question

pure competition

answer

a market structure in which a very large number of firms sell a standardized product, into which entry is very easy , in which the individual seller has no control over the product price, and in which there is no non price competition; a market characterized by a very large number of buyers and sellers.

question

pure monopoly

answer

a market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which non price competition may or may not be found.

question

monopolistic competition

answer

a market structure in which many firms sell a differentiated product, into which entry is relatively easy, in which the firm has some control over its product price, and in which there is considerable non price competition.

question

oligopoly

answer

a market structure in which a few firms sell either a standardized or differentiated product, into which entry is difficult, in which the firm has limited control over product price because of mutual interdependence (except when there is collusion among firms), and which there is typically non price competition.

question

imperfect competition

answer

all market structures except pure competition

question

price taker

answer

a seller (or buyer) that is unable to affect the price at which a product or resource sells by changing the amount it sells (or buys).

question

average revenue

answer

total revenue from the sale of a product divided by the quantity of the product sold (demanded); equal to the price at which the product is sold when all units of the product are sold at the same price.

question

total revenue

answer

the total number of dollars received by a firm (or firms) from the sale of a product; equal to the total expenditures for the product produced by the firm (or firms); equal to the quantity sold (demanded) multiplied by the price at which it is sold.

question

marginal revenue

answer

the change in total revenue that results from the sale of 1 additional unit of a firm's product; equal to the change in total revenue divided by the change int he quantity of the product sold.

question

break-even point

answer

an output at which a firm makes a normal profit (total revenue = total cost) but not an economic profit.

question

MR = MC Rule

answer

The principle that a firm will maximize its profit (or minimize its losses) by producing the output at which marginal revenue and marginal cost are equal, provided product price is equal to or greater than average variable cost.

question

short - run supply curve

answer

a supply curve that shows the quantity of a product a firm in a purely competitive industry will offer to sell at various prices in the short run; the portion of the firm's short-run marginal cost curve that lies above its average-variable-cost curve

question

long - run supply curve

answer

a schedule or curve showing the prices at which a purely competitive industry will make various quantities of the product available in the long run.

question

constant - cost industry

answer

an industry in which expansion by the entry of new firms has no effect on the prices firms in the industry must pay for resources and thus no effect on production costs.

question

increasing - cost industry

answer

an industry in which expansion through the entry of new firms raises the pries firms in the industry must pay for resources and therefore increases their production costs.

question

decreasing - cost industry

answer

an industry in which expansion throughout the entry of firms lowers the prices that firms in the industry must pay for resources and therefore decreases their production costs.

question

productive efficiency

answer

the production of a food in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar's worth of input is the same for all inputs. P = minimum ATC

question

allocative efficiency

answer

the apportionment of resources among firms and industries to obtain the production of the products most wanted by society (consumers); the output of each product at which its marginal cost and rice or marginal benefit are equal, and at which the sum of consumer surplus and producer surplus is maximized. P = MC

question

consumer surplus

answer

the difference between the maximum price a consumer is (or consumers are) willing to pay for an additional unit of a product and its market price; the triangular area below the demand curve and above the market price.

question

producer surplus

answer

the difference between the actual price a producer receives (or producers receive) and the minimum acceptable price; the triangular area above the supply curve and below the market price.

question

creative destruction

answer

the hypothesis that the creation of new products and production methods simultaneously destroys the market power of existing monopolies.

question

barriers to entry

answer

anything that artificially prevents the entry of firms into an industry

question

simultaneous consumption

answer

the same-time derivation of utility from some product by a large number of consumers

question

network effects

answer

increases in the value of a product to each user, including existing users, as the total number of users rises.

question

X-inefficiency

answer

the production of output, whatever its level, at a higher average (and total) cost than is necessary for producing that level of output.

question

rent-seeking behavior

answer

the actions by persons, firms, or unions to gain special benefits from government at the taxpayers' or someone else's expense.

question

price discrimination

answer

the selling of a product to different buyers at different prices when the price differences are not justified by differences in cost.

question

socially optimal price

answer

the price of a product that results in the most efficient allocation of an economy's resources and that is equal to the marginal cost of the product

question

fair-return price

answer

the price of a product that enables its producer to obtain a normal profit and that is equal to the average total cost or producing it.

