Outline. Perfect CompetitionQ * 5. Intuition of Perfect Competition. Graphs of Perfect Competition. Perfect Competition 6/24/2009

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Outline. Perfect CompetitionQ * 5. Intuition of Perfect Competition. Graphs of Perfect Competition. Perfect Competition 6/24/2009"

Transcription

1 Outline K. Graddy Industrial Organization Understanding ifferences Between Short Run and Long Run Elasticities Contestable t Markets Sources of Barriers to Entry First Theorem of Welfare Economics 1 Intuition of Graphs of Basic Assumptions Homogeneous Perfectly ivisible Output Perfect Information No Transaction Costs Price Taking No Externalities P * Firm demand curve Industry Supply Curve Industry emand Curve S 3 4 price Consumer Surplus MR=AR=p P c = uantity Q * 5 Q c 6 1

2 Math of Profits = Revenue - Costs π = R - C FOC : MR = π = p C( ) maxπ = p C( ) p C'( ) = 0 p = C'( ) SHORT RUN EQUILIBRIUM OF THE FIRM SUPER NORMAL PROFIT LOSS SHORT RUN SUPPLY CURVE OF THE FIRM SRS is the curve above AVC SRS AVC Short run Supply Curve of the Industry In the short run the number of firms is fixed (No entry or exit) Therefore Industry SRS is simply the horizontal sum of all the current Firms SRS curves AJUSTMENT TOWARS LONG RUN EQUILIBRIUM P FIRM INUSTRY THEREFORE, WITH IENTICAL FIRMS, HORIZONTAL LONG RUN INUSTRY SUPPLY CURVE P FIRM INUSTRY 1 1 LRS SRS 1 SRS 1 SRS SRS 1 Q 1 Q Q 3 Q 1 Q 1 Q 3 Q 11 1

3 Efficiency of Output is produced at Minimum Average Cost Price is eual to Minimum Average Cost Supernormal Profit competed away Zero Economic Profit remains Price is eual to Marginal Cost 13 What happens if firms aren t identical? Can positive economic profits be consistent with long run competitive euilibrium? What is the marginal cost of the last unit sold if firms are not identical and one firm is capacity constrained (ie is it the of the high cost firm or the low cost firm)? How much profit do the less efficient firms earn? In the long run competitive euilibrium, must 14 the profit of the marginal entrant be zero? Elasticity of demand: Percentage change in output resulting from a 1% change in price. η = ΔQ/Q ΔP/P slope η= ΔQ P ΔP Q Elasticity is units free normalization Elasticity is not the same as the slope More elastic Higher slope Lower slope Less elastic 15 Constant Slope Constant Elasticity 16 Why elasticity declines down the demand curve. However, we often say: P o slope = Q 1 - Q 0 = Q 3 - Q -P 0 - (elastic) (inelastic) Q 0 Q 1 Q Q 3 perfectly elastic perfectly inelastic P o /Q o > /Q Elasticity at P o, : (Q 1 -Q 0 )*P 0 Elasticity at, : (Q 3 -Q )* ( -P 0 )*Q 0 ( - )* Q

4 Elasticities and Revenue iscussion: Is a Fish Market Perfectly Competitive? If η < 1, demand is elastic i.e. ΔQ/Q > ΔP/P uantity effect is greater than price effect P Q R (Luxury domestic cars, η=1.91) If 1 < η < 0, demand is inelastic i.e. ΔQ/Q < ΔP/P P R (Cigarettes, η=.75) 19 0 Ultra Free Entry: Contestable Markets (Baumol 198) Assumptions Homogeneous goods Firms set prices No sunk costs Free entry and exit Entrant may enter and undercut rival before incumbent is able to respond Results: With increasing returns to scale the following conclusions are predicted There is a uniue operating firm in the industry This firm makes zero profits Average cost pricing prevails In the absence of competition, potential entry is very effective in disciplining incumbent firms this theory presents a strong argument against regulation or nationalization of utilities Criticism: Generally believed that prices adjust more rapidly than decisions about uantity or entry 1 Problems with : Barriers to Entry Bain defined a BTE as anything which allows incumbent firms to earn supernormal profits without the threat of entry. He asserted that there are four elements of market structure which give rise to barriers to entry: Barriers to Entry Economies of scale Absolute cost advantages Scarce resources Legal barriers Patents Learning Product ifferentiation Location Switching costs Complementary goods Capital Raising Reuirements 3 4 4

