Microeconomics Quiz Concepts

A monopolist maximizes profits where the additional revenue from selling one more unit (marginal revenue) equals the additional cost of producing that unit (marginal cost).

In perfect competition, each firm's output is so small compared to the total market output that their individual actions have no impact on the market price. They have to accept the price set by the market forces.

Price discrimination occurs when a seller charges different prices for the same product or service to different buyers, often based on their willingness to pay.

In the long run, monopolistically competitive firms can earn zero economic profit due to the entry of new firms attracted by positive profits. This leads to a situation where each firm faces a downward-sloping demand curve and produces at a quantity where price is equal to average total cost.

A firm with market power (like a monopoly) can influence the price by choosing its output level. As a result, its demand curve slopes downwards, showing that it can sell less if it charges a higher price.

A natural monopoly occurs when a single firm can supply the entire market at a lower cost than multiple firms. This happens when the average total cost of production decreases over a large range of output.

In second-degree price discrimination, a seller charges different prices for different quantities of the same product. Consumers choose the quantity that suits them best.

An oligopoly is a market structure where a few large firms dominate the industry. Each firm's actions can significantly impact the market, creating interdependence and strategic decision-making.

A price elasticity of demand of -2 means that a 1% price increase will lead to a 2% decrease in quantity demanded. Since this decrease in quantity demanded is larger than the percentage increase in price, total revenue will decrease.

In perfect competition, firms produce where price equals marginal cost (P = MC). This ensures that the market is efficient, as firms are producing at the quantity where the additional cost of producing one more unit is equal to the price the consumer is willing to pay.

In the long run, perfectly competitive firms will exit the industry if they're making losses. The exit process reduces market supply, pushing prices up until remaining firms can earn normal profits.

A perfectly competitive firm can only survive in the long run if they can produce at a level where their average total cost is minimized. This means that they need to be efficient and have low costs to compete.

Oligopolies are characterized by pricing rigidity, meaning prices tend to stay relatively stable even when costs change. The kinked demand curve model explains this phenomenon.

High advertising costs, economies of scale, and exclusive access to resources are all major barriers to entry in different markets, making it difficult for new firms to join the competition.

A monopolist's marginal revenue is always less than the price they charge for their product. This is because they face a downward-sloping demand curve, meaning they have to lower the price to sell more units.

The ability to charge different prices to different customers based on their willingness to pay is called price discrimination. A monopolist can effectively eliminate consumer surplus and potentially increase their own profit by utilizing this strategy.

Monopolistically competitive firms are unable to achieve productive efficiency in the long run because they face downward-sloping demand curves and produce at a point where their average total cost is not minimized. This difference from perfectly competitive firms is due to their ability to differentiate their products.

Game theory is a method for analyzing strategic interactions between rational decision-makers. It's particularly relevant for studying oligopoly markets where the actions of one firm can significantly impact the outcomes of others.

Price leadership in oligopoly happens when one dominant firm sets the price for an industry, and other firms follow suit. This can provide some stability to the market but may lead to less competitive pricing than in other market structures.