question

product differentiation

answer

a strategy in which one firm's product is distinguished from competing products by means of its design, related services, quality, location, or other attributes (except price)

question

nonprice competition

answer

competition based on distinguishing one's product by means of product differentiation and then advertising the distinguished product to consumers.

question

four - firm concentration ratio

answer

the percentage of total industry sales accounted for by the top four firms in the industry.

question

Herfindahl index

answer

a measure of the concentration and competitiveness of an industry; calculated as the sum of the squared percentage market shares of the individual firms in the industry.

question

excess capacity

answer

plant resources that are underused when imperfectly competitive firms produce less output than that associated with achieving minimum average total cost.

question

homogenous oligopoly

answer

an oligopoly in which the firms produce a standardized product

question

differentiated oligopoly

answer

an oligopoly in which firms produce a differentiated product.

question

strategic behavior

answer

self-interested economic actions that take into account the expected reactions of others.

question

mutual interdependence

answer

a situation in which a change in price strategy (or in some other strategy) by one firm will affect the sales and profits of another firm (or other firms). Any firm that makes such a change can expect the other rivals to react to the change.

question

interindustry competition

answer

the competition for sales between the products of one industry and the products of another industry.

question

import competition

answer

the competition that domestic firms encounter from the products and services of foreign producers.

question

game theory

answer

a means of analyzing the pricing behavior of oligolpolists that uses the theory of strategy associated with games such as chess and bridge.

question

collusion

answer

a situation in which firms act together and in agreement (collude) to fix prices, divide a market, or otherwise restrict competition.

question

kinked - demand curve

answer

the demand curve for a non collusive oligopolist, which is based on the assumption that rivals will match a price decrease and will ignore a price increase

question

price war

answer

successive and continued decreases in the prices charged by firms in an oligolpolistic industry. Each firm lowers its price below rivals' prices. hoping to increase its sales and revenues at its rivals' expense.

question

cartel

answer

a formal agreement among firms (or countries) in an industry to set the price of a product and establish the outputs of the individual firms (or countries) or to divide the market for the product oligopoly.

question

price leadership

answer

and informal method that firms in an oligopoly may employ to set the price of their product: one firm (the leader) is the first to announce a change in price, and the other firms (the followers) soon announce identical or similar changes.

question

P = MC Rule

answer

the principle that a purely competitive firm will maximize its profit or minimize its loss by producing that output at which the price of the product is equal to marginal cost, provided that price is equal to or greater than average variable cost in the short run and equal to or greater than average total cost in the long run.

question

average fixed cost (AFC)

answer

a firm's total fixed cost divided by output (the quantity of product produced).

question

average total cost (ATC)

answer

a firms total cost divided by output; equal to average fixed cost plus average variable cost.

question

average variable cost (AVC)

answer

a firm's total variable cost divided by output.

question

economies of scale

answer

reductions in the average total cost of producing a product as the firm expands the size of plant (its output) in the long run; the economies of mass production.

question

An oligopoly has ___ sellers and must consider the decisions of its rivals in determining its own ___ and output.

answer

Few; Price

question

___ competition is considered to be rare in the real world.

answer

Pure

question

The MR=MS rule is known as the:

answer

Profit-maximizing rule

question

Which of the following best describes the economic break-even point?

answer

covers all total revenue costs including implicit and explicit costs

question

A purely competitive firms demand schedule is also known as its:

answer

average-revenue schedule & marginal-revenue schedule

question

If price is ___ than a firm's minimum average ___ cost, the firm will not operate.

answer

Less; Variable

question

A firm should stop producing if its average ___ cost is ___ price.

answer

variable; Greater than

question

A wage increase would increase marginal costs and shift the supply curve:

answer

upward & to the left

question

The portion of the firm's ___ cost curve lying ___ its average ___ cost curve is its short-run supply curve.

answer

Marginal; Above; Variable

question

The marginal cost curve is the firms short-run curve

answer

supply

question

General Note

answer

an upward shift in the supply curve is a simultaneous shift to the left.