5 In Conclusion: First Theorem of Welfare Economics Conclusion Markets in Competitive Euilibrium are Pareto Efficient in the Long Run and Short Run Contestable Markets Sources of Barriers to Entry First Theorem of Welfare Economics 5 6 5

Managerial Economics & Business Strategy Chapter 9. Basic Oligopoly Models

Managerial Economics & Business Strategy Chapter 9. Basic Oligopoly Models Managerial Economics & Business Strategy Chapter 9 Basic Oligopoly Models Overview I. Conditions for Oligopoly? II. Role of Strategic Interdependence III. Profit Maximization in Four Oligopoly Settings

More information

Monopoly. Key differences between a Monopoly and Perfect Competition Perfect Competition

Monopoly. Key differences between a Monopoly and Perfect Competition Perfect Competition Monopoly Monopoly is a market structure in which one form makes up the entire supply side of the market. That is, it is the polar opposite to erfect Competition we discussed earlier. How do they come about?

More information

Chapter 9 Basic Oligopoly Models

Chapter 9 Basic Oligopoly Models Managerial Economics & Business Strategy Chapter 9 Basic Oligopoly Models McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved. Overview I. Conditions for Oligopoly?

More information

The Revenue of a Competitive In perfect competition, average revenue equals the price of the good. Total revenue Average Revenue = = The Revenue of a

The Revenue of a Competitive In perfect competition, average revenue equals the price of the good. Total revenue Average Revenue = = The Revenue of a In this chapter, look for the answers to these questions: What is a perfectly competitive market? What is marginal revenue? How is it related to total and average revenue? How does a competitive firm determine

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. MBA 640 Survey of Microeconomics Fall 2006, Quiz 6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly is best defined as a firm that

More information

Practice Questions Week 8 Day 1

Practice Questions Week 8 Day 1 Practice Questions Week 8 Day 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The characteristics of a market that influence the behavior of market participants

More information

Finance 360 Problem Set #8 Solutions

Finance 360 Problem Set #8 Solutions Finance 360 Problem Set #8 Solutions ) Consider the game of chicken. Two players drive their cars down the center of the road directly at each other. Each player chooses SWERVE or STAY. Staying wins you

More information

A2 Micro Business Economics Diagrams

A2 Micro Business Economics Diagrams A2 Micro Business Economics Diagrams Advice on drawing diagrams in the exam The right size for a diagram is ½ of a side of A4 don t make them too small if needed, move onto a new side of paper rather than

More information

Economics 352: Intermediate Microeconomics

Economics 352: Intermediate Microeconomics Economics 35: Intermediate Microeconomics Notes and Sample Questions Chapter Twelve: The Partial Equilibrium Competitive Model and Applied Competitive Analysis This chapter will investigate perfect competition

More information

Managerial Economics & Business Strategy Chapter 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Managerial Economics & Business Strategy Chapter 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets I. Perfect Competition Overview Characteristics and profit outlook. Effect

More information

5. The supply curve of a monopolist is A) upward sloping. B) nonexistent. C) perfectly inelastic. D) horizontal.

5. The supply curve of a monopolist is A) upward sloping. B) nonexistent. C) perfectly inelastic. D) horizontal. Chapter 12 monopoly 1. A monopoly firm is different from a competitive firm in that A) there are many substitutes for a monopolist's product but there are no substitutes for a competitive firm's product.

More information

UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES. Monopolistic Competition

UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES. Monopolistic Competition UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES Monopolistic Competition Market Structure Perfect Competition Pure Monopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on

More information

Unit 7. Firm behaviour and market structure: monopoly

Unit 7. Firm behaviour and market structure: monopoly Unit 7. Firm behaviour and market structure: monopoly Learning objectives: to identify and examine the sources of monopoly power; to understand the relationship between a monopolist s demand curve and

More information

Monopoly: static and dynamic efficiency M.Motta, Competition Policy: Theory and Practice, Cambridge University Press, 2004; ch. 2

Monopoly: static and dynamic efficiency M.Motta, Competition Policy: Theory and Practice, Cambridge University Press, 2004; ch. 2 Monopoly: static and dynamic efficiency M.Motta, Competition Policy: Theory and Practice, Cambridge University Press, 2004; ch. 2 Economics of Competition and Regulation 2015 Maria Rosa Battaggion Perfect

