question

monopolistic competition

answer

a market structure in which a large number of firms compete and each firm produces a differentiated product

question

large number of firms

answer

each firm has a small market share so each firm must be sensitive to the average market price of the product but the firm does not pay attention to any one individual competitor

question

firm in monopolistic competition

answer

would like to collude but because the number of firms is large, coordination is difficult and collusion is not possible

question

firms in monopolistic competition

answer

compete on product quality, price, and marketing

question

monopolistic competition

answer

firms are free to enter and exit

question

quality

answer

design, reliability, the service provided to the buyer, and the buyer's ease of access to the product

question

trade off between quality and price

answer

a firm that makes a high-quality produce can charge a higher price than a firm that makes a low-quality product in monopolistic competition

question

marketing

answer

two main forms: advertising and packaging

question

monopoly

answer

a firm that produces a good or service for which no close substitutes exist and that is protected by a barrier that prevents other firms from selling that good or service

question

monopolistic competition

answer

requires a large number of firms

question

herfindahl-Hirschman Index (HHI)

answer

the square of the percentage market share of each firm summed over the largest 50 firms (or summed over all the firms if there are fewer than 50) in a market

question

HHI less than 1,000

answer

competitive

question

HHI exceeds 1,800

answer

uncompetitive

question

monopolistic competition

answer

each firm supplies a small part of the total industry output so each firm has only limited power to influence the price of its product

question

monopolistic competition

answer

all the firms are relatively small so no one firm can dictate market conditions and no one firm's actions directly affect the actions of the other firms

question

product differentiation

answer

a firm in monopolistic competition faces a downward-sloping demand curve so the firm can set both its price and its output

question

quality of product

answer

physical attributes that make it different from the products of other firms

question

high quality product

answer

charge a higher price than a firm that makes a low-quality product

question

marketing

answer

advertising and packaging

question

efficient scale

answer

quantity at which average total cost is a minimum

question

firm in monopolistic competition

answer

produces below the efficient scale in the long run

question

firm in monopolistic competition

answer

do not know the relationship between the efficient scale and the quantity produced in the short run

question

monopolistic competition firm marginal revenue curve

answer

downward-sloping curve that lies below the demand curve

question

efficient degree of product variety

answer

the one for which the marginal social benefit of product variety equals its marginal social cost

question

efficient degree of product variety

answer

loss arises because the quantity produces is less than the efficient quantity is offset to some degree by the gain that arises from having a greater degree of product variety

question

inefficient degree of product variety

answer

loss that arises because the quantity produced is less than the efficient quantity is not totally offset by the gain that arises from having greater product variety

question

profit-maximizing quantity

answer

the quantity at which marginal revenue equals marginal cost

question

price

answer

determined by the demand cure at the profit-maximizing quantity

question

economic profit on one unit

answer

price minus average total cost

question

economic profit

answer

= (price - average total cost) * quantity

question

firm in monopolistic competition in short run

answer

makes its output and price decision just like a monopoly firm does

question

quantity produced

answer

quantity at which marginal revenue equals marginal cost

question

price for quantity

answer

quantity meets the demand curve

question

firms in monopolistic competition

answer

if make an economic profit in the short run then new firms will enter the market, demand for the good produced by each individual firm decreases, in the new long-run equilibrium there is no incentive for new firms to enter the market because all firms make zero economic profit

question

long run equilibrium

answer

zero economic profit

question

monopolistic competition in long-run equilibrium

answer

produces a profit-maximizing output that is less than its efficient scale

question

profit-maximizing output

answer

the output at which marginal revenue equals marginal cost

question

price

answer

determined by the demand curve at the profit-maximizing quantity

question

firm's efficient scale

answer

the output at which its average total cost is a minimum

question

firm's excess capacity

answer

the gab between the efficient scale and the profit-maximizing output

question

markup

answer

the amount by which price exceeds marginal cost at the equilibrium quantity

question

gain economic profit

answer

firms in monopolistic competition must be continually seeking ways to keep one step ahead of imitators