question

General Note

answer

The Marginal cost curve is the firms short-run supply curve because marginal or incremental costs can only be incurred when more goods and services are produced or simply stated supplied. Thus, as supply for goods and services increase and decrease, Marginal costs increase and decrease, respectively.

question

Which of the following factors will alter costs and shift the marginal cost or short-run supply curve to a new location?

answer

Prices of variable inputs & Technology

question

A purely competitive firm is a price ____

answer

Taker.

question

Pure ___ involves a very large number of firms.

answer

Competition

question

Product ___ distinguishes ___ competition from all other market structures.

answer

Differentiation; Monopolistic

question

Quantity supplied increasing as price ___ and economic profit is usually higher at higher product ____ and output.

answer

Increases; Prices

question

Total revenue equals ____ times ___

answer

price X quantity

question

Each purely competitive firm's demand curve is perfectly ____ at the equilibrium price.

answer

Elastic

question

Which of the following best describes a firm continuing to operate even though it incurs an economic loss?

answer

Whenever price exceeds average variable costs but is less than average total costs, the firm an pay part, but not all, its fixed costs by producing.

question

In pure competition, a firm's economic profit is equal to:

answer

1) marginal revenue minus average total cost multiplied by quantity (output) 2) price minus average total cost multiplied by quantity.

question

Which of the following best explains why the price-marginal cost relationship improves as production increases?

answer

at the very early stages of production, marginal product is low, making marginal cost unusually high.

question

A firm within pure competition will produce up to the point where marginal revenue equals marginal cost because....

answer

1) it will experience the lowest possible losses at this point. 2) it will experience the high possible profits at this point.

question

Because of the law of diminishing returns, ___ costs eventually ___ as more units of output are produced.

answer

Marginal; Rise

question

In a purely competitive market, price per unit to the purchaser is synonymous with ___ per unit or ___ revenue to a seller.

answer

Revenue; Average

question

Confronted with the market price of its product, a purely competitive producer will ask, which three questions?

answer

1) should we produce this product? 2) if we produce this product, in what amount? 3) what economic profit or loss will we realize if we produce this product.

question

General Note

answer

A purely competitive firm will maximize profit by producing up the point where marginal revenue is equal to marginal cost if the market price exceeds the minimum average cost.

question

___ revenue is the additional revenue that an additional unit of ___ would add to total revenue.

answer

Marginal; Output

question

The quantity of a product supplied by a firm in pure competition should ___ as long as price rises.

answer

increase

question

In the short run, the firm has a ___ plant and therefore, can adjust its output only through changes in the amount of ___ resources it uses.

answer

Fixed; Variable

question

In purely competitive markets, individual firms do not exert control over ___

answer

Price, Demand, Supply

question

Purely competitive firms produce a(n) ___ product.

answer

Standardized

question

There are two ways to determine the level of output at which a firm will realize maximum economic ___ or minimum economic ___.

answer

Profit; Loss

question

Profit-Loss formula

answer

(Product Price - Average Total Cost) x Output

question

In pure competition, a firm's product price and marginal revenue are ___.

answer

Equal

question

A firm operating in a purely competitive market is a price taker because it

answer

cannot change market price, it can only adjust to it.

question

Which of the following best explains why the firm should produce any unit of output whose marginal revenue exceeds its marginal cost?

answer

Because the firm would again gain more in revenue from selling that unit that it would add to its costs by producing it.

question

The portion of the firm's ____ cost curve lying ___ its average variable cost curve is its short-run supply curve.

answer

Marginal; Above

question

Efficiency within pure competition can be temporarily disrupted by a change in consumer tastes.

answer

True

question

Lowering production costs through better technology or improved business organization and developing new favorable products can result in firms:

answer

1) earning economic profit 2) increasing their profits

question

____ profits in a competitive industry will attract new firms into the industry.

answer

Economic

question

When an increase in product demand results in economic profits

answer

industry expansion occurs and thus resource demand increases resource prices, as well as the minimum average total cost.

question

Which of the following conditions will cause firms to exit an industry?

answer

1) If price is less than minimum average total cost, resulting losses will cause firms to leave the industry 2) If price is less than minimum average variable cost, resulting losses will cause firms to leave the industry.

question

New firms entering an increasing-cost industry _____ resource prices.

