Chapter 11,12,13 – Flashcards
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entry and exit of firms can occur.
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In the long run in a purely competitive industry,
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when profits are zero, the firm is earning sufficient revenue to cover the opportunity cost.
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Profits encourage entry into purely competitive industries and losses encourage exit from purely competitive industries because:
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losses result in exit and release resources to flow to markets where there are profits.
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Entry and exit help to improve resource allocation because
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short run, until short-run economic profits are zero.
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Entry and exit in a purely competitive industry occur in the:
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marginal revenue and marginal cost are equal, any other output level will result in reduced profit.
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The equality of marginal revenue and marginal cost is essential for profit maximization in all market structures because if:
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is constant regardless of the quantity demanded.
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Price can be substituted for marginal revenue in the MR = MC rule when an industry is purely competitive because price:
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productive efficiency.
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In long-run equilibrium, P = minimum ATC = MC. The equality of P and minimum ATC means the firm is achieving
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allocative efficiency since the industry is producing the amount of product that equates society's valuation of that product and the price of the product.
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The equality of P and MC means the firm is achieving
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creative destruction
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The hypothesis that the creation of new products and production methods destroys the market power of existing monopolies.
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false because a firm could capture enough expected economic profit in the short run to cover the initial investment.
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"Ninety percent of new products fail within two years—so you shouldn't be so eager to innovate." This statement is..
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Firms already in an industry to either expand or contract their capacities.
New firms to enter or existing firms to leave.
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When discussing pure competition, the term long run refers to a period of time long enough to allow:
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Diminishing marginal returns
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What is not a major barrier to entry into an industry?
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true
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T/F Unfair competition is a barrier with no social justification.
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is downward sloping, whereas that facing the purely competitive firm is perfectly elastic.
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The demand curve faced by a purely monopolistic seller
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perfectly inelastic because MR is negative when demand is inelastic, so MR = MC < 0.
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The pure monopolist's demand curve is not
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rent-seeking behavior
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The actions by persons, firms, or unions to gain special benefits from government at the taxpayers' or someone else's expense.
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pure competitor is small with no market power.
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Even though both monopolists and competitive firms follow the MC = MR rule in maximizing profits, there are differences in the economic outcomes because the
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the monopoly might experience economies of scale not available to the competitive firm.
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The costs of a purely competitive firm and a monopoly could be different because :
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when a firm sells a product at different prices that are not based on cost differences.
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When does price discrimination occur?
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barriers to entry
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The factors that prohibit firms from entering an industry are called
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monopolist
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What can use private property as an obstacle to potential rivals
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Downsloping
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The MR curve of a perfectly competitive firm is horizontal. The MR curve of a monopoly firm is:
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never
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How often do perfectly competitive firms engage in price discrimination?
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The lower elasticity of demand.
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Suppose that a monopolist can segregate his buyers into two different groups to which he can charge two different prices. In order to maximize profit, the monopolist should charge a higher price to the group that has:
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It achieves allocative efficiency.
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The socially optimal price (P = MC) is socially optimal because:
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May be so low that the regulated monopoly can't break even.
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The main problem with imposing the socially optimal price (P = MC) on a monopoly is that the socially optimal price:
