Exam 3

Question 1

What is Average Total Cost (ATC)?

Answer 1

The cost per unit of production, calculated as Total Cost (TC) ÷ Quantity (Q).

Question 2

How do you find ATC on a graph?

Answer 2

1. Find where MR = MC to get Q (quantity).
2. Go up from Q to the ATC curve.
3. Move horizontally to the price axis to find ATC.

Question 3

What does it mean when P > ATC?

Answer 3

The firm is making a profit.

Question 4

What does it mean when P = ATC?

Answer 4

The firm is breaking even.

Question 5

What does it mean when P < ATC?

Answer 5

The firm is operating at a loss.

Question 6

When should a firm shut down in the short run?

Answer 6

When price falls below Average Variable Cost (AVC).

Question 7

What happens in the long run if firms face losses?

Answer 7

Some firms will leave the market, reducing supply.

Question 8

What is the difference between short-run and long-run decisions?

Answer 8

Short Run: Fixed costs are unavoidable; produce if P ≥ AVC.

Long Run: All costs are variable; stay only if P ≥ ATC.

Question 9

What characterizes perfect competition?

Answer 9

Many sellers, identical products, no price control, and zero economic profit in the long run.

Question 10

What characterizes a monopoly?

Answer 10

One seller, price control, and potential for long-term profits.

Question 11

What is the short-run supply curve?

Answer 11

The portion of the MC curve above the AVC curve.

Question 12

What does ‘MR = MC’ signify?

Answer 12

The profit-maximizing quantity to produce.

Question 13

What is a characteristic of perfect competition?

Answer 13

Many buyers and sellers.

Question 14

What is another characteristic of perfect competition?

Answer 14

Identical (homogeneous) products.

Question 15

What is a third characteristic of perfect competition?

Answer 15

Little to no control over price (price takers).

Question 16

What is a fourth characteristic of perfect competition?

Answer 16

No significant barriers to entry or exit.

Question 17

What is a characteristic of monopolies?

Answer 17

A single seller dominates the market.

Question 18

What is another characteristic of monopolies?

Answer 18

Unique product with no close substitutes.

Question 19

What is a third characteristic of monopolies?

Answer 19

Significant barriers to entry prevent competition.

Question 20

What is a fourth characteristic of monopolies?

Answer 20

Firms have full control over prices (price makers).

Question 21

What is a characteristic of monopolistic competition?

Answer 21

Many sellers with differentiated products.

Question 22

What is another characteristic of monopolistic competition?

Answer 22

Firms have some control over prices.

Question 23

What is a characteristic of oligopolies?

Answer 23

Few large firms dominate the market.

Question 24

What is another characteristic of oligopolies?

Answer 24

Firms often have mutual interdependence in pricing and strategies.

Question 25

What is a unique feature of monopolistic competition compared to perfect competition?

Answer 25

Non-price competition, such as advertising and branding.

Question 26

What is game theory?

Answer 26

The study of strategic behavior among decision-makers.

Question 27

What is a payoff matrix?

Answer 27

A table showing the potential outcomes of decisions made by two or more players.

Question 28

What is Nash Equilibrium?

Answer 28

An outcome where no player has an incentive to change their strategy independently.

Question 29

What is a dominant strategy?

Answer 29

A strategy that yields the highest payoff regardless of what the other players do.

Question 30

What is collusion?

Answer 30

A situation where decision-makers coordinate actions to achieve a desired outcome, often illegally.

Question 31

What is the 'Prisoner’s Dilemma'?

Answer 31

A game theory scenario where individuals acting in their own interest produce a worse outcome than if they cooperated.

Question 32

What is 'Battle of the Sexes'?

Answer 32

A game where two players prefer different outcomes but value being together more than their preferred option.

Question 33

What is the 'Game of Chicken'?

Answer 33

A game where players must decide to avoid conflict or stand their ground, with the risk of mutual loss.

Question 34

What is a repeated game?

Answer 34

A game played multiple times, allowing strategies to evolve based on past outcomes.

Question 35

What is first-mover advantage?

Answer 35

The advantage gained by the first player to make a move in a sequential game.

Question 36

What is a game tree?

Answer 36

A diagram mapping all possible strategies and outcomes in a sequential game, solved using backward induction.