answer

increase

question

A specific number of times, all with fixed unalterable plants, mainly describes:

answer

an industry's short run

question

The entry and exit of firms in an industry are considered ___ ___ adjustments

answer

Long Run

question

The shape of the long-run supply curve for a constant - cost industry can best be described as:

answer

flat

question

the long-run supply curve of a ___ cost industry is perfectly ___.

answer

Constant: Flat

question

In the ___ run, competitive firms have sufficient time either to increase or to decrease their capacitites.

answer

Long

question

Even if resource prices and technology are the same for all firms, which are the first to leave the industry when demand declines?

answer

1) firms with less productive labor forces or higher transportation costs. 2) Less skillfully managed firms that tend to incur higher costs.

question

Whether a purely competitive industry is a constant-cost industry or an increasing-cost industry, the final long-run equilibrium position of all competitive firms share which of the following characteristics.

answer

1) In the long run, a multiple of equality occurs where price equals marginal revenue which equals the minimum average total cost. 2) in the long run, a multiple equality occurs where price equals marginal cost which equals the minimum average total cost. 3) Price or marginal revenue will settle where it is equal to minimum average total cost.

question

In ___ competition, there could potentially be no dynamism and no innovation.

answer

Pure

question

Which of the following are considered long-run adjustments in an industry?

answer

1) the expansion or contraction of plant capacity. 2) the entry and exit of firms

question

Higher resource prices will result in ___ total costs.

answer

Higher Average

question

A specific number of firms, all with fixed unalterable plants, mainly describes:

answer

An industry's short run

question

A competitive firm may realize an economic profit or loss in the ___ run but will earn only a normal profit in the ___ run

answer

Short: Long

question

In pure competition, society's resources are allocated efficiently when:

answer

Profit-motivated firms produce output to the point where price or marginal revenue (MR) and marginal cost (MC) are equal.

question

In pure competition, consumers benefit from productive efficiency by paying the highest price possible.

answer

False -in pure competition, consumers benefit from productive efficiency by paying the lowest price possible.

question

Firms wil not enter an industry when marginal revenue, marginal cost, price and average total cost are equal because:

answer

economic profit is zero and existing firms are earning only normal profits

question

When disrupted by changes in the economy, a purely competitive market can restore the efficiency associated with marginal revenue or ____ = ____ cost = lowest ATC.

answer

Price; Marginal

question

A purely competitive firm should produce the amount of output where ___ equals ____ equals ____.

answer

Price; Marginal Revenue; Marginal Cost

question

The long-run goal of every perfectly competitive firm is:

answer

to operate at their minimum ATC

question

The upward sloping supply curve in this figure represents the long-run supply curve for:

answer

an increasing-cost industry

question

In the long run, firms will not survive if they do not use a least-cost production method or where P= minimum ATC because:

answer

pure competition forces firms to produce at the minimum average total cost of production and to charge a price that is constant with that cost.

question

an unfavorable shift or___ in demand will upset the original industry equilibrium and produce___.

answer

decrease; losses

question

If the market initially exceeds minimum averse total costs, the resulting economic profits will attract new firms to the industry eventually resulting in:

answer

industry expansion that increases the supply until price equals minimum average total cost

question

economic profit for a firm will result if:

answer

price exceeds average total costs.

question

Marginal Revenue is the change in total revenue associated with additional units of output.

answer

True

question

Even if a firm is losing money, it may be better to stay in business in the short run.

answer

true if the loss is less than the fixed cost.

question

the firm should produce in the short run so long as the price

answer

exceeds the average variable cost.

question

a firm with no fixed cost

answer

is really in the long run.

question

if a firm's current revenues are less than its current variable costs, it should shut down.

answer

immediately.

question

firms in an oligopoly may produce

answer

either a homogeneous product or a differentiated product.

question

compared to monopolies, oligopolies

answer

give the appearance of increased competition

question

monopolistically competitive firms are not productively efficient because

answer

output is less than society's optimal level because a producer's average total cost per unit is not at its lowest possible cost.

question

oligopolistic behavior implies that oligopolists prefer competition

answer

1) through product development 2) through advertising

question

which of the following helps differentiate one product from another product?

