Econ 203- Final Exam (Galose) || with 100% Correct Answers.
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Econ 203
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Econ 203
Normal Profit correct answers The opportunity cost of capital
-equivalent to an implicit cost
-it is earned if economic profit is zero, which, maybe surprisingly, is the typical case.
Market Structure correct answers -the number and relative size of firms in an industry
Perfect competition ...
Econ 203- Final Exam (Galose) || with 100% Correct
Answers.
Normal Profit correct answers The opportunity cost of capital
-equivalent to an implicit cost
-it is earned if economic profit is zero, which, maybe surprisingly, is the typical case.
Market Structure correct answers -the number and relative size of firms in an industry
Perfect competition correct answers -a market in which no buyer or seller has market power
Monopolistic competition correct answers -many firms, a little market power
Oligopoly correct answers -a few firms, considerable market power
Duopoly correct answers -two firms
Monopoly correct answers -one firm only
perfect competition correct answers -many firms compete for consumer purchases
-the products of each firm are identical
-low entry barriers make it easy to get into the business
-no firm has any market power, thus they cannot manipulate the price. They are "price takers"
-Each firm's output is small relative to the total market amount
Individual Firm's Demand Curve correct answers -horizontal
-it will only charge the market price
-if it raises its price, nobody will buy
-if it lowers its price, it will sell out, but it can do that at the market price
-it can sell increased quantities at the market price
competitive firm production decision correct answers -there are no pricing decisions. Firms take
the market price
-there are no quality decisions since all products are identical
*the only decision is how much to produce*
Marginal revenue (MR) correct answers -equal to price
-the added amount received from selling an additional unit
MR= (change in total revenue) / (change in output)
Marginal Cost (MC) correct answers -as output increases, _______________ increases,
squeezing the profit from the added units.
*if P>MC, we add to profit by selling that one.
,*if P<MC, we make a loss by selling that one.
*if P=MC, we make no profit or loss on that one.
Profit Maximization Rule correct answers For perfectly competitive firms,
-if P>MC, increase output and profits will grow
-if P<MC, decrease output and losses will go away
-if P=MC, produce this output because it is the quantity at which profits are maximized
*produce at that rate of output where marginal revenue (MR=P) equals marginal cost (MC)
Investment decision correct answers -the decision to build, buy, or lease plants and equipment or
to enter or exit an industry
-long run
-fixed costs are the owner's investment in the business. They must generate enough revenue to
recoup the investment
-investment will occur if the anticipated profits are large enough to compensate for the effort and
risk
Determinants of Supply correct answers -the price of factor inputs
-technology
-expectations
-taxes and subsidies
marginal cost curve correct answers -_______________________ is the firm's short-run supply
curve
correct answers Competitive Markets (Chp. 23)
Market supply curve correct answers the sum of the MC curves of all the firms
Market supply curve determinants correct answers -the price of factor inputs
-technology
-expectations
-taxes and subsidies
-the number of firms in the industry
Rules for Entry and Exit correct answers - if P>ATC, economic profits exist; enter the industry
or expand capacity
-if P<ATC, economic losses exists; reduce capacity (or exit if P>AVC)
-if P=ATC, economic profits are zero; maintain existing capacity (no entry or exit)
market mechanism correct answers -the use of market prices and sales to signal desired outputs
(or resource allocations)
, allocative efficiency correct answers -profit seeking producers produce more to satisfy consumer
demand, and vise versa
-the industry will end up producing the right output mix
correct answers Monopoly (Chp. 24)
Monopoly correct answers -an industry in which there is only one producer
-no competition
-has significant market power
-do not have to continuously modify its product since there is no competition
market power correct answers the ability to alter the market price of a good or service
Production decision for monopolist correct answers - if MR>MC, increase output and profits rise
-if MR<MC, decrease output and profits will rise
-If MR=MC, produce this profit-maximizing output
natural monopoly correct answers an industry in which one firm can achieve economies of scale
over the entire range of the market
contestable markets correct answers -an imperfectly competitive industry subject to potential
entry if price of profits increase
correct answers Oligopoly (Chp.25)
imperfect competition determinants correct answers -number of producers
-size of each firm
-barriers to entry
-availability of substitute goods
concentration ratio correct answers -the proportion of total industry output produced by the
largest firms
oligopolies correct answers make decisions based on what they think their competitors will do
market share correct answers the percentage of the total market produced by a single firm
payoff matrix correct answers game strategy requires the creation of possible outcomes
cartels correct answers -a group of firms with an explicit, formal agreement to fix prices and
output shares in a particular market
monopolistic competition correct answers -a market in which many firms produce similar goods
or services but each maintains some independent control of its own price
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