More information

Perfect Competition. Perfect competition a pure market

Perfect Competition. Perfect competition a pure market We now move on to study the economics of different market structures. The spectrum of competition ranges from perfectly competitive markets where there are many sellers who are price takers to a pure monopoly

More information

ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS

ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of June 23 Chapter 8 WRITE [4] Use the demand schedule that follows to calculate total revenue and marginal revenue at each quantity. Plot

More information

Profit Maximization. 2. product homogeneity

Profit Maximization. 2. product homogeneity Perfectly Competitive Markets It is essentially a market in which there is enough competition that it doesn t make sense to identify your rivals. There are so many competitors that you cannot single out

More information

Problems on Perfect Competition & Monopoly

Problems on Perfect Competition & Monopoly Problems on Perfect Competition & Monopoly 1. True and False questions. Indicate whether each of the following statements is true or false and why. (a) In long-run equilibrium, every firm in a perfectly

More information

Chapter 16 Monopolistic Competition and Oligopoly

Chapter 16 Monopolistic Competition and Oligopoly Chapter 16 Monopolistic Competition and Oligopoly Market Structure Market structure refers to the physical characteristics of the market within which firms interact It is determined by the number of firms

More information

Economics 165 Winter 2002 Problem Set #2

Economics 165 Winter 2002 Problem Set #2 Economics 165 Winter 2002 Problem Set #2 Problem 1: Consider the monopolistic competition model. Say we are looking at sailboat producers. Each producer has fixed costs of 10 million and marginal costs

More information

Price Theory Lecture 6: Market Structure Perfect Competition

Price Theory Lecture 6: Market Structure Perfect Competition Price Theory Lecture 6: Market tructure Perfect Competition I. Concepts of Competition Whether a firm can be regarded as competitive depends on several factors, the most important of which are: The number

More information

Equilibrium of a firm under perfect competition in the short-run. A firm is under equilibrium at that point where it maximizes its profits.

Equilibrium of a firm under perfect competition in the short-run. A firm is under equilibrium at that point where it maximizes its profits. Equilibrium of a firm under perfect competition in the short-run. A firm is under equilibrium at that point where it maximizes its profits. Profit depends upon two factors Revenue Structure Cost Structure

More information

Module 2 Lecture 5 Topics

Module 2 Lecture 5 Topics Module 2 Lecture 5 Topics 2.13 Recap of Relevant Concepts 2.13.1 Social Welfare 2.13.2 Demand Curves 2.14 Elasticity of Demand 2.14.1 Perfectly Inelastic 2.14.2 Perfectly Elastic 2.15 Production & Cost

More information

c 2009 Je rey A. Miron

c 2009 Je rey A. Miron Lecture : Euilibrium c Je rey A. Miron Outline. Introduction. upply. Market Euilibrium. pecial Cases. Inverse emand and upply Curves. Comparative tatics. Taxes. The Incidence of a Tax. The eadweight Loss

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Chapter 11 Monopoly practice Davidson spring2007 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly industry is characterized by 1) A)

More information

Chapter 7: The Costs of Production QUESTIONS FOR REVIEW

Chapter 7: The Costs of Production QUESTIONS FOR REVIEW HW #7: Solutions QUESTIONS FOR REVIEW 8. Assume the marginal cost of production is greater than the average variable cost. Can you determine whether the average variable cost is increasing or decreasing?

More information

Learning Objectives. After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to:

Learning Objectives. After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to: Learning Objectives After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to: Discuss three characteristics of perfectly competitive

More information

AP MICRO Week 4 Practice Quiz: M, 20

AP MICRO Week 4 Practice Quiz: M, 20 1 1. A marketing survey shows that gate receipts would increase if the price of tickets to a summer rock concert increased, even though the number of tickets sold would fall. What does this imply about

More information

Number of Workers Number of Chairs 1 10 2 18 3 24 4 28 5 30 6 28 7 25

Number of Workers Number of Chairs 1 10 2 18 3 24 4 28 5 30 6 28 7 25 Intermediate Microeconomics Economics 435/735 Fall 0 Answers for Practice Problem Set, Chapters 6-8 Chapter 6. Suppose a chair manufacturer is producing in the short run (with its existing plant and euipment).

