)

Answer 30

find where MR=MC, then see if P > AVC, then calculate profit using TR-TC or Q(P-ATC)

Question 31

Loss minimizing rule

Answer 31

find where MR=MC (graph) or last MR > MC (table) Loss would occur if profits are negative but less then TFC. AVC < P < ATC

Question 32

In a scenario where losses is the profit and | ATC > P > AVC Why minimize losses and not shut down?

Answer 32

in long run if they produced nothing their TFC is their loss but if they produce output, their profit is a loss but is less then what they would pay if they didn't produce, they can still cover variable cost and use remaining to subtract from TFC

Question 33

Shutdown Case of firms

Answer 33

same steps as before in this scenario P < AVC so firm cannot cover materials, their loss is now greater then what it would be if they didn't produce (-profit>TFC)

Question 34

What is a the market short run supply curve in perfectly comp industry (slide 23,24)

Answer 34

since we produce where MR=MC or MR>MC, it is the MC curve that equals AVC and the rest above AVC

Question 35

Shifts of the MC (market short run supply curve) (3)

Answer 35

change in price of variable inputs increased technology change in price of wages

Question 36

MC Law of Diminishing returns

Answer 36

MC eventually rises as output increases due to decrease in efficiency so market needs to charge higher price to increase output

Question 37

Firms don't produce if

Answer 37

MR=P < AVC

Question 38

As the price of product sold in the market increases | law of supply

Answer 38

quantity of output increases

Question 39

p=avc at MR=MC describe firm indifference

Answer 39

firm indifferent as result is same as not producing but we say they produce as output attracts consumers

Question 40

AVC < p < ATC

Answer 40

firms produced quantity to minimize short run costs and their economic profit is negative number

Question 41

P>ATC

Answer 41

Firm makes economic profit