question

maintain economic profit

answer

firm can seek out new products that will provide it with a competitive edge

question

maintain economic profit

answer

create a consumer perception of product differentiation even if actual differences are small (advertising and packaging are the principal means firms use to achieve this end)

question

marginal social benefit of an innovation

answer

the increase in price that consumers are willing to pay for it

question

marginal social cost

answer

the amount that the firm must pay to make the innovation

question

efficiency

answer

achieved if the marginal social benefit of a new and improved product equals its marginal social cost

question

profit maximized

answer

marginal revenue equals marginal cost

question

monopolistic competition

answer

marginal revenue is less than price so product innovation probably not pushed to its efficient level

question

selling costs (cost of advertising)

answer

fixed costs

question

fixed costs

answer

when added to the average total cost of production, selling costs increase average total cost so the average total cost curve with advertising lies above the average total cost curve without advertising

question

fixed cost

answer

increase total cost

question

fixed cost

answer

can increase, decrease, or not change average total cost depending on the increase in quantity that results from the advertising

question

advertising and brand names

answer

provide consumers with information about the precise nature of product differences and about product quality - benefit the consumer and enable a better product choice to be made

question

opportunity cost of additional information

answer

must be weighed against the gain to the consumer

question

advertising and brand names are inneficient

answer

marginal social benefit from the advertising and brand names does not equal the marginal social cost

question

brand name

answer

provides information to consumers about the quality of a product, and is an incentive to the producer to achieve a high and consistent quality standard and consumers prefer to buy goods from a firm with a brand name they know because they will know the quality they can expect (as more people buy the brand-name good, economic profit increases)

question

monopolistic competition

answer

firms are free to enter and exit the market, there are no barriers to entry

question

advertising

answer

average total cost decrease

question

average total cost

answer

total cost divided by output

question

total cost

answer

average total cost multiplied by output

question

advertising

answer

total cost increases

question

brand name

answer

can be efficient or inefficient

question

brand name

answer

provides consumers with information about the precise nature of product differences and product quality - benefits the consumer and enables a better product choice to be made

question

oligopoly

answer

market structure in which natural or legal barriers prevent the entry of new firms and a small number of firms compete

question

barriers to entry exist in oligopoly

answer

small number of firms, each of which has a large share of the market

question

barriers to entry exist in oligopoly

answer

small number of firms, each of which has a large share of the market

question

oligopoly

answer

firms interdependent because with a small number of firms, each firm's actions influence the profits of all the other firms

question

cartel

answer

group of firms acting together - colluding - to limit output, raise price, and increase economic profit

question

small number of firms share a market

answer

firms can increase their profits by forming a cartel

question

monopoly

answer

a market structure in which there is one firm

question

oligopoly

answer

market structure in which a small number of firms compete

question

cartel

answer

group of firms acting together - colluding - to limit output, raise price, and increase economic profit

question

girm cheats on a collusive agreement

answer

firm increases its economic profit and other firms make a smaller economic profit

question

all firms in a collusive agreement face the same strategies

answer

payoff high if they all comply, but the payoff to any one firm that cheats is even higher if all the other firms comply

question

motivator to cheat on the collusive agreement

answer

payoff to any one firm that cheats is even higher if all the other firms comply

question

incentive to cheat

answer

the profit received by a cheating firm when all other firms comply is greater than the profit received when all firms comply

question

prisoner's dilemma

answer

the players do not achieve the best outcome

question

an equilibrium

answer

a dominant strategy equilibrium when the best strategy of each player is either to cheat or comply regardless of the strategy of the other player

question

nash equilibrium

answer

an equilibrium inwhich each player takes the best possible action given the action of the other player

question

price fixing

answer

always a violation of the antitrust law

question

breaking anti-trust law

answer

justice department must be able to prove the existence of price fixing, a defendant can offer no acceptable excuse