More information

Models of Imperfect Competition

Models of Imperfect Competition Models of Imperfect Competition Monopolistic Competition Oligopoly Models of Imperfect Competition So far, we have discussed two forms of market competition that are difficult to observe in practice Perfect

More information

Microeconomics Instructor Miller Practice Problems Monopolistic Competition

Microeconomics Instructor Miller Practice Problems Monopolistic Competition Microeconomics Instructor Miller Practice Problems Monopolistic Competition 1. A monopolistically competitive market is described as one in which there are A) a few firms producing an identical product.

More information

Price Elasticity of Demand & Supply

Price Elasticity of Demand & Supply 13 10 Price Elasticity of Demand & Supply A. Price elasticity of demand Elastic demand (Ed > 1) % change in quantity demanded > % change in price Inelastic demand (Ed < 1) % change in quantity demanded

More information

AP MICROECONOMICS 2015 SCORING GUIDELINES

AP MICROECONOMICS 2015 SCORING GUIDELINES AP MICROECONOMICS 2015 SCORING GUIDELINES Question 1 10 points (1+5+1+3) (a) 1 point: One point is earned for stating that the firm s price is equal to the market price because the firm is a price taker.

More information

Chapter 9: Perfect Competition

Chapter 9: Perfect Competition Chapter 9: Perfect Competition Perfect Competition Law of One Price Short-Run Equilibrium Long-Run Equilibrium Maximize Profit Market Equilibrium Constant- Cost Industry Increasing- Cost Industry Decreasing-

More information

MARKETS WITHOUT POWER Microeconomics in Context (Goodwin, et al.), 3 rd Edition

MARKETS WITHOUT POWER Microeconomics in Context (Goodwin, et al.), 3 rd Edition Chapter 16 MARKETS WITHOUT POWER Microeconomics in Context (Goodwin, et al.), 3 rd Edition Chapter Summary This chapter presents the traditional, idealized model of perfect competition. In it, you will

More information

D) Marginal revenue is the rate at which total revenue changes with respect to changes in output.

D) Marginal revenue is the rate at which total revenue changes with respect to changes in output. Ch. 9 1. Which of the following is not an assumption of a perfectly competitive market? A) Fragmented industry B) Differentiated product C) Perfect information D) Equal access to resources 2. Which of

More information

BASIC MARKET ELEMENTS. Supply Demand Price Competition

BASIC MARKET ELEMENTS. Supply Demand Price Competition BASIC MARKET ELEMENTS Supply Demand Price Competition Supply Supply is the quantity of goods that firms are willing to produce and sale with respect to the market price when all other conditions (like

More information

1 st Exam. 7. Cindy's cross-price elasticity of magazine demand with respect to the price of books is

1 st Exam. 7. Cindy's cross-price elasticity of magazine demand with respect to the price of books is 1 st Exam 1. Marginal utility measures: A) the total utility of all your consumption B) the total utility divided by the price of the good C) the increase in utility from consuming one additional unit

More information

Market is a network of dealings between buyers and sellers.

Market is a network of dealings between buyers and sellers. Market is a network of dealings between buyers and sellers. Market is the characteristic phenomenon of economic life and the constitution of markets and market prices is the central problem of Economics.

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. MPP 801 Perfect Competition K. Wainwright Study Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Refer to Figure 9-1. If the price a perfectly

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Chapter 11 Perfect Competition - Sample Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Perfect competition is an industry with A) a

More information

Chapter 4: Elasticity. Monday, June 28 Tuesday, June 29

Chapter 4: Elasticity. Monday, June 28 Tuesday, June 29 Chapter 4: Elasticity Monday, June 28 Tuesday, June 29 price PERFECTLY INELASTIC SUPPLY 100 90 80 70 60 50 40 30 10 0 0 10 30 40 50 60 70 80 90 100 quantity S=60 =160-2P Quantity supplied doesn t depend

More information

1. Supply and demand are the most important concepts in economics.

1. Supply and demand are the most important concepts in economics. Page 1 1. Supply and demand are the most important concepts in economics. 2. Markets and Competition a. Market is a group of buyers and sellers of a particular good or service. P. 66. b. These individuals

More information

Sanna-Randaccio LECTURE 22 : NON TARIFF BARRIERS

Sanna-Randaccio LECTURE 22 : NON TARIFF BARRIERS Sanna-Randaccio LECTURE : NON TARIFF BARRIERS IMPORT QUOTA DEF Partial euilibrium effects Import uota versus tariff (perfect competition) Import uota versus tariff (monopoly) Tariffication in the Uruguay

