What is a sign that an operation is too big? What is it also known as?
ATC increases. The diseconomies of scale (MB < MC)
100
Why does Product Differentiation matter?
So the supplier can raise the price and not lose all sales because they are the only producer of their brand of a product.
100
What determines the price in a Perfect Competition?
Total market supply and total market demand
100
How is efficiency in the industry? Best example of Perfect Competition?
Best possible. Agriculture w/out gov. policies.
100
How does MR compare to Price in a monopoly?
MR < Price, because monopolies set the price, so price is always higher
200
To max profits, firms pick the size that minimizes what?
Average Total Cost (ATC)
200
What is the key to oligopoly markets? And what is the danger of oligopolies?
A small number of suppliers. Potential for collusion.
200
If most firms are making a profit in a P.C. market, what will happen? What will that do to Supply? Price? Profits?
Entry. Supply goes up. Price goes down. Profits go down.
200
How many firms are in a monopoly market? Who determines the price in a monopoly market?
One. The seller.
200
Since MR < Price in a monopoly, why does this dictate a lower level of production?
the gains of selling more are less since the supplier must lower the prices to all buyers in order to sell more.
300
No matter what the market structure, all firms are trying to do what? And by comparing what to what?
Max profits. MB to MC
300
How do oligopolies evolve?
Due to very great economies of scale leading to a small number of suppliers
300
What happens to firms whose ATC > market price (MP)?
They will EXIT, leave, get out.
300
What is the difference between monopoly and monopoly power?
Monopoly means complete control over the price. Monopoly Power gives the seller some control over the price.
300
A monopolist maxes profits when what equals what?
MR = MC
400
What are the determinants of a perfectly competitive market?
Lots of suppliers, homogeneous product, ease of entry when profits exist, individual firm's output is an insignificant fraction of total industry output
400
Why is each firm in Perfect Competition a price taker?
Because of so many suppliers, too much competition, so they take what they can get for their product.
400
After allowing for entries and exits, which firms survive?
The ones that are most efficient.
400
Why does a monopolist have to lower the price to sell more?
His demand is the whole market's demand. he can't sell more without lowering the price (Law of Demand)
400
When compared to P.C., is monopoly output higher or lower? What about price? The ATC? Are monopolist more or less efficient?
Lower. Higher. Higher. Less
500
What is the key difference between perfect competition and monopolistic competition?
Product Differentiation
500
What is the elasticity of Perfect Competition demand?
It's perfectly elastic, the sales will drop to zero even with a tiny price increase.
500
Where is price compared to ATC for the survivors? How does society benefit from a bunch of greedy profit-maximizers doing business?
The price = minimum ATC (most efficient). Efficient allocation of resources, lowest possible cost and price.
500
Why doesn't a firm in Perfect Competition have to lower the price to sell more?
Each supplier is such a small fraction of total supply that they have little impact of the total supply.
500
What is a monopolist's MB? What about society's MB?