question

predatory pricing

answer

setting a low price to drive competitors out of business with the intention of setting a monopoly price when the competition has gone

question

resale price maintenance

answer

a manufacturer agrees with a distributor on the price at which the product will be resold

question

trying arrangement

answer

an agreement to sell one product only if the buyer agrees to buy another, different product

question

predatory pricing

answer

an attempt to create a monopoly and as such it is illegal under section 2 of the Sherman Act

question

predatory pricing

answer

no case has been definitely found

question

Standard Oil

answer

In the 1890s, John D. Rockefeller's Standard Oil Company was the first to be accused of predatory pricing

question

private good

answer

rival and excludable (can of pepsi, an ipod)

question

natural monopoly good

answer

nonrival and excludable (buyers can be excluded if they don't pay but the good is nonrival, marginal cost is zero)

question

natural monopoly

answer

fixed cost of producing the good is usually high so economies of scale exist over the entire range of output for which there is a demand (cable TV)

question

common resource

answer

rival and nonexcludable (a unit of a common resource can be used only once, but no one can be prevented from using what is available)

question

public good

answer

nonrival and nonexcludable (a public good can be consumed simultaneously by everyone, and no one can be excluded from enjoying its benefits)

question

mixed good

answer

a private good, the production or consumption of which creates an externality

question

market economy underprovide mixed goods with external benefits

answer

because their producers and consumers don't take the external benefits into account when they make their own choices

question

market economy overprovide mixed goods with external costs

answer

because their producers and consumers don't take the external costs into account when they make their own choices

question

public good

answer

no one can be excluded from enjoying the benefits so no one has an incentive to pay for their share of it

question

private firms produce and sell public goods to consumers

answer

the market economy would fail to deliver the efficient quantiy of those goods

question

common resource

answer

no one can be excluded from enjoying the benefits so no one has an incentive to pay for their share of it or to conserve it for future enjoyment

question

tragedy of the commons

answer

a common resource is overused

question

tragedy of the commons

answer

requires public choices to limit the overuse and eventual destruction of common resources

question

natural monopoly

answer

faces a downward-sloping demand curve, produces the quantity at which marginal revenue equals marginal cost

question

natural monopoly

answer

maximizes profit by producing too little of a good

question

mixed goods with an external benefit

answer

market economy underprovides (underproduced mixed goods with an external benefit) because the producers and consumers don't take the external benefit into account when they make their own choices

question

mixed good with external costs

answer

market economy overprovides (overproduces mixed goods with an external cost) because their producers and consumers don't take the external costs into account when they make their own choices

question

nonexcludable

answer

it is impossible or extremely costly to prevent someone from benefiting from the good

question

rival

answer

one person 's use of it decreases the quantity available for someone else (Brooklyn Bridge is rival because the high volume of traffic)

question

nonrival

answer

one person's use of a good does not decrease the quantity available for someone

question

public good

answer

nonrival and nonexcludable

question

twitter page

answer

nonrival but you can choose to make your twitter page either excludable or nonexcludable (prevent someone for enjoying or not prevent someone from enjoying because can make private page?)

question

private good

answer

a good or service that is both rival and excludable

question

private good

answer

can be consumed by only one person at a time and only by the person who has bought it or owns it

question

common resource

answer

a good or service that is both rival and nonexcludable

question

common resource

answer

a unit of it can be used only once, but no one can be prevented from using what is available

question

free rider

answer

enjoys the benefits of a good or service without paying for it

question

public good

answer

provided for everyone to use and no one can be excluded from its benefits so no one has an incentive to pay his or her share of the cost (everyone has an incentive to free ride)

question

free rider problem

answer

the market would provide an inefficiently small quantity of a public good

question

everyone free rides on a public good

answer

no one will pay for the public good and the firm will make zero revenue so private provision of a public good is zero