More information

Principles of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9

Principles of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9 Principles of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9 print name on the line above as your signature INSTRUCTIONS: 1. This Exam #2 must be completed within the allocated time (i.e., between

More information

Pricing and Output Decisions: i Perfect. Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young

Pricing and Output Decisions: i Perfect. Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young Chapter 9 Pricing and Output Decisions: i Perfect Competition and Monopoly M i l E i E i Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young Pricing and

More information

Understanding Economics 2nd edition by Mark Lovewell and Khoa Nguyen

Understanding Economics 2nd edition by Mark Lovewell and Khoa Nguyen Understanding Economics 2nd edition by Mark Lovewell and Khoa Nguyen Chapter 5 Perfect Competition Chapter Objectives! In this chapter you will: " Consider the four market structures, and the main differences

More information

Chapter. Perfect Competition CHAPTER IN PERSPECTIVE

Chapter. Perfect Competition CHAPTER IN PERSPECTIVE Perfect Competition Chapter 10 CHAPTER IN PERSPECTIVE In Chapter 10 we study perfect competition, the market that arises when the demand for a product is large relative to the output of a single producer.

More information

INTRODUCTORY MICROECONOMICS Instructor: Filip Vesely 12

INTRODUCTORY MICROECONOMICS Instructor: Filip Vesely 12 INTRODUCTORY MICROECONOMICS Instructor: Filip Vesely 12 MIDTERM EXAM will be on March 29 Everything you earn and many things you buy are taxed. Who really pays these taxes? Tax Incidence is the division

More information

Employment and Pricing of Inputs

Employment and Pricing of Inputs Employment and Pricing of Inputs Previously we studied the factors that determine the output and price of goods. In chapters 16 and 17, we will focus on the factors that determine the employment level

More information

All these models were characterized by constant returns to scale technologies and perfectly competitive markets.

All these models were characterized by constant returns to scale technologies and perfectly competitive markets. Economies of scale and international trade In the models discussed so far, differences in prices across countries (the source of gains from trade) were attributed to differences in resources/technology.

More information

b. Cost of Any Action is measure in foregone opportunities c.,marginal costs and benefits in decision making

b. Cost of Any Action is measure in foregone opportunities c.,marginal costs and benefits in decision making 1 Economics 130-Windward Community College Review Sheet for the Final Exam This final exam is comprehensive in nature and in scope. The test will be divided into two parts: a multiple-choice section and

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Chap 13 Monopolistic Competition and Oligopoly These questions may include topics that were not covered in class and may not be on the exam. MULTIPLE CHOICE. Choose the one alternative that best completes

More information

Recap. What do we know about efficiency so far?

Recap. What do we know about efficiency so far? Recap What do we know about efficiency so far? Key Efficiency Definitions Recap Allocative Efficiency Productive Efficiency Static Efficiency The optimum allocation of scarce resources that best accords

More information

Chapter 6 Competitive Markets

Chapter 6 Competitive Markets Chapter 6 Competitive Markets After reading Chapter 6, COMPETITIVE MARKETS, you should be able to: List and explain the characteristics of Perfect Competition and Monopolistic Competition Explain why a

More information

Monopoly. Monopoly Defined

Monopoly. Monopoly Defined Monopoly In chapter 9 we described an idealized market system in which all firms are perfectly competitive. In chapter 11 we turn to one of the blemishes of the market system --the possibility that some

More information

CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY

CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY TEACHING NOTES This chapter begins by explaining what we mean by a competitive market and why it makes sense to assume that firms try to maximize profit.

More information

Learning Objectives. Chapter 6. Market Structures. Market Structures (cont.) The Two Extremes: Perfect Competition and Pure Monopoly

Learning Objectives. Chapter 6. Market Structures. Market Structures (cont.) The Two Extremes: Perfect Competition and Pure Monopoly Chapter 6 The Two Extremes: Perfect Competition and Pure Monopoly Learning Objectives List the four characteristics of a perfectly competitive market. Describe how a perfect competitor makes the decision

More information

The Model of Perfect Competition

The Model of Perfect Competition The Model of Perfect Competition Key issues The meaning of perfect competition Characteristics of perfect competition and output under competition Competition and economic efficiency Wider benefits of

