Podcast
Questions and Answers
Under what price should the firm shut down in the short run?
Under what price should the firm shut down in the short run?
- $16
- $14 (correct)
- $11
- $20
What is the minimum price at which the firm can earn a positive profit given its fixed costs?
What is the minimum price at which the firm can earn a positive profit given its fixed costs?
- $14
- $20
- $11
- $16 (correct)
If there are 100 identical firms in the market, what is the value of Q2?
If there are 100 identical firms in the market, what is the value of Q2?
- 40,000 (correct)
- 10,000
- 80,000
- 20,000
What is the marginal revenue from selling the 8th pair of shoes?
What is the marginal revenue from selling the 8th pair of shoes?
Which situation represents a point on the long-run supply curve?
Which situation represents a point on the long-run supply curve?
What is total profit at the profit-maximizing quantity?
What is total profit at the profit-maximizing quantity?
What tends to happen when new firms enter a perfectly competitive market?
What tends to happen when new firms enter a perfectly competitive market?
At what quantity does Sally maximize her profit?
At what quantity does Sally maximize her profit?
What are Sally's fixed costs?
What are Sally's fixed costs?
In the long run, if Willie’s Wading Adventures is making a profit, what is likely to occur?
In the long run, if Willie’s Wading Adventures is making a profit, what is likely to occur?
What is the total revenue from selling 5 pairs of shoes?
What is the total revenue from selling 5 pairs of shoes?
What would happen to the market price of products if safety laws were relaxed and production costs decreased?
What would happen to the market price of products if safety laws were relaxed and production costs decreased?
What is the marginal cost of producing the 6th pair of shoes?
What is the marginal cost of producing the 6th pair of shoes?
How would the entry of firms affect the equilibrium in a perfectly competitive market?
How would the entry of firms affect the equilibrium in a perfectly competitive market?
How much revenue does Sally earn from the sale of her 4th pair of shoes?
How much revenue does Sally earn from the sale of her 4th pair of shoes?
What is the total cost when producing 3 pairs of shoes?
What is the total cost when producing 3 pairs of shoes?
What is Bill's economic profit at the profit-maximizing output level?
What is Bill's economic profit at the profit-maximizing output level?
If marginal cost exceeds marginal revenue, what is the most appropriate action for the firm?
If marginal cost exceeds marginal revenue, what is the most appropriate action for the firm?
How is total profit for a firm calculated?
How is total profit for a firm calculated?
Which principle is best demonstrated when a restaurant remains open for lunch despite few customers?
Which principle is best demonstrated when a restaurant remains open for lunch despite few customers?
What happens when a firm sets its output level where marginal cost equals marginal revenue?
What happens when a firm sets its output level where marginal cost equals marginal revenue?
What characterizes a firm's decision-making in the short run?
What characterizes a firm's decision-making in the short run?
If a firm is operating at a loss, what critical assessment should be made about its variable costs?
If a firm is operating at a loss, what critical assessment should be made about its variable costs?
What is implied by the phrase 'marginal revenue'?
What is implied by the phrase 'marginal revenue'?
What is the expected outcome when sellers leave an industry that is suffering economic losses?
What is the expected outcome when sellers leave an industry that is suffering economic losses?
In a perfectly competitive market, if firms have the same costs, they will operate at which point in the long run?
In a perfectly competitive market, if firms have the same costs, they will operate at which point in the long run?
What happens to firms in a competitive industry if the price is $3.50 in the short run?
What happens to firms in a competitive industry if the price is $3.50 in the short run?
In the long run, what will the long-run supply curve for a competitive market look like if there are barriers to entry?
In the long run, what will the long-run supply curve for a competitive market look like if there are barriers to entry?
What occurs in a competitive market in the short-run following a decrease in demand, assuming the market was in long-run equilibrium?
What occurs in a competitive market in the short-run following a decrease in demand, assuming the market was in long-run equilibrium?
What condition must be satisfied for a firm in long-run equilibrium?
What condition must be satisfied for a firm in long-run equilibrium?
Which of these factors can cause the long-run supply curve for a competitive industry to be upward sloping?
Which of these factors can cause the long-run supply curve for a competitive industry to be upward sloping?
What is likely to happen to the number of firms in a competitive industry during the transition from short run to long run?
What is likely to happen to the number of firms in a competitive industry during the transition from short run to long run?
What is the primary reason monopolies are considered socially inefficient?
What is the primary reason monopolies are considered socially inefficient?
At what output level would a benevolent social planner prefer a monopoly to operate compared to its profit-maximizing output?
At what output level would a benevolent social planner prefer a monopoly to operate compared to its profit-maximizing output?
How should a monopolist determine the price-quantity combination that maximizes profit?
How should a monopolist determine the price-quantity combination that maximizes profit?
What is the function of deadweight loss in a monopoly market?
What is the function of deadweight loss in a monopoly market?
If a monopolist has a demand function represented by $P = 90 - Q$, what is the marginal revenue function expressed as?
If a monopolist has a demand function represented by $P = 90 - Q$, what is the marginal revenue function expressed as?
Which price-quantity outcome would a monopolist choose to maximize total revenue given certain conditions?
Which price-quantity outcome would a monopolist choose to maximize total revenue given certain conditions?
Which of the following is an example of price discrimination by a firm?
Which of the following is an example of price discrimination by a firm?
What happens to the total costs for Bearclaws when it maximizes profits?
What happens to the total costs for Bearclaws when it maximizes profits?
What is the total revenue when 3 units are sold under perfect price discrimination?
What is the total revenue when 3 units are sold under perfect price discrimination?
What issue arises with government-operated monopolies?
What issue arises with government-operated monopolies?
If a natural monopoly is regulated to charge a price equal to its marginal cost, what will result?