answer

1) more or less convenient locations 2) varying degrees of customer service 3) different physical characteristics

question

the price at convenience stores for a bottle of soda is almost always higher than at supermarkets owing to the price customers are willing to pay to make their purchase at a more convenient ___

answer

location

question

oligopolies typically are not desirable because they

answer

do not achieve allocative efficient because their price exceed marginal cost

question

the equality of price and minimum average total cost yields technical ___ efficiency; the equality of price and marginal cost yields ___ efficiency.

answer

productive; allocative

question

monopolistically competitive firms do not achieve allocative efficiency because

answer

output is less than optimal and consumers pay a higher than competitive price, causing inefficient use of resources for society.

question

as a means of conveying information, advertising is a relatively

answer

low-cost way to get information to consumers.

question

the ability of monopolistically competitive firms to engage in ___ competition makes the market situation more complex because of differentiated product differences and advertising.

answer

nonprice

question

when plant and equipment are underused because firms are producing less than minimum ATC output, this is known as having

answer

excess capacity; productive efficiency

question

oligopolists often compete through product development and advertising instead of price because

answer

product development and advertising are relatively difficult to copy.

question

when firms in an oligopoly ___, their payoffs will be greater than if they did not.

answer

collude

question

oligopolies are not desirable because they

answer

achieve neither productive efficiency nor allocative efficiency.

question

What are the positive effects if large oligopolists do not advertise?

answer

1) a reduction of advertising would help lower prices and possibly increase product output 2) Information provided that attempts to manipulate customers to buy only their product reduces the chance of a firm becoming a monopoly.

question

barriers to entry exist for monopolies as well as oligopolies in the form of all the following except

answer

diseconomies of scale.

question

An ___ is present when the largest four firms in an industry control more than 40% or more of the market.

answer

oligopoly

question

the use of advertising by oligopolists

answer

1) may increase or decrease competition 2) may increase or decrease prices

question

which of the following represents the most significant benefits to society generated by monopolistically competitive markets?

answer

product differentiation

question

when firms differentiate their products so that consumers are willing to pay more, firms do not ___ output capacity and do not produce at the ___ total cost

answer

maximize; lowest average

question

Allocative efficiency is achieved in the short run when the equality of which of the following occurs?

answer

P=MC

question

multiple models are used to study oligopolies because oligopolies

answer

1) encompass a greater range and diversity of market situations 2) cannot estimate both their demand and marginal revenue curves due to rivals' reactions.

question

in monopolistically competitive industries, small stores with high prices can compete with larger stores by

answer

having very convenient locations for customers

question

compared to pure competition, oligopolistic industries may result in

answer

1) more technological advances because oligopoly firms earn economic profits to fund research and development. 2) more technical advances because oligopolies have assurances of rewards cause by barriers to entry.

question

one of the largest barriers to entry into the oil refining industry is

answer

the capital equipment investment

question

which of the following help differentiate one product from another product?

answer

1) different physical characteristics 2) varying degrees of customer service 3) more or less convenient locations.

question

which of the following shortcomings of the kinked-demand analysis of oligopoly?

answer

1) during macroeconomics instability, oligopoly prices are not as rigid as the kinked-demand curve theory implies. 2) the kinked-demand curve explains price inflexibility but not price itself

question

a monopolistically competitive firm may be able to continue earning profit in the long run

answer

through further product differentiation

question

Which of the following contributed in making the American auto industry into a differentiated oligopoly for nearly a century?

answer

1) mergers to help gain economics of scale 2) the strategic behavior of competitors 3) the mutual interdependence of each firms profitability 4) entry barriers into the auto manufacturing industry.

question

productive efficiency in monopolistically competitive markets does not occur in the long run because firms set the price

answer

on the demand curve where MR=MC to maximize economic profit, making output less than optimal from society's perspective.

question

When the ___ is stable, oligopoly prices tend to be stable.

answer

economy

question

compared to pure monopolies, oligopolies

answer

may be less desirable because they are not regulated by government to protect consumers

question

in order for a monopolistically competitive firm to maximize profits, it must juggle which of the following factors?

answer

1) the variety of product 2) the selling price of the product 3) the level of advertising

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