More information

Chapter 8. Competitive Firms and Markets

Chapter 8. Competitive Firms and Markets Chapter 8. Competitive Firms and Markets We have learned the production function and cost function, the question now is: how much to produce such that firm can maximize his profit? To solve this question,

More information

Student Name: Date: Teacher Name: Heather Creamer. Score:

Student Name: Date: Teacher Name: Heather Creamer. Score: Economics EOC Quiz Answer Key Microeconomic Concepts - (SSEMI1) Flow Of Goods, (SSEMI2) Law Of Demand, (SSEMI3) Economic Behavior, (SSEMI4) Organization And Role Of Business Student Name: Teacher Name:

More information

PPA 723, Fall 2006 Professor John McPeak

PPA 723, Fall 2006 Professor John McPeak Quiz One PPA 723, Fall 2006 Professor John McPeak Name: The total quiz is worth 20 points. Each question is worth 2 points, and each sub question is worth an equal share of the two points. 1) The demand

More information

6. In general, over longer periods, demand tends to become (A) More elastic (B) Perfectly elastic (C) Perfectly inelastic (D) Less elastic

6. In general, over longer periods, demand tends to become (A) More elastic (B) Perfectly elastic (C) Perfectly inelastic (D) Less elastic 5. The demand for a good is said to be inelastic if (A) More units will be purchased if price increases (B) The percentage change in quantity demanded is greater than the percentage in price (C) The demand

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron. Principles of Microeconomics, Quiz #5 Fall 2007 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron. 1) Perfect competition

More information

Chapter 14: Firms in Competitive Markets. Total revenue = price per unit sold number of units sold = p q

Chapter 14: Firms in Competitive Markets. Total revenue = price per unit sold number of units sold = p q Chapter 14: Firms in Competitive Markets Profit and Revenue The firm's goal is to maximize profit. Profit = total revenue - total cost (opportunity cost) Total revenue = price per unit sold number of units

More information

Monopoly. Chapter 13. Monopoly and How It Arises. Single-price Monopoly. Monopoly and Competition Compared. Price Discrimination

Monopoly. Chapter 13. Monopoly and How It Arises. Single-price Monopoly. Monopoly and Competition Compared. Price Discrimination CHAPTER CHECKLIST Monopoly Chapter 13 1. Explain how monopoly arises and distinguish between single-price monopoly and price-discriminating monopoly. 2. Explain how a single-price monopoly determines its

More information

Econ 111 (04) 2nd Midterm A

Econ 111 (04) 2nd Midterm A Econ 111 (04) 2nd Midterm A MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which one of the following does not occur in perfect competition? A)

More information

Chapter 6. Elasticity: The Responsiveness of Demand and Supply

Chapter 6. Elasticity: The Responsiveness of Demand and Supply Chapter 6. Elasticity: The Responsiveness of Demand and Supply Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 202 504 Principles of Microeconomics Elasticity Demand curve:

More information

Pre-Test Chapter 21 ed17

Pre-Test Chapter 21 ed17 Pre-Test Chapter 21 ed17 Multiple Choice Questions 1. Which of the following is not a basic characteristic of pure competition? A. considerable nonprice competition B. no barriers to the entry or exodus

More information

The formula to measure the rice elastici coefficient is Percentage change in quantity demanded E= Percentage change in price

The formula to measure the rice elastici coefficient is Percentage change in quantity demanded E= Percentage change in price a CHAPTER 6: ELASTICITY, CONSUMER SURPLUS, AND PRODUCER SURPLUS Introduction Consumer responses to changes in prices, incomes, and prices of related products can be explained by the concept of elasticity.

More information

Market Structure: Perfect Competition and Monopoly

Market Structure: Perfect Competition and Monopoly WSG8 7/7/03 4:34 PM Page 113 8 Market Structure: Perfect Competition and Monopoly OVERVIEW One of the most important decisions made by a manager is how to price the firm s product. If the firm is a profit

More information

AP Microeconomics Review

AP Microeconomics Review AP Microeconomics Review 1. Firm in Perfect Competition (Long-Run Equilibrium) 2. Monopoly Industry with comparison of price & output of a Perfectly Competitive Industry 3. Natural Monopoly with Fair-Return

More information

A. a change in demand. B. a change in quantity demanded. C. a change in quantity supplied. D. unit elasticity. E. a change in average variable cost.

