electronics and food.
  • Why do economists refer to the pricing strategies of oligopoly firms as a prisoner's dilemma game?
  • If patents reduce competition, why does the federal government grant them?
  • Give two examples of products sold in a monopolistic market.
  • What is the relationship between a perfectly competitive firm's marginal curve and its supply curve?
the change in a firm's total cost from producing one or more unit of a good or service.
  • opportunity costs
  • Marginal revenue
  • marginal cost of production
  • Variable Costs (VC)
In a perfectly competitive market, MR = P, making these two conditions equivalent.
  • Explain why it is true that for a firm in a perfectly competitive market, P=MR=AR.
  • Explain why it is true that for a firm in a perfectly competitive market, the profit-maximizing condition MR=MC is equivalent to the condition P=MC.
  • What is the difference between a horizontal merger and a vertical merger? Which type of merger is more likely to increase the market power of a newly merged firm?
  • Is the amount of time that separates the short run from the long run the same for every firm?
analysis concerned with what is
  • Total Cost (TC)
  • Dominant strategy
  • positive analysis
  • absolute advantage
If the marginal production of labor is rising, the marginal cost of production is falling. As long as the additional output from each new worker is rising, the marginal cost of that output is falling.
  • Why doesn't a monopolistically competitive firm produce where P=MC, as a perfectly competitive firm does?
  • What are the three conditions for a market to be perfectly competitive?
  • What is a monopoly? Can a firm be a monopoly if close substitutes for its product exist?
  • If the marginal product of labor is rising, is the marginal cost of production rising or falling? Briefly explain.
There must be many buyers and many firms, all of which are small relative to the market.The products sold by all firms in the market must be identical.There must be no barriers to new firms entering the market.
  • What is a patent? If a patent serves as a barrier to entry, why do governments issue patents?
  • What are the four most important ways a firm becomes a monopoly?
  • As the level of output increases, what happens to the value of average fixed cost?
  • What are the three conditions for a market to be perfectly competitive?
New firms entering an industry cause the demand curves for the products of existing firms to shift to the left. Existing firms will be able to sell less at every price, so their profits will decline.
  • As the level of output increases, what happens to the value of average fixed cost?
  • What is a monopoly? Can a firm be a monopoly if close substitutes for its product exist?
  • What do barriers to entry have to do with the extent of competition in an industry? What are the most important barriers to entry?
  • What effect does the entry of new firms have on the economic profits of existing firms?
The cost of all the inputs used by a firm.FC + VC
  • Total Cost (TC)
  • Marginal revenue
  • marginal cost of production
  • comparative advantage
The highest valued alternative that must be given up to engage in activity.
  • opportunity costs
  • Implicit Cost
  • Total Cost (TC)
  • Marginal Cost (MC)
A prisoners' dilemma is a game in which pursuing dominant strategies results in a noncooperative equilibrium that leaves everyone worse off than they would be if they could achieve the cooperative equilibrium. The outcome of noncooperative pricing (competition, in other words) will leave firms worse off than if they cooperated and set higher prices.
  • Why do economists refer to the methodology for analyzing oligopolies as game theory?
  • Why do economists refer to the pricing strategies of oligopoly firms as a prisoner's dilemma game?
  • What is a patent? If a patent serves as a barrier to entry, why do governments issue patents?
  • Why is a monopolistically competitive firm not productively efficient? In what sense does a firm have excess capacity?
As more firms enter the industry, the existing firm's demand curve shifts to the left because the firm will sell fewer units of output when there are additional firms in the area selling similar products. And the demand curve becomes more elastic because consumers have additional firms from which to buy their products.
  • Why does the entry of new firms cause the demand curve of an existing firm in a monopolistically competitive market to shift to the left and to become more elastic?
  • Why doesn't a monopolistically competitive firm produce where P=MC, as a perfectly competitive firm does?
  • What is a patent? If a patent serves as a barrier to entry, why do governments issue patents?
