Econ week 4

Question 1

Advertising

Answer 1

The process of calling attention to a product or service in an effort to increase demand for the product or service.

Question 2

Marginal Decision Rule

Answer 2

If the marginal benefits of an activity exceed the marginal costs, the activity should be increased. Likewise, if the marginal benefits of an activity are less than the marginal costs, the activity should be decreased.

Question 3

Marginal Revenue

Answer 3

The additional revenue gained from selling one more unity of a product or service.

Question 4

Monopolistic competition characteristics

Answer 4

The market characteristics that define a monopolistically competitive market are as follows: (1) similar products, (2) barriers to entry and exit from the market, (3) many sellers in the market, and (4) producers having some price setting power.

Question 5

Monopoly Characteristics

Answer 5

Market characteristics that define a monopoly market are as follows: (1) a unique product, (2) barriers to entry and exit from the market, (3) one seller, and (4) price setting power.

Question 6

Monopoly Profit

Answer 6

When total revenue exceeds total costs for a monopoly producer.

Question 7

Product Differentiation

Answer 7

Any action that firms do to make consumers think their products are different from their competitors’.

Question 8

Shutdown Point for Monopoly

Answer 8

When total revenue is less than total costs but equal to the variable costs. As long as price is above the average variable cost, the monopolist will stay open and minimize the loss.

Question 9

Sources of Monopoly Power

Answer 9

There are three major ways in which a business can become a monopoly: (1) economies of scale, (2) monopoly resources, and (3) government granted, such as a patent.

Question 10

Total Revenue

Answer 10

The amount of money generated from the selling of a product or service, calculated as price multiplied by quantity.