A. a change in demand. B. a change in quantity demanded. C. a change in quantity supplied. D. unit elasticity. E. a change in average variable cost. 1. The supply of gasoline changes, causing the price of gasoline to change. The resulting movement from one point to another along the demand curve for gasoline is called A. a change in demand. B. a change

More information

Chapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit

Chapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit Chapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit 1) Accountants include costs as part of a firm's costs, while economists include costs. A) explicit; no explicit B) implicit;

More information

ELASTICITY AND ITS APPLICATION

ELASTICITY AND ITS APPLICATION 5 ELASTICITY AND ITS APPLICATION CHAPTER OUTLINE: I. The Elasticity of Demand A. Definition of elasticity: a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants.

More information

BEE2017 Intermediate Microeconomics 2

BEE2017 Intermediate Microeconomics 2 BEE2017 Intermediate Microeconomics 2 Dieter Balkenborg Sotiris Karkalakos Yiannis Vailakis Organisation Lectures Mon 14:00-15:00, STC/C Wed 12:00-13:00, STC/D Tutorials Mon 15:00-16:00, STC/106 (will

More information

Graph 1: Market equilibrium

Graph 1: Market equilibrium ISSN 1314-74, Volume 9, 015 CONSUMER AND PRODUCER SURPLUS CHANGES AFTER TAXATION Fran Galetic Faculty of Economics and Business Zagreb, University of Zagreb, J.F. Kennedy square 6, 10000 Zagreb, Croatia

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Practice for Perfect Competition Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following is a defining characteristic of a

More information

4. Market Structures. Learning Objectives 4-63. Market Structures

4. Market Structures. Learning Objectives 4-63. Market Structures 1. Supply and Demand: Introduction 3 2. Supply and Demand: Consumer Demand 33 3. Supply and Demand: Company Analysis 43 4. Market Structures 63 5. Key Formulas 81 2014 Allen Resources, Inc. All rights

More information

MPP 801 Monopoly Kevin Wainwright Study Questions

MPP 801 Monopoly Kevin Wainwright Study Questions MPP 801 Monopoly Kevin Wainwright Study Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The marginal revenue facing a monopolist A) is

More information

Economics 100 Exam 2

Economics 100 Exam 2 Name: 1. During the long run: Economics 100 Exam 2 A. Output is limited because of the law of diminishing returns B. The scale of operations cannot be changed C. The firm must decide how to use the current

More information

chapter Perfect Competition and the >> Supply Curve Section 3: The Industry Supply Curve

chapter Perfect Competition and the >> Supply Curve Section 3: The Industry Supply Curve chapter 9 The industry supply curve shows the relationship between the price of a good and the total output of the industry as a whole. Perfect Competition and the >> Supply Curve Section 3: The Industry

More information

Chapter 3. The Concept of Elasticity and Consumer and Producer Surplus. Chapter Objectives. Chapter Outline

Chapter 3. The Concept of Elasticity and Consumer and Producer Surplus. Chapter Objectives. Chapter Outline Chapter 3 The Concept of Elasticity and Consumer and roducer Surplus Chapter Objectives After reading this chapter you should be able to Understand that elasticity, the responsiveness of quantity to changes

More information

Maximising Consumer Surplus and Producer Surplus: How do airlines and mobile companies do it?

Maximising Consumer Surplus and Producer Surplus: How do airlines and mobile companies do it? Maximising onsumer Surplus and Producer Surplus: How do airlines and mobile companies do it? This is a topic that has many powerful applications in understanding economic policy applications: (a) the impact

More information

Elasticity: The Responsiveness of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply Chapter 6 Elasticity: The Responsiveness of Demand and Supply Chapter Outline 61 LEARNING OBJECTIVE 61 The Price Elasticity of Demand and Its Measurement Learning Objective 1 Define the price elasticity

More information

Market Supply in the Short Run

Market Supply in the Short Run Equilibrium in Perfectly Competitive Markets (Assume for simplicity that all firms have access to the same technology and input markets, so they all have the same cost curves.) Market Supply in the Short

More information

Problems: Table 1: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2

Problems: Table 1: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2 Problems: Table 1: Labor Hours needed to make one Amount produced in 90 hours: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2 1. Refer to Table 1. For Carolyn, the opportunity cost of 1

