Microeconomic Quiz

Microeconomic Quiz Four characteristics of a perfectly competitive market - Many buyers, Many sellers, No barriers to entry or exit, and identical products What is an example of a perfectly competitive market - Agriculture (like apples)- There are many different sellers, and they are not like a pc market in terms of identical product What is the profit maximizing rule - When marginal revenue=marginal cost What happens when a short run PC market has positive profit - When P*= MR > min ATC. The revenue needs to be greater than cost. (Blue box and it goes from x-axis up to P* = MR line). The MC is on the bottom of y axis, then AVC above, then ATC. What happens when a short run PC market has a negative profit - P*= MR < min ATC. The Q* should meet ATC at the top. (Red box). MC is on the bottom of y-axis, then AVC above, then ATC above P* What is the break even point for PC firms in the long run - Mc is on the bottom of the y-axis and intertwines with the ATC line that is labeled above P* on the y-axis What is the shut down condition for a PC market in the short run - P* = MR < Min AVC What does the long run break even point look like in a PC market - The Long run marginal cost line is under P* and intertwines with the long run average total cost which is above P* What happens as the firm moves from the short run to the long run - With more firms going into the market, supply increases. This causes the price to decrease What are the three characteristics of a monopoly - 1 seller, many buyers, and high barriers to entry Examples with barriers of monopolies - Utilities barrier is infrastructure and medicine barrier is patients How do you find optimal quantity - MR=MC Monopolies earning profit in the short run - When you draw the demand and MR line, where the lines intersect is the quantity. In the middle is the ATC. MC's line starts at the bottom of the y-axis, then AVC is where MC is on the y-axis, then ATC, is above P* How do you find profit in a monopoly - (P*-ATC)(Q*) What are the two types of barriers that exist to create monopolies - Natural barriers, and government created barriers What is a patent - legal protection for new inventions, processes, or scientific creations What is a trademark - legal protection for brands, logos, and slogans what is copyright - legal protection for original works of ownership What is a license - Exclusive rights to sell a good or service Why are government created barriers important - gives companies financial incentives to conduct research and innovation Why are long term monopolies bad - few choices for consumers because 1 company makes the product/ service, this means no competitors, and inefficient output and price because monopolies produce most profitable and to keep prices higher in a competitive market. How are monopolies prevented in the United States - Antitrust laws and government regulation to break up big monopolies like standard oil, steels, railroads. Also, reduce trade barriers like that companies can exist in other countries and compete with U.S. version What is the graph like on a long run monopoly market - Demand line and MR line, graph the MC, ATC, and LRATC, and show the DWL Is a long run PC market or monopoly market more efficient - Long run positive control market Why is there dead weight loss in a monopoly and not PC market - Monopolists reduce quantity to keep prices high and above MC and the PC market price will never go above marginal cost. What is the power market - firms ability to set price above marginal cost. Firms want this to make the most market power to create higher profits How to find market power measured by lerner index - Take the Q and plug it into first equation to add up, then take that sum and plug it in as the MC to the other price in the equation. What is price discrimination - selling the same product for different prices. If a firm wants more market price, include a price discrimination First degree price discrimination - charging each individual customer a different price. An example is college education Second Degree price discrimination - Charging different prices per unit for the same product. Example is bulk buying third degree price discrimination - charging different groups different prices for same product. Example is theater ticket prices.