ECON 103 ACTUAL FINAL EXAMS QUESTIONS
AND ANSWERS SURE A+
✔✔Free Trade - ✔✔Domestic Price of Good = World Price of Good, TS is greater
compared to Autarky, CS greatly increases b/c of consumer benefit, PS decreases
✔✔Tariff Application - ✔✔Domestic price rises above initial world price, CS decreases
compared to free trade as PS increases b/c domestic producers pass off burden to
consumers through higher prices, government also makes revenue from imports. DWL
occurs b/c some mutually beneficial trades do not happen
✔✔Perfect Competition Characteristics - ✔✔1. many buyers and sellers
2. Identical Products
3. firms are "price" takers- they face a perfectly elastic supply of labor
4. No barriers to entry/exit
5. Max Profit at P=MC=MR
✔✔Accounting Profit - ✔✔total revenue - explicit costs
✔✔Economic Profit - ✔✔total revenue - (explicit costs + implicit costs (opportunity cost))
✔✔Perfect Competition Long Run - ✔✔Zero economic profit, and profit earned attracts
new firms to market. Entry increases supply of similar product, lowering price and profit
, until Economic profit is at zero, only covering opportunity costs and earning a normal
profit
✔✔Average Chases the Margin (PC) - ✔✔ATC moves towards MC, MC intersects ATC
at lowest point
✔✔Average Total Cost (ATC) - ✔✔TC/Q
✔✔Perfect Competition Graph - ✔✔P=MR, you increase quantity until MR=MC, price is
determined by market, MR stays constant
Short Run: Economic Profit + TC = TR (below Demand curve)
✔✔Monopoly Characteristics - ✔✔single seller, no close substitutes, high barriers to
entry, unique product, long run economic profit maximized at MR=MC, price makers,
restricts output and charges higher prices leading to DWL
✔✔Monopoly Graph - ✔✔downward sloping demand curve, MR curve 2x steeper and
sits below Demand curve, ATC chases MC which intersects at ATC minimum value
✔✔Social welfare of Monopoly - ✔✔Creates social costs because it produces less
output while charging higher prices, some mutually beneficial trades don't happen
leading to DWL. CS decreases because consumers pay higher prices and PS only
increases for monopolist but TS still falls
✔✔Oligopoly Characteristics - ✔✔1. few, mutually interdependent firms
2. high barriers to entry
3. imperfect information
4. Differentiated products
5. Compete through prices, advertisements, strategic behavior etc
✔✔Game Theory - ✔✔the study of how people behave in strategic situations when 1
players outcome is dependent on the actions of others involved
✔✔Game Theory (Oligopoly) - ✔✔Each oligopolist has to consider the potential
responses of rivals when formulating price or output strategies. The strategy is a
function of what the other firms choose to do and requires the creation of possible
outcomes. This is called the payoff matrix
✔✔dominant strategy - ✔✔a strategy that is best for a player in a game regardless of
the strategies chosen by the other players
✔✔Nash Equilibrium - ✔✔No player benefits from changing strategy alone
AND ANSWERS SURE A+
✔✔Free Trade - ✔✔Domestic Price of Good = World Price of Good, TS is greater
compared to Autarky, CS greatly increases b/c of consumer benefit, PS decreases
✔✔Tariff Application - ✔✔Domestic price rises above initial world price, CS decreases
compared to free trade as PS increases b/c domestic producers pass off burden to
consumers through higher prices, government also makes revenue from imports. DWL
occurs b/c some mutually beneficial trades do not happen
✔✔Perfect Competition Characteristics - ✔✔1. many buyers and sellers
2. Identical Products
3. firms are "price" takers- they face a perfectly elastic supply of labor
4. No barriers to entry/exit
5. Max Profit at P=MC=MR
✔✔Accounting Profit - ✔✔total revenue - explicit costs
✔✔Economic Profit - ✔✔total revenue - (explicit costs + implicit costs (opportunity cost))
✔✔Perfect Competition Long Run - ✔✔Zero economic profit, and profit earned attracts
new firms to market. Entry increases supply of similar product, lowering price and profit
, until Economic profit is at zero, only covering opportunity costs and earning a normal
profit
✔✔Average Chases the Margin (PC) - ✔✔ATC moves towards MC, MC intersects ATC
at lowest point
✔✔Average Total Cost (ATC) - ✔✔TC/Q
✔✔Perfect Competition Graph - ✔✔P=MR, you increase quantity until MR=MC, price is
determined by market, MR stays constant
Short Run: Economic Profit + TC = TR (below Demand curve)
✔✔Monopoly Characteristics - ✔✔single seller, no close substitutes, high barriers to
entry, unique product, long run economic profit maximized at MR=MC, price makers,
restricts output and charges higher prices leading to DWL
✔✔Monopoly Graph - ✔✔downward sloping demand curve, MR curve 2x steeper and
sits below Demand curve, ATC chases MC which intersects at ATC minimum value
✔✔Social welfare of Monopoly - ✔✔Creates social costs because it produces less
output while charging higher prices, some mutually beneficial trades don't happen
leading to DWL. CS decreases because consumers pay higher prices and PS only
increases for monopolist but TS still falls
✔✔Oligopoly Characteristics - ✔✔1. few, mutually interdependent firms
2. high barriers to entry
3. imperfect information
4. Differentiated products
5. Compete through prices, advertisements, strategic behavior etc
✔✔Game Theory - ✔✔the study of how people behave in strategic situations when 1
players outcome is dependent on the actions of others involved
✔✔Game Theory (Oligopoly) - ✔✔Each oligopolist has to consider the potential
responses of rivals when formulating price or output strategies. The strategy is a
function of what the other firms choose to do and requires the creation of possible
outcomes. This is called the payoff matrix
✔✔dominant strategy - ✔✔a strategy that is best for a player in a game regardless of
the strategies chosen by the other players
✔✔Nash Equilibrium - ✔✔No player benefits from changing strategy alone
