Midterm 3

Question 1

What are the different Market Structures in S-R

Answer 1

Pure Competition Market
Monopoly
Monopolistic Competition
Oligopoly

Question 2

What makes the 4 types of markets different

Answer 2

Whether they are homogeneous or differentiate, number of firms in the industry and ease of entry and exit of the industry.

Question 3

What is Pure Competition Market

Answer 3

A large number of firms in the industry’s each producing a small fraction of total output.

Question 4

In Pure Competition Market is it easy or difficult to enter and exit the industry.

Answer 4

There is a easy entry and exit of the industry

Question 5

What affect does the large number of firms in Pure Competition Market have on the price of products

Answer 5

There is not a lot of control of price

Question 6

Look at Graphs for Pure Competition Market S-R

Answer 6

Look at graphs for Pure Competition market S-R

Question 7

Look at Graphs for Pure Competition Market L-R

Answer 7

Look at Graphs for Pure Competition Market L-R

Question 8

What is Productive efficiency

Answer 8

It exists when firms use the least cost method of production when producing output.

Question 9

What is Allocative efficiency

Answer 9

Exists when societies scarce resources are directed towards producing the goods most wanted by consumers.

Question 10

Productive efficiency =?

Answer 10

Min AC

Question 11

Allocative efficiency =?

Answer 11

P=MC

Question 12

What is Monopoly Market Structure

Answer 12

There is only one firm in the industry
There are no close substitutes
There are barriers to enter the industry
The firm in this market is a price maker

Question 13

Examples of Monopoly Markets

Answer 13

Water industry
Electricity Industry
Gas Industry

Question 14

What kind of barriers are there when entering a Monopoly market

Answer 14

Legal Barriers
Natural Barriers

Question 15

What are some examples of Legal Barriers

Answer 15

Patent, research and development, licenses, ownership or control of natural resources

Question 16

Look at Graphs on Monopoly Market Structure

Answer 16

Look at Graphs on Monopoly Market Structure

Question 17

Do Monopoly Markets have Productive efficiency and or Allocative efficiency

Answer 17

No they do not because Monopoly markets do not produce at the min cost

Question 18

What are the differences between Pure Competition Market and Monopoly Market

Answer 18

Monopoly markets charge more and produce less

Question 19

What does a monopolist do?

Answer 19

They transfer income from consumers to stockholders who own the monopoly and impose tax on consumers to gain profit

Question 20

What is price discrimination

Answer 20

Can make more money if market is separated

Question 21

What are some conditions for price discrimination

Answer 21

Producers have control on price, elasticity of demand should be different in different market

Question 22

What is a Monopolistic Market Structure

Answer 22

Relatively large number of firms each producing a small function of total output.

Question 23

In a monopolistic market what do the firms produce compared to each other

Answer 23

Firms produce similar but differentiated products which comes in form of brand names

Question 24

Is it easy to go in and out of a Monopolistic market

Answer 24

Its relatively easy

Question 25

In a Monopolistic market what is one thing that is very important

Answer 25

Advertising

Question 26

What are some examples of a Monopolistic Market

Answer 26

Kid clothing, mining, grocery stores, gas station

Question 27

What does it take to be qualified as Monopolistic competition

Answer 27

If the output of the 4 largest firms relative to output of the whole industry is less than 40%

Question 28

LOOK AT GRAPHS

Answer 28

LOOK AT GRAPHS

Question 29

In a monopolistic market what will firms do if there is Economic Profit

Answer 29

More firms will enter the industry and the demand curve to shift to the left

Question 30

In a monopolistic market what will firms do if there is Economic loss

Answer 30

some firms will leave the industry shifting the demand curve to the right for the remaining firms

Question 31

In a Monopolistic market Productive efficiency exists when

Answer 31

When the firms produce the minimum point of ATC

Question 32

What is a Oligopoly Market Structure

Answer 32

A market where a few powerful firms produce similar and differentiated products and control the market

Question 33

What are the two types of Oligopoly Markets

Answer 33

Homogenous Oligopoly Differentiated Oligopoly

Question 33

What is mutual Interdependence

Answer 33

In order to set price for products they need to take into consideration the reaction of their rivals

Question 33

Smaller firms can merge to do what

Answer 33

Enjoy economies of scale

Question 34

LOOK AT PAY OFF MATRIX

Answer 34

LOOK AT PAY OFF MATRIX

Question 34

What is Game Theory

Answer 34

Study of how people behave in strategic ways

Question 34

What are some pricing strategies

Answer 34

Collusion Price Leadership

Question 35

How does Collusion happen

Answer 35

When firms in a industry reach an agreement to fix prices and divide up the market to reduce competition

Question 36

What does Collusion resemble

Answer 36

A monopoly

Question 37

What are the two types of Collusion

Answer 37

Overt Collusion Covert Collusion

Question 38

What is a Overt Collusion

Answer 38

Formal agreement among firms in the industry to set price and share market

Question 39

OPEC is the best example of what

Answer 39

A Cartel

Question 40

Most Collusions are what type

Answer 40

Covert

Question 41

What are examples of Non Price Competition

Answer 41

Advertising and research and devlopment

Question 42

Price Collusion depends on what

Answer 42

Compromises

Question 43

What usually happens during a recession

Answer 43

Average cost usually increases

Question 44

What is Price leadership

Answer 44

Where one firm usually the largest firm will set the price and other follow

Question 45

What is Demand for factors of production

Answer 45

Demand for input or factors of production in general like labor and capital depend on demand for goods and services that they helped produce

Question 46

Demand for resources is called what

Answer 46

Derived demand

Question 47

Why cant the labor force change the price of labor

Answer 47

Because there is a large number of employers each hiring small fractions of total labor force

Question 48

(Marginal Factor Cost) Marginal Resource Cost =

Answer 48

Change in TC / Change in Labor

Question 49

Marginal Revenue Product =

Answer 49

Change in TR / Change in Labor

Question 50

LOOK AT GRAPHS FOR RESOURCE DEMAND

Answer 50

LOOK AT GRAPHS FOR RESOURCE DEMAND

Question 51

Market Demand of Resources is what

Answer 51

A horizontal salvation of all individual demand curves for firms

Question 52

Determinants of Demand for Resources

Answer 52

A change in Demand for a product - More cost of resources A change in productivity for resources - More demand Change in Price of other resources - Substitute Resource / Complementary Resources

Question 53

If land and Capital are close substitutes and Pk goes down QDk goes up and DL goes down what is this

Answer 53

Substitution effect

Question 54

If Pk goes down and Cost of Production goes down and Dk goes up and DL goes up what is this

Answer 54

Output effect

Question 55

If L and K are complements

Answer 55

PK goes up QDK goes up and DL goes down

Question 56

What is Least Cost Combination

Answer 56

MPL / PL = MPk / Pk

Question 57

What is Profit Maximizing Combination

Answer 57

MRPL / PL = MRPk / Pk = 1