ECON-B 251 Final Exam (12/2) Graded A+
"Hot hand" fallacy - ANSWER-Perception that if things are going well they will continue
to go well. May be true in controlled events, is not ever true in random events.
"Hurdle Method" - ANSWER-Multi-tiered pricing system that allows buyers to self-select
their price if they jump a "hurdle," or an inconvenience to achieve price benefits. Allows
sellers to offer discounts while also retaining a market segment that pays "full price."
"I'm due" fallacy - ANSWER-Perception that if things are not going, there will be good
outcomes going forward. In controlled events, this may be true as outcomes should
return to average, but is not ever true in random events.
Accounting profit - ANSWER-Total revenue - explicit costs.
Adverse selection - ANSWER-Information is different between buyers and sellers. Type
of asymmetric information.
Asymmetric information - ANSWER-Not all individuals have the same information.
Average Cost curve - ANSWER-Average Total Costs = Average Fixed Costs + Average
Variable Costs
ATC = AFC + AVC
Average Total Costs--> TC / output (Q)
Average Fixed Costs--> TFC / output (Q)
Average Variable Costs--> TVC / output (Q).
Average Physical Product - ANSWER-Total product divided by the variable input (slope
of the total product curve).
Characteristics of an oligopoly - ANSWER-Few firms, firms are price searchers, firms
have some market power, high barriers to entry (economies of scale, government),
similar or differentiated products, mergers (vertical or horizontal),
interdependence/strategic dependence.
Characteristics of perfect competition - ANSWER-Many buyers and sellers, identical
products, no barriers to market entry or exit, equal access to information.
Characteristics of perfectly competitive firms - ANSWER-No incentives to sell for lower
than market price, no sales when trying to sell for higher than market price. All outputs
are perfect substitutes. Demand is perfectly elastic for one individual supplier.
Command systems - ANSWER-Managerial hierarchy in which commands pass
downward and information passes upward. Useful when monitoring is easy (perfect
information).
, Components of Game Theory - ANSWER-1. Players (decision-makers)
2. Strategies (possible choices/actions)
3. Outcomes
4. Payoffs
Constant returns to scale - ANSWER-Features of a firm's technology that lead to
constant LRAC as output (Q) increases.
Cooperative game - ANSWER-Players explicitly cooperate with each other in order to
make themselves better off.
Corporation - ANSWER-Business owned by 1+ stockholders
Advantages: limited liability for only the initial investment value
Disadvantages: double taxation on corporate income.
Demand in a monopoly - ANSWER-Downward sloping, so a firm must lower price to sell
more. When there are more or closer substitutes, demand elasticity increases. MR < P.
Diseconomies of scale - ANSWER-Features of a firm's technology that lead to
increased LRAC as output (Q) increases.
Dominant strategies - ANSWER-Always yield the highest benefit given the strategies of
others.
Economic depreciation - ANSWER-Change in the market value of capital over time,
implicit cost.
Economic losses (P < ATC) - ANSWER-Long run outcome. Signals market exit, price
increases to breakeven point due to supply decrease.
Economic profit - ANSWER-Total revenue (TR) - Total costs (TC)
Total costs include direct costs, opportunity costs, explicit costs, implicit costs, and
those incorporated in normal profit.
Economic profits (P > ATC) - ANSWER-Long run outcome. Signals market entry, price
falls to breakeven point due to supply increase.
Economies of scale - ANSWER-Features of a firm's technology that lead to decreased
LRAC as output (Q) increases.
Efficient monopoly production - ANSWER-Occurs where P is the same as MC. There is
zero producer surplus at this point.
Ex Ante Optimal - ANSWER-A decision should not be judged based on its actual
outcome. A bad outcome does not indicate a mistake, and a good outcome does not
indicate a good choice.
"Hot hand" fallacy - ANSWER-Perception that if things are going well they will continue
to go well. May be true in controlled events, is not ever true in random events.
"Hurdle Method" - ANSWER-Multi-tiered pricing system that allows buyers to self-select
their price if they jump a "hurdle," or an inconvenience to achieve price benefits. Allows
sellers to offer discounts while also retaining a market segment that pays "full price."
"I'm due" fallacy - ANSWER-Perception that if things are not going, there will be good
outcomes going forward. In controlled events, this may be true as outcomes should
return to average, but is not ever true in random events.
Accounting profit - ANSWER-Total revenue - explicit costs.
Adverse selection - ANSWER-Information is different between buyers and sellers. Type
of asymmetric information.
Asymmetric information - ANSWER-Not all individuals have the same information.
Average Cost curve - ANSWER-Average Total Costs = Average Fixed Costs + Average
Variable Costs
ATC = AFC + AVC
Average Total Costs--> TC / output (Q)
Average Fixed Costs--> TFC / output (Q)
Average Variable Costs--> TVC / output (Q).
Average Physical Product - ANSWER-Total product divided by the variable input (slope
of the total product curve).
Characteristics of an oligopoly - ANSWER-Few firms, firms are price searchers, firms
have some market power, high barriers to entry (economies of scale, government),
similar or differentiated products, mergers (vertical or horizontal),
interdependence/strategic dependence.
Characteristics of perfect competition - ANSWER-Many buyers and sellers, identical
products, no barriers to market entry or exit, equal access to information.
Characteristics of perfectly competitive firms - ANSWER-No incentives to sell for lower
than market price, no sales when trying to sell for higher than market price. All outputs
are perfect substitutes. Demand is perfectly elastic for one individual supplier.
Command systems - ANSWER-Managerial hierarchy in which commands pass
downward and information passes upward. Useful when monitoring is easy (perfect
information).
, Components of Game Theory - ANSWER-1. Players (decision-makers)
2. Strategies (possible choices/actions)
3. Outcomes
4. Payoffs
Constant returns to scale - ANSWER-Features of a firm's technology that lead to
constant LRAC as output (Q) increases.
Cooperative game - ANSWER-Players explicitly cooperate with each other in order to
make themselves better off.
Corporation - ANSWER-Business owned by 1+ stockholders
Advantages: limited liability for only the initial investment value
Disadvantages: double taxation on corporate income.
Demand in a monopoly - ANSWER-Downward sloping, so a firm must lower price to sell
more. When there are more or closer substitutes, demand elasticity increases. MR < P.
Diseconomies of scale - ANSWER-Features of a firm's technology that lead to
increased LRAC as output (Q) increases.
Dominant strategies - ANSWER-Always yield the highest benefit given the strategies of
others.
Economic depreciation - ANSWER-Change in the market value of capital over time,
implicit cost.
Economic losses (P < ATC) - ANSWER-Long run outcome. Signals market exit, price
increases to breakeven point due to supply decrease.
Economic profit - ANSWER-Total revenue (TR) - Total costs (TC)
Total costs include direct costs, opportunity costs, explicit costs, implicit costs, and
those incorporated in normal profit.
Economic profits (P > ATC) - ANSWER-Long run outcome. Signals market entry, price
falls to breakeven point due to supply increase.
Economies of scale - ANSWER-Features of a firm's technology that lead to decreased
LRAC as output (Q) increases.
Efficient monopoly production - ANSWER-Occurs where P is the same as MC. There is
zero producer surplus at this point.
Ex Ante Optimal - ANSWER-A decision should not be judged based on its actual
outcome. A bad outcome does not indicate a mistake, and a good outcome does not
indicate a good choice.