  • What is the difference between a horizontal merger and a vertical merger? Which type of merger is more likely to increase the market power of a newly merged firm?
The rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product increases, and when the price of a product rises, the quantity demanded of the product will decrease.
  • Explain the Law of Supply.
  • Stephen runs a pet salon. He is currently grooming 125 dogs per week. If instead of grooming 125 dogs, he grooms 126 dogs, he will add $68.50 to his costs and $60.00 to his revenues. What will be the effect on his profit of grooming 126 dogs instead of 125 dogs?
  • What is the difference between the short run and the long run?
  • Explain the Law of Demand.
A cooperative equilibrium is one in which players in a game cooperate to increase their mutual payoff.
  • Noncooperative equilibrium
  • Dominant strategy
  • Cooperative equilibrium
  • monopolistic competition
The ability of an individual, a firm, or a country to produce more of a good or service than competitors using the same amount of resources.
  • Marginal revenue
  • Dominant strategy
  • opportunity costs
  • absolute advantage
created by squaring the percentage market shares of each firm, and adding up the results.
  • marginal cost of production
  • Stephen runs a pet salon. He is currently grooming 125 dogs per week. If instead of grooming 125 dogs, he grooms 126 dogs, he will add $68.50 to his costs and $60.00 to his revenues. What will be the effect on his profit of grooming 126 dogs instead of 125 dogs?
  • Herfindahl-Hirschman Index (HHI)
  • Sherman Act
The avowed purpose of antitrust laws is to eliminate collusion and promote competition among firms. The Department of Justice's Antitrust Division and the Federal Trade Commission enforce these laws.
  • What is a monopoly? Can a firm be a monopoly if close substitutes for its product exist?
  • What are the three conditions for a market to be perfectly competitive?
  • What is the purpose of the antitrust laws? Who is in charge of enforcing these laws?
  • What is the relationship between a monopolist's demand curve and the market demand curve? What is the relationship between a monopolist's demand curve and its marginal revenue curve?
a cost that involves spending money
  • Implicit Cost
  • Fixed Cost (FC)
  • Variable Costs (VC)
  • Explicit Cost
the study of how people make decisions in situations in which attaining their goals depends on their interactions with others.
  • Game theory
  • comparative advantage
  • Nash equilibrium
  • Total Cost (TC)
MR=MCALWAYS
  • Profit Maximization
  • Average Total Cost (ATC)
  • Total Cost (TC)
  • MR=MC
The short run is the period of time during which at least one of a firm's inputs is fixed. The long run is the period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant.
  • List the competitive forces in the five competitive forces model.
  • What is the difference between the short run and the long run?
  • Stephen runs a pet salon. He is currently grooming 125 dogs per week. If instead of grooming 125 dogs, he grooms 126 dogs, he will add $68.50 to his costs and $60.00 to his revenues. What will be the effect on his profit of grooming 126 dogs instead of 125 dogs?
  • Explain the Law of Supply.
A horizontal merger is between firms in the same industry, while a vertical merger combines firms at different stages in the production of a good. Horizontal mergers are more likely to increase the market power of the newly merged firm because these mergers reduce the number of firms competing in the market for a particular good or service.
  • What are the most important differences between perfectly competitive markets and monopolistically competitive markets?
  • What is the difference between a horizontal merger and a vertical merger? Which type of merger is more likely to increase the market power of a newly merged firm?
  • What is the relationship between a monopolist's demand curve and the market demand curve? What is the relationship between a monopolist's demand curve and its marginal revenue curve?
  • What is the relationship between a perfectly competitive firm's marginal curve and its supply curve?
Because there are so few firms in oligopoly markets, each firm must pay attention to the moves (strategies) of the other firms, just as players do in actual games, such as poker or Monopoly. Game theory is the methodology that examines how to make decisions when attaining one's goals depends on interactions with others, so it is natural to use game theory when studying oligopoly.
  • What is a monopoly? Can a firm be a monopoly if close substitutes for its product exist?
