Final Exam

Question 1

Markets in which 1) all businesses in an industry sell and identical good; and 2) there are many sellers and many buyers, each of whom is small relative to the size of the market.

Answer 1

Perfect Competition

Question 2

When there is only one seller in the market.

Answer 2

Monopoly

Question 3

The extent to which a seller can charge a higher price without losing many sales to competing businesses.

Answer 3

Market Power

Question 4

A market with only a handful of large sellers

Answer 4

Oligopoly

Question 5

A market with many small businesses competing, each selling differentiated products.

Answer 5

Monopolistic competition

Question 6

Efforts by sellers to make their products differ from those of their competitors

Answer 6

Product Differentiation

Question 7

When you face at least some competitors and/or you sell products that differ at least a little from your competitors.

Answer 7

Imperfect competition

Question 8

The addition to total revenue you get from selling one more unit

Answer 8

Marginal Revenue

Question 9

An individual firm’s demand curve, summarizes the quantity that buyers demand from an individual firm as it changes its price.

Answer 9

Firm Demand Curve

Question 10

Sell one more item if the marginal revenue is greater than (or equal to) marginal cost

Answer 10

Rational Rule for Sellers

Question 11

A measure of industry concentration formed by adding the market shares of the largest firms

Answer 11

Concentration Ratio

Question 12

A measure of industry concentration formed by adding the squares of market shares of all firms.

Answer 12

Herfindahl-Hirschman Index

Question 13

An agreement to limit competition

Answer 13

Collusion

Question 14

A market in which it is the cheapest for a single business to service the market

Answer 14

Natural Monopoly

Question 15

The total revenue a firm receives, less its explicit financial costs and the entrepreneur’s implicit opportunity costs

Answer 15

Economic Profit

Question 15

The total revenue a business receives, less its explicit financial costs.

Answer 15

Accounting profit

Question 16

Revenue per unit, calculated as total revenue divided by the quantity supplied

Answer 16

Average Revenue

Question 17

Costs like land and equipment that do not change as output changes

Answer 17

Fixed Costs

Question 18

Costs like raw materials and worker time that change as output changes

Answer 18

Variable Costs

Question 19

Cost per unit, calculated as your firm’s total costs (including fixed and variable costs) divided by the quantity produced

Answer 19

Average Cost

Question 20

The cost to product an extra unit

Answer 20

Marginal Cost

Question 21

Profits sold per unit

Answer 21

Profit margin per unit

Question 22

The horizon over which the production capacity, and the number and type of competitors you face, cannot change

Answer 22

Short Run

Question 23

The horizon over which you, or your rivals, may expand or contract production capacity and new rivals may enter the market or existing firms may exit.

Answer 23

Long Run

Question 24

You should enter a market if you expect to earn a positive economic profit, which occurs when the price exceeds your average cost

Answer 24

Rational Rule for Entry

Question 25

Exit the market if you expect to earn a negative economic profit, which occurs if the price is less than your average cost.

Answer 25

Rational Rule for Exit

Question 26

When there are no factors making it particularly difficult or costly for a business to enter or exit an industry

Answer 26

Free Entry

Question 27

Obstacles that make it difficult for new firms to enter a market

Answer 27

Barriers to Entry

Question 28

Selling the same good at different prices

Answer 28

Price Discrimination

Question 29

An impediment that makes it costly for customers to switch to buying from another business

Answer 29

Switching Costs

Question 30

The maximum price a customer will pay for a product. It is equal to their marginal benefit

Answer 30

Reservation Price

Question 31

Charging each customer their reservation price

Answer 31

Perfect price discrimination

Question 32

When your best choice may depend on what others choose, and their best choice may depend on what you choose.

Answer 32

Strategic Interaction

Question 33

The choice that yields the highest payoff given the other player’s choice

Answer 33

Best Response

Question 33

A table that lists your choices in each row, the other player’s choices in each column, and so shows all possible outcomes, listing the payoffs in each cell

Answer 33

Payoff Table

Question 34

If you put a checkmark next to each player’s best response, then an outcome with a check mark from each player is a Nash Equilibrium

Answer 34

Check Mark Method

Question 35

An equilibrium in which the choice that each player makes is a best response to the choices other players are making

Answer 35

Nash Equilibrium

Question 36

When your best response is to take a different (but complementary) action to the other player

Answer 36

Anti-Coordination Game

Question 36

When all players have a common interest in coordinating their choices

Answer 36

Coordination Game

Question 37

A cue from outside a game that helps you coordinate on a specific equilibrium

Answer 37

Focal Point

Question 38

When one party to a transaction knows something the other doesn’t

Answer 38

Private Information

Question 39

The tendency for the mix of goods to be skewed toward more high-cost buyers when sellers don’t know buyers type

Answer 39

Adverse Selection of Buyers

Question 40

The actions you take because they are not fully observable and you are partially insulated from their consequences

Answer 40

Moral Hazard

Question 41

The problems that arise when a principal hires an agent to do something on they’re behalf, the the principal cannot perfectly observe the agent’s actions

Answer 41

Principal-agent problem

Question 42

Linking the income your workers earn to measures of their performance

Answer 42

Pay-For-Performance