What is the concept that states that as successive units of a variable resource are added to a fixed resource, beyond some point the extra, or marginal, product with each additional unit of variable resource will decline
Law of Diminishing Returns
100
Is a pure competitor a price taker or price maker?
Price taker
100
What are the characteristics of a pure monopoly?
Single seller, no close substitutes, price maker, blocked entry, and non-price competition
100
What is collusion?
Collusion is the cooperation of firms in order to reduce competition in hopes of increasing their ability to control prices.
100
What makes monopolistic competition monopolistic? What makes it competitive?
Product Differentiation
Easy Entry/Exit Large Number of Firms
200
What is Economic Profit?
Total Revenue less all explicit and implicit costs, including normal profit
200
At what point is profit maximized?
The point at which MR=MC
200
What are close examples of monopolies,
government owned/regulated public utilities- natural gas and electric companies, water company, cable TV company, local telephone company, etc.
200
What is Game Theory?
Game Theory is the study of the actions two rival firms in a duopoly will take depending on each others actions and projected profits.
200
What are the benefits of product variation?
Society's wants are better met with more choices closer to each individual's specific wants.
300
What can be altered in the short run?
Variable resources such as as labor and capital
300
What are the characteristics of a pure competitor?
large number of firms, standardized product, and easy entry or exit
300
What are some barriers to entry for a monopolist?
economies of scale, patents, licenses, ownership or control of essential resources, and pricing and other strategic barriers to entry
300
Explain the kinked demand curve.
The kinked demand curve graphs the effect on demand of price changes in an oligopoly. If the firm changes its price and its rivals match the price increase the less elastic lower part of the kinked demand curve can be seen. If the firm changes its price and its rivals ignore the price increase the upper elastic part of the demand curve can be seen.
300
Is there economic profit in the long run for a firm in monopolistic competition?
No.
400
What are two components of economies of scale?
Managerial specialization and efficient capital
400
What is the only long run adjustment for pure competition?
Entry and exit
400
In which portion of the monopolist's demand curve does it want to operate?
the elastic portion
400
Are oligopolies productively or allocatively efficient?
They are neither.
400
Are firms in monopolistic competition productively or allocatively efficient?
They are neither.
500
What are causes of diseconomies of scale?
difficulty in controlling and coordinating a firm's operations
500
If market price initially exceeds ATC, what will happen to a pure competitor in the long run?
economic profits will attract new firms to the industry, increasing market supply, which would decrease economic profit. Then the previous incentive for firms to enter the industry has disappeared and long run equilibrium is restored
500
when does X inefficiency occur?
when the firm’s actual cost of producing any output is greater than the lowest possible cost of producing it
500
How does advertising effect efficiency?
It increases the ATC causing the firm to be less efficient overall.
500
What is excess capacity?
Excess capacity is the result of firms producing a quantity of products less than the maximum amount, while MC