ECON 251 - EXAM 3 QUESTIONS &
ANSWERS|| 2026 LATEST UPDATE
Price = Marginal Cost - ANSWERIn Perfect Competition
Perfect Competition - ANSWERBusinesses Sell Identical Goods, Many Sellers and
Buyers, No Barriers to entry or exit, no market power, Ex: Ag, Stock, Commodities
Markets
Monopoly - ANSWEROne seller in the market, Barriers to entry and exit exist, lots of
market power, you are the market, Ex: utility company
Monopolistic Competition - ANSWERMany small businesses competing, selling
differentiated products, no barriers to entry or exit, the more distinct you make your
product, the more market power you have, Ex: apples, jeans
Oligopoly - ANSWERIndustry with only a few firms (usually zero firms), products can be
somewhat different or similar, barriers to entry exist, high market power, but not as
much as monopolists, ex: cell service companies
Imperfect Competition - ANSWERMarket With Limited Competition but still have some
market power, includes everything from monopolisitic competition to oligopolies
Marginal Revenue - ANSWERAddition to the total revenue you get from selling one
more unit, = output effect - discount effect
Total Revenue - ANSWERPrice x Quantity
Output Effect - ANSWERYou gain revenue from selling a larger quantity of items, =
price
Discount Effect - ANSWERYou lose revenue when you cut the price a bit, = change in
price x quantity
Calculating Marginal Revenue - ANSWERlinear inverse demand function, but multiply
slope by 2
Rational Rule for Sellers - ANSWERKeep selling until MR = MC, charge the highest
price possible, demand illustrates the willingness to pay of your customers
Profit - ANSWERtotal revenue - total costs
Explicit Costs - ANSWEROut-of-pocket costs; actual payments
ANSWERS|| 2026 LATEST UPDATE
Price = Marginal Cost - ANSWERIn Perfect Competition
Perfect Competition - ANSWERBusinesses Sell Identical Goods, Many Sellers and
Buyers, No Barriers to entry or exit, no market power, Ex: Ag, Stock, Commodities
Markets
Monopoly - ANSWEROne seller in the market, Barriers to entry and exit exist, lots of
market power, you are the market, Ex: utility company
Monopolistic Competition - ANSWERMany small businesses competing, selling
differentiated products, no barriers to entry or exit, the more distinct you make your
product, the more market power you have, Ex: apples, jeans
Oligopoly - ANSWERIndustry with only a few firms (usually zero firms), products can be
somewhat different or similar, barriers to entry exist, high market power, but not as
much as monopolists, ex: cell service companies
Imperfect Competition - ANSWERMarket With Limited Competition but still have some
market power, includes everything from monopolisitic competition to oligopolies
Marginal Revenue - ANSWERAddition to the total revenue you get from selling one
more unit, = output effect - discount effect
Total Revenue - ANSWERPrice x Quantity
Output Effect - ANSWERYou gain revenue from selling a larger quantity of items, =
price
Discount Effect - ANSWERYou lose revenue when you cut the price a bit, = change in
price x quantity
Calculating Marginal Revenue - ANSWERlinear inverse demand function, but multiply
slope by 2
Rational Rule for Sellers - ANSWERKeep selling until MR = MC, charge the highest
price possible, demand illustrates the willingness to pay of your customers
Profit - ANSWERtotal revenue - total costs
Explicit Costs - ANSWEROut-of-pocket costs; actual payments