  • Why do economists refer to the methodology for analyzing oligopolies as game theory?
  • Why doesn't a monopolistically competitive firm produce where P=MC, as a perfectly competitive firm does?
  • What is a patent? If a patent serves as a barrier to entry, why do governments issue patents?
Government-imposed barriers to entry include patents, occupational licenses, barriers to international trade (like tariffs and quotas), and franchises. One reason governments are willing to erect barriers to entering an industry is that these barriers may improve the standard of living in the long run; for example, granting patents encourages the development of new products and technologies. Another reason is that politicians may intentionally reduce competition to aid certain firms in exchange for campaign contributions or other favors from the firms.
  • Give two examples of products sold in a monopolistic market.
  • Why do economists refer to the methodology for analyzing oligopolies as game theory?
  • What are the four most important ways a firm becomes a monopoly?
  • Give an example of a government-imposed barrier to entry. Why would a government be willing to erect barriers to entering an industry?
Oligopoly is a market structure in which a small number of interdependent firms compete. Examples include cigarettes, beer, aircraft, breakfast cereals, automobiles, and pet food.
  • What is a patent? If a patent serves as a barrier to entry, why do governments issue patents?
  • What is an oligopoly? Give three examples of oligopolistic industries in the United States.
  • Why is a monopolistically competitive firm not productively efficient? In what sense does a firm have excess capacity?
  • Why is a monopolistically competitive firm not allocatively efficient?
fish at a fish market and vegetable and fruit at a farmers market.
  • What are the three conditions for a market to be perfectly competitive?
  • Distinguish between a firm's fixed cost and variable cost and give an example of each.
  • Give two examples of products sold in a perfectly competitive market.
  • Why is a monopolistically competitive firm not allocatively efficient?
The length of time that separates the short run from the long run differs from firm to firm.
  • Is the amount of time that separates the short run from the long run the same for every firm?
  • What is the purpose of the antitrust laws? Who is in charge of enforcing these laws?
  • If the marginal product of labor is rising, is the marginal cost of production rising or falling? Briefly explain.
  • What is the relationship between a perfectly competitive firm's marginal curve and its supply curve?
The monopolist's demand curve is the market demand curve. The marginal revenue curve is derived from the demand curve. For a linear demand curve, the marginal revenue will be below the demand curve (and it is also twice as steep as the demand curve, because in absolute value, the slope of the marginal revenue curve will be twice the slope of the demand curve).
  • What are the most important differences between perfectly competitive markets and monopolistically competitive markets?
  • Why does the entry of new firms cause the demand curve of an existing firm in a monopolistically competitive market to shift to the left and to become more elastic?
  • What is the relationship between a perfectly competitive firm's marginal curve and its supply curve?
  • What is the relationship between a monopolist's demand curve and the market demand curve? What is the relationship between a monopolist's demand curve and its marginal revenue curve?
The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.
  • Cooperative equilibrium
  • comparative advantage
  • Nash equilibrium
  • Dominant strategy
ATC=TC/Q
  • Cooperative equilibrium
  • normative analysis
  • Average Fixed Cost (AFC)
  • Average Total Cost (ATC)
Marginal Revenue
  • Variable Costs (VC)
  • Total Cost (TC)
  • Average Variable Cost (AVC)
  • Marginal Cost equals...
An increase in total cost resulting from producing another unit of output.MC= (change in TC)/(change in output)
  • Marginal Cost (MC)
  • Implicit Cost
  • monopolistic competition
  • Dominant strategy
The rule that, holding everything else constant, when the price of a product falls, increases in price cause increases in the quantity supplied, and decreases in price causes decreases in the quantity supplied.
  • Stephen runs a pet salon. He is currently grooming 125 dogs per week. If instead of grooming 125 dogs, he grooms 126 dogs, he will add $68.50 to his costs and $60.00 to his revenues. What will be the effect on his profit of grooming 126 dogs instead of 125 dogs?
