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Economics Term 1 Grade 11 > dynamics of imperfect markets > Flashcards

dynamics of imperfect markets Flashcards

1
Q

what does total revenue equal

A

Price x Quantity
P xQ

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2
Q

what does average revenue equal

A

total reveue/quantity
AR=TR divided by number of units sold

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3
Q

Marginal Revenue (MR)

A

the change total revenue when one extra unit of output is sold

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4
Q

what is always lower than the price of the product except for the first unit sold

A

the marginal revenue

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5
Q

explain the movements of the MC curve

A

decreases, reaches a minimum and then increases

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6
Q

explain the movements of the AC curve

A

decreases, reaches a minimum and then increases

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7
Q

3 examples of imperfect markets

A

monopolies
oligopolies
monopolistic competition

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8
Q

define the word monopoly

A

a market structure in which there is only one seller of a good or service that has no close substitutes. entry to the market is completely blocked

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9
Q

what is the demand curve also known as

A

average revenue curve (AR)

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10
Q

total revenue equation

A

price x quantity

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11
Q

average revenue

A

total cost divided by quantity

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12
Q

marginal revenue

A

it is the change in total revenue when one additional unit has been sold

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13
Q

what effect does a downward sloping demand curve have on the marginal revenue

A

MR curve runs below the demand curve

the MR curve intersects the horizontal axis at a point that is exactly halfway between the origin and the POI of the demand curve

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14
Q

what will a monopolist have

A

a pricing policy

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15
Q

when the price decreases what happens to units sold

A

they increase

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16
Q

why will the monopolist not fix his/her price lower than the centre point of the demand curve

A

the monopolists total revenue will decrease when the price is in the bottom half of the demand curve

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17
Q

in which type of market is AR=MR=P

A

perfectly competitive market

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18
Q

what does any point on the monopolies demand curve indicate

A

the quantity of the product that can be sold and the price at which it will trade

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19
Q

why will MR always be lower than AR

A

the percentage increase in the quantity demanded is greater than the percentage decrease in price at all points

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20
Q

why are AR and MR 2 different curves
(5)

A
  1. in a perfectly competitive market the AR=MR=P
  2. a monopoly is confronted with a normal market demand curve D=AR
  3. ant point on the monopolist’s demand curve is an indication of the quantity of the product that can be sold and the price at which it will trade
  4. MR curve runs below the demand curve with the exception of the first unit
  5. MR always lower than AR
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21
Q

why are AR and MR 2 different curves
(5)

A
  1. in a perfectly competitive market the AR=MR=P
  2. a monopoly is confronted with a normal market demand curve D=AR
  3. ant point on the monopolist’s demand curve is an indication of the quantity of the product that can be sold and the price at which it will trade
  4. MR curve runs below the demand curve with the exception of the first unit
  5. MR is always lower than AR
22
Q

when do monopolist’s try to maximize profit

A

always

23
Q

two types of cost curves

A

short term marginal revenue (SMC)
short term average cost curve (SAC)

24
Q

where is the short-term equilibrium
when a profit is being made

A

where marginal cost equals marginal revenue. SMC = MR

25
Q

what can the point be referred to where SMC = MR when a profit is being made

A

the profit maximization point

26
Q

the equation for total revenue
when calculating profit

A

price x quantity
0P1 x 0Q1 = 0P1CQ1

27
Q

the equation for total cost
when calculating profit

A

average cost x quantity
0D x 0Q1 = 0DBQ1

28
Q

equation for total profit
when calculating profit

A

Total Revenue - Total Cost = Total Profit
0P1CQ1 - 0DBQ1 = DP1CB

29
Q

what happens when the SAC lies above the demand (AR) curve

A

short term loss

30
Q

where is the equilibrium when a short term loss is being made

A

where MR = SMC

31
Q

equation for total cost when a loss is being made

A

0Q1 x Q1B

32
Q

where is total output cost when a loss is being made

A

Q1=0Q1BA

33
Q

the equation for total revue when a loss is being made

A

0Q1 x Q1DP1

34
Q

where is the monopolists loss on the graph

A

ABDP1

35
Q

what will the monopolist do when they are making a short term loss

A

they will expand their plant size so that they can make profits

36
Q

which two cost curves appear in the graph showing long term equilibrium

A

long term marginal cost (LMC)
Long term average cost (LAC)

37
Q

Where is long term profit maximised

A

where MR = LMC

38
Q

what is an oligopoly

A

a market structure in which a few sellers dominate the market

39
Q

what is it called when there are only two businesses in an oligopoly

A

a duopoly

40
Q

examples of an oligopoly

A

identical such as steel, cement etc

41
Q

when does the market form exist

A

when a small group of large firms dominate the market for a particular product

42
Q

what does the kinked demand curve show

A

the reason why we experience price rigidity in an oligopolist market.
it illustrates the importance of interdependence and uncertainty in oligopolistic markets

43
Q

how so oligopolists assume their competitors will not react to a price increase

A

by also raising the price of their products

44
Q

why do oligopolies prefer not to compete on price

A

because it can develop into a price war

45
Q

what will any MC curve that passes through the vertical part of the MR curve yield

A

the same price and quantity

46
Q

what is monopolistic competition

A

a market structure which combines certain certain features of monopoly and perfect competition

47
Q

which direction does the demand curve of firms facing monopolistic competition face

A

down

48
Q

what is the demand curve in monopolistic comp also known as

A

the AR curve

49
Q

why is the demand curve in a monopolistic come more elastic than in a monopoly

A

there are more close substitutes for the product

50
Q

when is profit maximized in monopolistic competition

A

when MC=MR

51
Q

why will more businesses be attracted to the industry in the long term

A

because of the economic profits earned in the short term

Economics Term 1 Grade 11 (6 decks)

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