If a natural monopoly is regulated to charge a price equal to its marginal cost, what will result?
How does the government typically handle natural monopolies in the US?
How does the government typically handle natural monopolies in the US?
Which of the following correctly differentiates monopolistic competition from monopoly?
Which of the following correctly differentiates monopolistic competition from monopoly?
What is true about the marginal revenue for each additional unit sold in a monopolistic setting?
What is true about the marginal revenue for each additional unit sold in a monopolistic setting?
Which of the following strategies might a monopolist use to optimize profits?
Which of the following strategies might a monopolist use to optimize profits?
What is a common characteristic of monopolies regarding pricing strategies?
What is a common characteristic of monopolies regarding pricing strategies?
Flashcards
Profit-maximizing output
Profit-maximizing output
The level of output where marginal cost equals marginal revenue.
Economic Profit
Economic Profit
Total revenue minus total cost (including both explicit and implicit costs).
Marginal Cost (MC)
Marginal Cost (MC)
The additional cost of producing one more unit of output.
Marginal Revenue (MR)
Marginal Revenue (MR)
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Sunk Costs
Sunk Costs
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Fixed Costs
Fixed Costs
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Variable Costs
Variable Costs
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Short Run
Short Run
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What is the marginal revenue from selling the 8th pair of shoes?
What is the marginal revenue from selling the 8th pair of shoes?
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What is total profit at the profit-maximizing quantity?
What is total profit at the profit-maximizing quantity?
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Sally's fixed costs
Sally's fixed costs
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Firm Shutdown (Short-Run)
Firm Shutdown (Short-Run)
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Firm Shutdown (Long-Run)
Firm Shutdown (Long-Run)
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Profitability Threshold
Profitability Threshold
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Market Supply Curve Shift (New Firms)
Market Supply Curve Shift (New Firms)
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Long-Run Supply Curve (competitive market)
Long-Run Supply Curve (competitive market)
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Competitive Market Entry
Competitive Market Entry
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Competitive Market Exit
Competitive Market Exit
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Long Run Equilibrium (Competitive Market)
Long Run Equilibrium (Competitive Market)
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Supply shift in competitive market
Supply shift in competitive market
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Long-run equilibrium in perfect competition
Long-run equilibrium in perfect competition
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Marginal firm in long-run equilibrium
Marginal firm in long-run equilibrium
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Short-run price above minimum average total cost
Short-run price above minimum average total cost
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Short-run price below minimum average total cost
Short-run price below minimum average total cost
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Long-run adjustment in a competitive industry
Long-run adjustment in a competitive industry
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Upward-sloping long-run supply curve
Upward-sloping long-run supply curve
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Demand decrease in a competitive market with a horizontal long-run supply curve
Demand decrease in a competitive market with a horizontal long-run supply curve
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What happens when a patent expires?
What happens when a patent expires?
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Monopolist's cost with profit maximization
Monopolist's cost with profit maximization
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Social inefficiency of monopolies
Social inefficiency of monopolies
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Where is social efficiency achieved?
Where is social efficiency achieved?
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Maximizing total surplus
Maximizing total surplus
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Deadweight loss due to monopoly
Deadweight loss due to monopoly
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Benevolent social planner's action
Benevolent social planner's action
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Profit-maximizing monopolist's output
Profit-maximizing monopolist's output
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Perfect Price Discrimination Explained
Perfect Price Discrimination Explained
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Total Revenue with Perfect Price Discrimination
Total Revenue with Perfect Price Discrimination
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Government Monopoly Operation Problem
Government Monopoly Operation Problem
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Government Regulation of Natural Monopolies: Marginal Cost Pricing
Government Regulation of Natural Monopolies: Marginal Cost Pricing
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Government Intervention in Natural Monopolies
Government Intervention in Natural Monopolies
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Impact of Marginal Cost Pricing on Natural Monopolies
Impact of Marginal Cost Pricing on Natural Monopolies
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Natural Monopoly Solutions
Natural Monopoly Solutions
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Why is Monopolistic Competition Different from Monopoly?
Why is Monopolistic Competition Different from Monopoly?
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Study Notes
Market Power
- A firm has market power if it can influence the market price of the good it sells.
- This is opposed to a competitive market where a firm cannot influence the market price.
- Maximizing profits and minimizing costs are not indicators of market power.
Competitive Market
- In a competitive market, an increase in a firm's output will not change the market price.
- The market price does not change because other firms in the market are producing a similar good or service.
- A competitive market is characterised by many sellers and buyers of similar goods or services.
Marginal Revenue (MR)
- Marginal revenue is the change in total revenue for each additional unit of output sold.
- In a competitive market, Marginal revenue is constant, and equal to the market price
- In a market with market power, MR is declining.
Average Revenue (AR)
- Average revenue is the total revenue divided by the quantity sold.
- In a competitive market, AR is constant and equal to the market price.
Profit Maximization Output
- Firms in competitive markets maximize profit by producing at the level where marginal revenue equals marginal cost (MR=MC).
- The firm will increase its production as long as MR is greater than MC (MR>MC), and when MR falls below MC (MR<MC) it will reduce its production.
- The firm will break even when the price is equal to the average total cost (P=ATC).
Economic Profit
- Total profit is the difference between total revenue and total costs.
- In a competitive market, the firm will earn zero economic profits in the long run, which means total revenue is equal to total costs.
- If the price is above the minimum average total cost (P>ATC) the firm will earn an economic profit.
- If the price is below the minimum average total cost (P<ATC) the firm will earn an economic loss.
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Description
This quiz explores the concepts of market power and competitive markets, focusing on how firms influence prices and the characteristics of both market types. It also delves into the concepts of marginal revenue and average revenue, illustrating how they differ in various market structures. Test your understanding of these fundamental economics principles!