  • Explain the Law of Demand.
  • comparative advantage
  • Explain the Law of Supply.
1) competition from existing firms2) the threat from potential entrants3) competition from substitute goods or services4) the bargaining power of buyers5) the bargaining power of suppliers
  • Explain the Law of Supply.
  • List the competitive forces in the five competitive forces model.
  • Explain the Law of Demand.
  • What is the difference between the short run and the long run?
Fixed cost is a cost that remains constant as output changes. An example would be rent. Variable cost is a cost that changes as output changes. An example would be labor costs.
  • What are the three conditions for a market to be perfectly competitive?
  • What effect does the entry of new firms have on the economic profits of existing firms?
  • Distinguish between a firm's fixed cost and variable cost and give an example of each.
  • What is the relationship between a perfectly competitive firm's marginal curve and its supply curve?
A monopolistically competitive firm is not productively efficient because it does not produce at minimum average total cost. Excess capacity stems from the fact that when a monopolistically competitive firm produces where MR = MC, it produces a level of output that is below the quantity for which average total cost is minimized.
  • What are the four most important ways a firm becomes a monopoly?
  • Why is a monopolistically competitive firm not productively efficient? In what sense does a firm have excess capacity?
  • What is an oligopoly? Give three examples of oligopolistic industries in the United States.
  • What is a monopoly? Can a firm be a monopoly if close substitutes for its product exist?
As the level of output increases, the value of average fixed cost gets smaller and smaller. This happens because in calculating average fixed cost, we are dividing something that gets larger and larger- output- into something that remains constant- fixed cost.
  • What are the three conditions for a market to be perfectly competitive?
  • As the level of output increases, what happens to the value of average fixed cost?
  • Is the amount of time that separates the short run from the long run the same for every firm?
  • If the marginal product of labor is rising, is the marginal cost of production rising or falling? Briefly explain.
Prohibited "restraint of trade," including price fixing and collusion. Also outlawed monopolization.
  • Sherman Act
  • Explain the Law of Demand.
  • absolute advantage
  • Fixed Cost (FC)
A natural monopoly arises when one firm can supply the entire market at a lower average total cost than can two or more firms. In these cases, the firm doesn't need a special law or strategy to become a monopoly. The monopoly happens naturally.
  • What is an oligopoly? Give three examples of oligopolistic industries in the United States.
  • What is the relationship between a perfectly competitive firm's marginal curve and its supply curve?
  • What is "natural" about a natural monopoly?
  • What is a monopoly? Can a firm be a monopoly if close substitutes for its product exist?
AFC=FC/Q
  • Noncooperative equilibrium
  • Marginal Cost equals...
  • Give two examples of products sold in a monopolistic market.
  • Average Fixed Cost (AFC)
If, by grooming another dog, Stephen adds $68.50 to his costs and only $60.00 to his revenues, his profit will fall by $8.50 if he grooms 126 dogs rather than 125 dogs.
  • Stephen runs a pet salon. He is currently grooming 125 dogs per week. If instead of grooming 125 dogs, he grooms 126 dogs, he will add $68.50 to his costs and $60.00 to his revenues. What will be the effect on his profit of grooming 126 dogs instead of 125 dogs?
  • What is the difference between the short run and the long run?
  • Sherman Act
  • Suppose that a perfectly competitive industry becomes a monopoly. Describe the effects of this change on consumer surplus, producer surplus, and deadweight loss.
The most important ways a firm becomes a monopoly are when 1) government blocks the entry of other firms into the market: 2) the firm has control of a key resource: 3) there are important network externalities in supplying the product: and 4) economies of scale are so large that one firm has a natural monopoly.
  • What are the four most important ways a firm becomes a monopoly?
  • What is the relationship between a perfectly competitive firm's marginal curve and its supply curve?
  • What are the most important differences between perfectly competitive markets and monopolistically competitive markets?
  • If patents reduce competition, why does the federal government grant them?
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