question

free rider problem

answer

can be avoided by protecting a good or service with a barrier to access

question

once good obtained and shared

answer

nonexcludable and nonrival so free rider problem cannot be prevented (downloaded music)

question

private cost of production

answer

a cost that is borne by the producer of a good or service

question

social cost of production

answer

a cost that is borne by the producer and by everyone else on whom the cost falls

question

external cost

answer

a cost of producing a good or service that is not borne by the producer but borne by other people

question

individual transferable quota (ITQ)

answer

a production limit that is assigned to an individual who is free to transfer (sell) the quota to someone else

question

three main methods that can be used to achieve the efficient use of a common resource

answer

property rights, production quotas, and individual transferable quotas (ITQs)

question

market solutions such as fees to use a common resource are not used

answer

politicians resist imposing fees that their constituents must pay on goods and services that had previously been free of charge

question

common resources

answer

efficient to impose fees for people to use them because it would prevent the overuse of these common resources

question

tragedy of the commons

answer

the overuse of a common resource that arises when its users have no incentive to conserve it and use it sustainably (if no one owns a resource, no one considers the effects of her or his use of the resource on others)

question

marginal external cost

answer

the cost of producing an additional unit of a good or service that falls on people other than the producer

question

marginal external cost

answer

expressed in dollars, but we must always remember that a cost is an opportunity cost - something real, such as clean air or a clean river, is given up to get something

question

firm's supply curve

answer

equals the marginal private cost curve because the firm makes its production and supply decisions considering only the costs that it will bear

question

market equilibrium

answer

quantity is efficient because marginal social cost exceeds marginal social benefits

question

marginal social cost

answer

the marginal cost incurred by the producer and by everyone else on whom the cost falls - by society

question

marginal social cost

answer

the sum of marginal private cost and marginal external cost (MSC = MC + Marginal external cost)

question

market equilibrium

answer

inefficient because marginal social cost exceeds marginal social benefit

question

deadweight loss

answer

the decrease in total surplus that results from an inefficient level of production

question

external cost

answer

a cost of producing a good or service that is not borne by the producer but borne by other people

question

external cost

answer

without government intervention or property rights, the quantity is greater than the efficient quantity

question

deadweight loss

answer

arises when the quantity is greater than the efficient quantity

question

deadweight loss

answer

created because of inefficient levels of production

question

an efficient allocation of resources

answer

setting a pigovian tax equal to the marginal external cost, setting up a cap-and-trade system, or establishing property rights

question

property rights

answer

legally established titles to the ownership, use, and disposal of factors of production and goods and services that are enforceable in the courts

question

establishing property rights where they do not currently exist

answer

confront producers with the costs of their actions and provide the incentives that allocate resources efficiently

question

property rights of resources

answer

production would occur only up to the point at which marginal social benefit equals marginal social cost

question

the Coase theorem

answer

the proposition that if property rights exist and the transactions costs of enforcing them are low, then private transactions are efficient and it doesn't matter who has the property rights

question

unregulated industry in a market with an external cost

answer

the supply curve is the marginal private cost curve because when firms make their production and supply decisions, they consider only the costs that they will bear

question

demand curve

answer

the marginal social benefit curve in an unregulated industry with an external cost

question

inefficient outcome

answer

firms consider only the costs that they will bear when they make their production decisions in an unregulated market

question

property rights

answer

the marginal cost curve that excludes the cost of pollution shows only part of the producer's marginal cost

question

Marginal Social Cost (MSC) curve

answer

the marginal private cost and the marginal external cost

question

property rights

answer

the cotton farmer considers all costs and producers the quantity at the intersection of the marginal social cost curve and the marginal social benefit curve

question

supply curve

answer

measures the marginal private cost, MC, of producers (does not include the external cost of pollution)

question

Coase Theorem

answer

if property right exist, only a small number of parties are involved, and transaction costs are low, then private transactions are efficient

question

efficient quantity

answer

the quantity at which marginal benefit equals marginal social cost

Microeconomics ch. 14-

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