Exam 2 ch.13-ch. 17

Question 1

explicit costs

Answer 1

require an outlay of money

Question 2

implicit costs

Answer 2

do not require an outlay of money

Question 3

accounting profit calculation

Answer 3

total revenue minus total explicit cost

Question 4

economic profit calculation

Answer 4

total revenue minus total cost (including explicit and implicit costs)

Question 5

is accounting or economic profit higher? why?

Answer 5

accounting profit is higher because it ignores implicit costs

Question 6

what is the production function?

Answer 6

the relationship between the quantity of inputs used to male a good and the quantity of the output of that good

Question 7

production function curve gets flatter when

Answer 7

production rises

Question 8

marginal product

Answer 8

increase in output that arises from an additional input

Question 9

marginal product formula

Answer 9

MPL= change in quantity/ change in labor

Question 10

Diminishing marginal product

Answer 10

the marginal product of an input declines as the quantity of input increases

Question 11

MPL curve gets flatter when

Answer 11

more inputs are being used

Question 12

when does slope of production function decrease

Answer 12

as more inputs are being used

Question 13

Marginal cost

Answer 13

increase in total cost rising an extra unit in production

Question 14

marignal cost formula

Answer 14

MC= change in total cost/change in quantity

Question 15

fixed costs

Answer 15

do not vary with the quantity of output produced

Question 16

variable costs

Answer 16

vary with the quatity of output produced

Question 17

average fixed cost (AFC)

Answer 17

fixed costs divided by the quantity of output
AFC=FC/Q
declining

Question 18

average variable cost (AVC)

Answer 18

variable cost divided by the quantity of output

AVC= VC/Q

Question 19

average total cost (ATC)

Answer 19

equals total cost divided by the quantity of output 
ATC=TC/Q or
ATC=AFC+AVC
increasing
always above AFC and AVC

Question 20

when MC is less than ATC what happens to ATC

Answer 20

ATC falls

Question 21

when MC is larger than the ATC what happens to the ATC

Answer 21

ATC rises

Question 22

what is the necessary relationship for the ATC curve and the MC curve

Answer 22

they must cross at the minimum

Question 23

run when inputs are fixed

Answer 23

short-run

Question 24

run when all inputs are variable

Answer 24

long run

Question 25

economies of scale

Answer 25

ATC falls as Q rises

Question 26

constant returns to scale

Answer 26

ATC stays the same as Q increases

Question 27

Diseconomies of scale

Answer 27

ATC rises as Q increases

Question 28

Monopoly

Answer 28

A firm that is the sole seller of a product without close substitutes

Question 29

monopoly resources

Answer 29

a single firm owns a key resource

Question 30

government regulation

Answer 30

The government gives a single firm the exclusive right to produce the good.

Question 31

3 barriers to entry

Answer 31

1. monopoly resources 2. government regulation 3. the production process

Question 32

natural monopoly

Answer 32

a single firm can produce the entire market Q at lower cost than could several firms

Question 33

profit maximization

Answer 33

MR=MC

Question 34

what is the relationship between P and AR in a monopoly

Answer 34

P=MR

Question 35

what is the relationship between MR and P in a monopoly

Answer 35

MR

Question 36

TR=

Answer 36

P x Q

Question 37

AR=

Answer 37

TR/Q

Question 38

MR=

Answer 38

change in TR/ change in Q

Question 39

why doesn't a monopoly have a supply curve

Answer 39

it is a price maker

Question 40

what does it mean for a monopoly to be a price-maker

Answer 40

Q does not depend on P | they are jointly determined by MC, MR, and demand curve

Question 41

profit equals (formula)

Answer 41

(P-ATC)xQ

Question 42

what two effects does increasing Q have on revenue (in monopoly)

Answer 42

1. output effect: | 2. price effect

Question 43

economies of scale

Answer 43

the property whereby long-run average total cost falls as the quantity of output increases

Question 44

3 sources of monopsony power

Answer 44

1. workers face costs when searching for a job in far off locations 2. workers have preferences for certain firms 3. workers lack complete information about wage differentials across firms

Question 45

monopsony

Answer 45

the only buyer of a good in a given market

Question 46

oligopoly

Answer 46

only a few sellers offer similar or identical products

Question 47

inefficient scale

Answer 47

ATC in monopolistic competition is greater than ATC in perfect competition

Question 48

excess capacity

Answer 48

quantity is not at a minimum ATC (it is on the downward-sloping portion of ATC)

Question 49

markup over marginal cost

Answer 49

P> MC

Question 50

monopolistic competition characteristics

Answer 50

- many sellers - product differentiation - free entry and exit

Question 51

short run shut down conditions

Answer 51

when shut down, firm but still pay fixed costs | shut down if TR is less than VC

Question 52

Long run exit/entry conditions

Answer 52

EXIT if TR is less than TC (same as P>ATC)x

Question 53

why does the monopolist’s marginal revenue curve slope downward

Answer 53

so the price that the monopolist can get for each additional unit of output must fall as the monopolist increases its output. therefore MR falls with increasing output

Question 54

monopoly equilibrium

Answer 54

P>MR=MC

Question 55

public policies toward monopoly

Answer 55

1. Increasing competition with anti-trust laws - prevent mergers - breakup companies 2. Regulation 3. Public Ownership

Question 56

what is the main source of market-power in monopolistic | competition

Answer 56

product differentiation

Question 57

what is the long-run equilibrium | condition in monopolistic competition?

Answer 57

P=ATC

Question 58

why is monopolistic competition less efficient than perfect competition

Answer 58

ATC is greater

Question 59

when is monopolistic competition at excess capacity

Answer 59

when quantity is not ay minimum ATC

Question 60

what does it mean that the monopolistically competitive firm does not operate at the efficient scale

Answer 60

firms always set the price greater than their marginal costs

Question 61

Nash Equilibrium concept for an oligopolistic market

Answer 61

economic actors interacting with one another, each choose their best strategy

Question 62

how does the game theoretic approach embodied in the Prisoner’s Dilemma represent an oligopolistic market

Answer 62

illustrates why cooperation is difficult to maintain even when it is mutually beneficial

Question 63

examples of prisoners dilemma

Answer 63

Ad wars, petroleum exporting countries`

Question 64

public policy toward oligopolies

Answer 64

1. governments can improve market outcomes 2. policymakers move allocation of resource closer to social optimum 3. antitrust laws prevent mergers

Question 65

how does minimum wage change the marginal incentives of the monopsonist

Answer 65

it affects the number of workers that are hired. an upward sloping supply curve encourages increasing marginal cost

Question 66

sources of wage-setting power in the labor market

Answer 66

- Search Costs in the Labor Market - Worker Preferences for Specific Firms - incomplete information

Question 67

assumptions of perfect competition

Answer 67

o Large # of Buyers and Sellers o Free Entry and Exit o No Product Differentiation o Price Taking

Question 68

why does a monopolistically comepetitive firm not operate athe the efficient scale

Answer 68

because price=ATC, wherein perfectly competitive- or efficient- it would be at the minimum ATC