Chapter 14 Econ

Efficient Scale
when a firm produces less than efficient scale
Excess capacity
which is the quantity at which average total cost is a minimum
amount by which price exceeds marginal cost
Monopolistic competition
market structure in which
-a large number of firms compete
-each firm produces a differentiated product
-firms compete on product quality, price, and marketing
-firms are free to enter and exit the industry
product differentiation
when a product that is slightly different from the products of competiting firms
acion taken by informed person (or firm) to send a message to uninformed people
Rules administered by a government agency to influence economic activity by determining prices, product standards and types, and the conditions under which new firms may enter an industry is known as
All of the following affect the demand for regulation except
number of voters benefited.
The idea that regulations are supplied to satisfy the self-interest of producers to maximize their economic profit is known as
capture theory.
Regulation that requires the firm to justify its price by showing that the price enables it to earn a specified target percent return on its capital is
rate of return regulation.
A marginal cost pricing rule maximizes _____________ in the regulated industry.
total surplus
When a natural monopoly is regulated using an average cost pricing rule, the firm ____ and there ____ a deadweight loss
earns a normal profit; is
One type of regulation that specifies the highest price the firm is permitted to set and gives the firm an incentive to operate efficiently and keep costs under control is
price cap regulation.
If two firms agree to fix their prices, the agreement is
always illegal under the Sherman Act.
The law that makes an act of conspiring with others to restrict competition illegal is the
Sherman Act of 1890.
A contract that prevents a firm from selling competing products is
sometimes illegal under the Clayton Act
a monopolistically competitive firm is like a monopoly firm insofar as
both have MR curves that lie below their demand curves
a monopolistically competitive firm is like a perfectly competitive firm insofar as
neither is protected by high barriers to entry
product differentiation:
-means that monopolistically competitive firms can compete on quality and marketing
-occurs when a firm makes a product that is slightly different from that of its competitors
-make a monopolistically competitive firms demand curve downward sloping
monopolistically competitive firms compete on all the following execrpt
taco bell is monopolistically competitive firm. taco bells demand curve is ____ and its marginal revenue curve is ______
downward sloping, downward sloping
a monopolistically competitive firm has excess capacity because in the
long run the firm does not produce at the minimum average total cost
In the long run, a monopolistically competitive firms economic profit is zero because of
the lack of barriers to entry
monopolistically competitive firms constantly develop new products in an effort to
increase demand for their priduct
when deciding upon how much to spend on product development,a firm will consider
both marginal revenue and marginal cost of product development
which of the following statements about monopolistically competitive firms is correct
they have high selling costs
In monopolistic competition, because there is free entry and free exit in the industry, in the long run, a firm earns
zero economic profit.
To maximize its profit, a firm in monopolistic competition produces so that its
marginal revenue equals its marginal cost.
In the long run, a monopolistically competitive firm produces an amount of output at which price equals
average total cost but exceeds marginal cost.
In the kinked demand curve model, ____ will likely change when there is a small change in cost.
neither the price nor the quantity produced by the firm
A model in which one firm acts like a monopoly and the other firms act like perfectly competitive firms is the
dominant firm oligopoly.
In a game, a table that shows the consequences for every possible action by each player for every possible action by each other player is called the
payoff matrix.
An agreement between two (or more) producers to restrict output, raise the price, and increase profits is a
neither firm complying with the collusive agreement and neither firm earning an economic profit.
In a repeated game, a tit-for-tat strategy ____ the cooperative equilibrium more likely, which makes it ____ likely for the firms to earn an economic profit.
makes; more
A strategy in a contestable market to set the price at the highest level that inflicts a loss on the entrants into the market is called
limit pricing.
monopolistic competition is similar to perfect competition because there are a large number of firms in both market structures
a competitive industry has a large number of firms
product differentiation gives each monopolistically competitive firm a downward sloping demand curve
by making its product different from those of its competitors, each monopolistically competitive firm has a unique produce and hence a down ward sloping demand curve
because its product us differentated, monopolistically competitive firms compete on product quality and marketing as well as on price
monopolistically competitive firms use the same rule as all firms, to maximize their profit, produce so that MR equals MC
by producing the quantity that sets MR=MC, a firm maximizes its profit
the firms cannot make an economic profit in the long run because there are no barriers to entry
monopolistically competitive firms have excess capacity because they produce differentiated goods
In monopolistic competition price exceeds marginal cost
the firm sets MR=MC be because P>MR, ir is the case that P >MC. The difference between P and MC is the mark up
monopolistic competition leads to more product variety than perfect competition
the increased product variety from monopolistic competition is a benefit of monopolistic competition relative to perfect competition
a monopolistically competitive can make an economic profit if it develops new products
monopolistically competitive firms constantly try to further differentiate their products and develop new products is one method they use
if firms advertise, then the demand for each firms product can be more elastic, which reduces a firms makeup
advertising can signal product qualitity
advertising can be used to signal to consumers that the product is high quality

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