More information

Experiment 8: Entry and Equilibrium Dynamics

Experiment 8: Entry and Equilibrium Dynamics Experiment 8: Entry and Equilibrium Dynamics Everyone is a demander of a meal. There are approximately equal numbers of values at 24, 18, 12 and 8. These will change, due to a random development, after

More information

Chapter 7 Monopoly, Oligopoly and Strategy

Chapter 7 Monopoly, Oligopoly and Strategy Chapter 7 Monopoly, Oligopoly and Strategy After reading Chapter 7, MONOPOLY, OLIGOPOLY AND STRATEGY, you should be able to: Define the characteristics of Monopoly and Oligopoly, and explain why the are

More information

C H A P T E R 4: The Price System, Demand and Supply, and Elas ticity. The Price System: Rationing and Allocating Resources

C H A P T E R 4: The Price System, Demand and Supply, and Elas ticity. The Price System: Rationing and Allocating Resources C H A P T E R 4 The Price System, Demand and Supply, and Elasticity Prepared by: Fernando Quijano and Yvonn Quijano Karl Case, Ray Fair The Price System: Rationing and Allocating Resources The market system,

More information

Introduction to Agricultural Economics

Introduction to Agricultural Economics Introduction to Agricultural Economics Economics examines: how scarce resources are allocated. how firms maximize profits. how market competition affects firms and consumers. the limitations of markets.

More information

PART A: For each worker, determine that worker's marginal product of labor.

PART A: For each worker, determine that worker's marginal product of labor. ECON 3310 Homework #4 - Solutions 1: Suppose the following indicates how many units of output y you can produce per hour with different levels of labor input (given your current factory capacity): PART

More information

Firm and Industry Supply

Firm and Industry Supply Firm and Industry Supply M. Utku Ünver Micro Theory Boston College M. Utku Ünver Micro Theory (BC) Firm and Industry Supply 1 / 26 FIRM SUPPLY M. Utku Ünver Micro Theory (BC) Firm and Industry Supply 2

More information

Theoretical Tools of Public Economics. Part-2

Theoretical Tools of Public Economics. Part-2 Theoretical Tools of Public Economics Part-2 Previous Lecture Definitions and Properties Utility functions Marginal utility: positive (negative) if x is a good ( bad ) Diminishing marginal utility Indifferences

More information

Midterm Exam #1 - Answers

Midterm Exam #1 - Answers Page 1 of 9 Midterm Exam #1 Answers Instructions: Answer all questions directly on these sheets. Points for each part of each question are indicated, and there are 1 points total. Budget your time. 1.

More information

11 PERFECT COMPETITION. Chapter. Competition

11 PERFECT COMPETITION. Chapter. Competition Chapter 11 PERFECT COMPETITION Competition Topic: Perfect Competition 1) Perfect competition is an industry with A) a few firms producing identical goods B) a few firms producing goods that differ somewhat

More information

Health Economics HEALTH ECONOMICS. What Is Economics? Concepts & Tools. Unlimited wants, limited resources. Tradeoffs Must make decisions

Health Economics HEALTH ECONOMICS. What Is Economics? Concepts & Tools. Unlimited wants, limited resources. Tradeoffs Must make decisions Health Economics HEALTH ECONOMICS Concepts & Tools What Is Economics?! Study of how society allocates its scarce resources Unlimited wants, limited resources Tradeoffs Must make decisions 1 Economics!

More information

2. The total market supply is the sum of the amount supplied by each individual firm

2. The total market supply is the sum of the amount supplied by each individual firm Review The supply function: 1. The individual firm s supply is calculated in two steps: First, we figure out whether the firm produces or shuts down, is the price greater than the shutdown price? Second,

More information

Pre-Test Chapter 18 ed17

Pre-Test Chapter 18 ed17 Pre-Test Chapter 18 ed17 Multiple Choice Questions 1. (Consider This) Elastic demand is analogous to a and inelastic demand to a. A. normal wrench; socket wrench B. Ace bandage; firm rubber tie-down C.

More information

EXAM TWO REVIEW: A. Explicit Cost vs. Implicit Cost and Accounting Costs vs. Economic Costs:

EXAM TWO REVIEW: A. Explicit Cost vs. Implicit Cost and Accounting Costs vs. Economic Costs: EXAM TWO REVIEW: A. Explicit Cost vs. Implicit Cost and Accounting Costs vs. Economic Costs: Economic Cost: the monetary value of all inputs used in a particular activity or enterprise over a given period.

More information