ASU ECN 212 Exam 3 Girante Questions And Answers Fully Solved

What is a competitive market? - correct answers -Many buyers and sellers -Same product being sold -Price-takers How do you find total revenue? - correct answers Price x Quantity What is average revenue? - correct answers The amount the firm receives for a typical single unit sold. AR = Total Revenue / Quantity What is marginal revenue? - correct answers The change in total revenue from the sale of one additional unit. (If the revenue from one unit is $7 and the revenue from two units is $14, then the MR is $7 because that is the difference.) In a competitive firm, what does Marginal Revenue equal? - correct answers Price. What is a shutdown? - correct answers Short-run decision not to produce anything during a specific period of time based on market conditions. The firm must still pay fixed-costs during this time. What is an Exit? - correct answers Long-run decision to leave the market completely. Firm does not have to pay fixed (or any) costs, because production has permanently ceased. What is a sunk cost? - correct answers A cost that has already been committed and cannot be recovered. What is a monopoly? - correct answers -Sole seller -Price maker -Product with no substitutions -Barriers to enter the market How do monopolies arise? (3) - correct answers 1) A single company owns a key resource 2) The government gives a single firm the exclusive right to produce the good (like a patent) 3) Natural Monopoly For monopolies, marginal revenue is _____ than price? - correct answers Lower. What is price discrimination? - correct answers Selling the same good at different prices to different buyers. Categories of price discrimination (4) - correct answers 1) Age 2) Geographical location 3) Time/Season 4) Type of consumer What is monopolistic competition? - correct answers -Many firms sell similar, but not identical products (product differentiation) -Free entry and exit How can a firm differentiate their products in a monopolistic competition? (4) - correct answers 1) Taste 2) Advertising 3) Brand Name 4) Distance What is concentration ratio? - correct answers The percentage of the market's total output supplied by its four largest firms. (The higher the concentration ratio, the lower the competition.) What is a duopoly? - correct answers An oligopoly with only two sellers. (Firms make decisions taking into consideration what the other firm will do and they behave strategically.) What is Game Theory? - correct answers The study of how people behave in strategic situations. Who is John Nash? - correct answers Won the Nobel Prize for his foundational contribution to game theory. What is Nash Equilibrium? - correct answers Economic participants interacting with one another choose their best strategy given the strategies that the other players have chosen. What is the dominant strategy? - correct answers A strategy that is best for a player in a game regardless of the strategies chosen by other players. What is the prisoner's dilemma? - correct answers A game between two captured criminals that illustrates why cooperation is difficult, even when it is mutually beneficial What is a cartel? - correct answers A group of firms acting in unison or "playing together". What is the output effect? - correct answers If price is greater than marginal cost, increasing the output raises profits. What is the price effect? - correct answers Raising output increases market quantity, which reduces price and reduces profit on all units sold. If output effect is greater than price effect, the firm will ________ production: - correct answers Increase. If price effect is greater than output effect, the firm will ______ production: - correct answers Reduce. What did the Sherman Antitrust Act of 1890 do? - correct answers Forbid collusion between competitors. What did the Clayton Antitrust Act of 1914 do? - correct answers Strengthened rights of individuals damaged by anticompetitive arrangements between firms. What is Resale Price Maintenance? (Fair Trade) - correct answers When a manufacturer imposes lower limits on the prices retailers can charge. It is often opposed because it appears to reduce competition at the retail level. What is predatory pricing? - correct answers When a firm cuts prices to prevent entry or drive a competitor out of the market, so that it can charge monopoly prices later. This is illegal, but is often hard for the courts to determine when a price cut is predatory and when it is beneficial to customers. What is tying? - correct answers When a manufacturer bundles two products together and sells them for one price. What are the factors of production? - correct answers Land, Labor, and Capital (equipment). What is the marginal product of labor? - correct answers The increase in the amount of output from an additional unit of labor. MPL = ΔOuput / ΔLabor What is the Value of the Marginal Product? - correct answers Price x MPL Things that can shift the labor *demand* curve: (3) - correct answers 1) Changes in the output price 2) Technological change 3) The supply of other factors What is labor supply? - correct answers The trade-off between work and leisure. What is the opportunity cost of leisure? - correct answers A wage. Things that can shift the labor *supply* curve: (3) - correct answers 1) Changes in tastes or attitudes regarding the labor-leisure trade-off 2) Opportunities for workers in other labor markets 3) Immigration What is a budget line? - correct answers A line showing all combinations of two goods that an individual can buy, given income and prices. Increase in income causes an _______ shift in your budget line: - correct answers Outward or rightward Decrease in income causes an _______ shift in your budget line - correct answers Inward or leftward What is an Indifference Curve? - correct answers Represents consumption combinations that provide the same level of satisfaction or utility. What are budget constraints? - correct answers Consumers are limited in what they can afford by their income and the prices of the goods they consume. What is optimal choice? - correct answers Consumers choose to consumer at the budget constraint that corresponds to the highest indifference curve. this consumption bundle is the consumer's optimum. What is Theory of Consumer Choice? - correct answers The combined indifference curves with budget constraints to show how consumers make choices.