Micro Econ

Question 1

what is known about fixed costs in the short run

Answer 1

in the short run at least one factor of production cannot be changed e.g. rent, adverts, capital goods

Question 2

internal economies of scale

Answer 2

• managerial
• technological
• risk-bearing
• financial
• marketing
• purchasing

Question 3

allocative efficiency

Answer 3

resources used to produce goods where the value to consumers through consumption is equal to marginal cost
maximised social welfare
MC = AR

Question 4

productive efficiency

Answer 4

when products are produced at the lowest average cost
MC = AC

Question 5

what are the characteristics of perfect competition

Answer 5

• goods are homogenous
• firms are price takers
• many buyers and sellers
• low barriers to entry/exit
• perfect information and knowledge

Question 6

what are the characteristics of monopolistic competition

Answer 6

• goods are heterogeneous
• firms are price setters
• many buyers and sellers
• low barriers to entry/exit
• perfect information and knowledge

Question 7

what is the diagram for perfect competition

Answer 7

in the long run they make normal profits

Question 8

show an increase in revenue in a perfectly competitive market

Answer 8

increased in AR increases demand creating a new market equilibrium

Question 9

what are the efficiencies of perfect competition

Answer 9

• allocative efficiency
• productive efficiency
• no dynamic efficiency
• no x-inefficiency

Question 10

what is the diagram for monopolistic competition in the short run

Answer 10

Question 11

what is the diagram for monopolistic competition in the long run

Answer 11

Question 12

what are the efficiencies of monopolistic competition

Answer 12

in the long run - none
- not allocative efficiency
- not productive efficiency
- no dynamic efficiency
- no x-inefficiency

Question 13

what five-firm concentration ratio is considered an oligopoly

Answer 13

greater than 50%

Question 14

what are the key features of an oligopoly

Answer 14

• interdependence
• heterogeneous goods
• barriers to entry

Question 15

what is a natural monopoly

Answer 15

when the most efficient number of firms is one possibly due to high fixed costs e.g. tap water

Question 16

what are the efficiencies of a monopoly

Answer 16

• allocative inefficient
• productive inefficient
• dynamic efficient
• x-inefficient

Question 17

what is the diagram for a natural monopoly

Answer 17

Question 18

what is the diagram for negative production externalities

Answer 18

Question 19

what is the diagram for positive consumption externalities

Answer 19

Question 20

what is an example of tacit collusion

Answer 20

pharmaceutical companies
petrol stations - BP and Shell

Question 21

supply and demand diagram of the incidence of tax on consumers and producers

Answer 21

Question 22

supply and demand diagram of the incidence of subsidy on consumers and producers

Answer 22

Question 23

what is the % change formula

Answer 23

((new - old) / old ) * 100

Question 24

what are the two reasons for natural monopolies and what are two examples

Answer 24

• high sunk costs
• huge economies of scale
• e.g. NHS and TFL

Question 25

what is the 3rd degree price discrimination diagram

Answer 25

Question 26

what are the 3 requirements for 3rd degree price discrimination

Answer 26

- able to set prices/some market power - able to differentiate consumers - able to prevent arbitrage/reselling

Question 27

what are the two main reasons firms engage in collusive behaviour

Answer 27

- to reduce uncertainty - to increase profit

Question 28

key words when talking about collusion

Answer 28

- interdependence - overt and tacit - game theory

Question 29

what % market share is considered a legal monopoly

Answer 29

25%

Question 30

what are the benefits of nationalisation

Answer 30

employees - trade unions more powerful - greater job security consumers - acts to improve social welfare - allocatively efficient

Question 31

what is consumer inertia

Answer 31

the tendency of some consumers to continue buying the same product even when better options exist

Question 32

rationalisation

Answer 32

e.g. removing two heads of departments

Question 33

why do firms remain small

Answer 33

- lack of skills/finance/resources - avoid diseconomies of scale - profit satificing

Question 34

what is a benefit of a NMW on firms

Answer 34

increased incentive -> increased productivity -> fall in unit cost

Question 35

what are the 3 ways firms compete on price

Answer 35

1. price wars 2. predatory pricing 3. limit pricing

Question 36

what are the 3 ways firms compete on price

Answer 36

1. price wars - baked beans in 1990s 2. predatory pricing 3. limit pricing - incumbent firm

Question 37

what are 3 ways firms firms compete over non-price

Answer 37

1. Advertising - samsung and apple 2. Loyalty cards - 3. Branding - nike and adidas 4. Quality