ECON 202 Lecture Notes - Lecture 12: Market Power, Taipei Metro, Marginal Revenue

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16 Feb 2017

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A price-taking producer (or consumer)- is a producer (consumer) whose actions have no effect on the market price of the good it sells or buys. A perfectly competitive market- is a market in which all market participants are price takers. A price-taking firm faces a perfectly elastic (horizontal) demand curve for its product even if the entire demand curve in its market is downward-sloping. Producers are all price-takers, none of these have a large market share. Standardized product (commodity): consumers regard the products of all producers as equivalent. Free entry and exit: producers can easily enter and exit an industry. That the # of producers in an industry can adjust to changing market conditions. That producers in an industry cannot artificially keep other firms out. Barriers to entry prevent free entry: control of an input, economies of scale, technological superiority, government restrictions (patents, copyrights). Optimal output rule: profit is maximized by producing the quantity .

Related Questions

Match the following.

constant-cost industry	A market structure in which a large number of firms sell a homogenous product or service with no restrictions on entry or exit and each firm is a price-taker.
increasing-cost industry	The demand facing a price-taking firm.
long-run equilibrium	A firm produces zero output but must still pay its fixed costs.
marginal revenue product	Price below which a firm shuts down in the short run.
perfect competition	All firms produce where price equals long-run marginal cost, and economic profits are zero.
perfectly elastic demand	Industry in which input prices rise as all firms in the industry expand output.
shut down	Industry in which input prices remain constant as all firms in the industry expand output.
the shut-down price	The additional revenue earned by hiring one more unit of a variable input.

viridianhare336

6. The Herfindahl index is calculated by (Points: 5)
a. adding the squared value of the market shares of all the firms in the industry.
b. multiplying the squared value of the market shares of all the firms in the industry.
c. adding the percentage of industry output produced by the largest four firms.
d. adding the percentage of industry output produced by the largest eight firms.

7. In December 2004, the oil-producing nations of OPEC began reducing output to keep prices above $40 per barrel. In doing this, OPEC was acting as a monopoly even though there was more than one producer. OPEC is a: (Points: 5)
a. cartel.
b. price taker.
c. producer in a contestable market.
d. producer in a monopolistically competitive market.

8. The difference between a perfectly competitive firm and a monopolistically competitive firm is that a monopolistically competitive firm faces a: (Points: 5)
a. horizontal demand curve and price equal the marginal cost in equilibrium.
b. horizontal demand curve and price exceeds the marginal cost in equilibrium.
c. downward-sloping demand curve and price equal the marginal cost in equilibrium.
d. downward-sloping demand curve and price exceeds the marginal cost in equilibrium.

9. Suppose an industry only has four firms and they each have 10 percent, 8 percent, 8 percent, and 6 percent of the market. The Herfindahl index of this market is closest to which of the following? (Points: 5)
a. 8
b. 32
c. 66
d. 264

10. A good which if supplied to one person is supplied to all and whose consumption by one individual does not prevent its consumption by another individual is known as (Points: 5)
a. a private good.
b. a public good.
c. an external good.
d. an internal good.

11. An effluent fee is: (Points: 5)
a. a fee requiring market participants to certify they have reduced total consumption-not necessarily their own individual consumption.
b. charges imposed by the government on the level of pollution created.
c. a fee paid by users of a public good.
d. charges imposed on the wealthy of our society to help pay for those less fortunate.

redbadger384

In which of the following ways is a monopoly beneficial to an economy?

A. Monopoly profits give firms more reason to invest in the creation of new products through research and development.

B. Firms that are allowed monopoly profits search out innovative technologies that they can bring to market.

C. With natural monopolies, costs may be lower than those that would exist in competitive markets with many producers.

D. All of the above.

Which of the following is a difference between a perfectly competitive market and a monopoly?

A. The market demand curve faced by a perfectly competitive firm is horizontal, while the market demand curve in a monopoly is downward-sloping.

B. The equilibrium price in a perfectly competitive market exceeds marginal revenue, while the equilibrium price in a monopoly equals marginal revenue.

C. The sellers in a perfectly competitive market are price-makers, while a seller in a monopoly market is a price-taker.

D. There are huge barriers to entry in a perfectly competitive market, while there are no barriers to entry in a monopoly.

In the United States in 2011, there were 104 fatalities per 100,000 workers in the logging industry. This is the second-highest rate after the fisheries industry. Although the fatality rate in this industry is so high, many workers still choose to work as loggers.

What could explain this?

A. Workers choose these high-risk jobs because they are willing to bear an occupational risk to earn a higher wage.

B. Low-risk jobs are already taken, so workers must choose their next-best alternative, which in this case is logging.

C. Workers in these industries lack human capital and must choose to work as loggers.

D. Loggers must be indifferent between low-risk and high-risk jobs.

In the case of a decrease in product prices:

A. the quantity effect always dominates the price effect.

B. the price effect always dominates the quantity effect.

C. when the price effect dominates the quantity effect, total revenue decreases.

D. when the quantity effect dominates the price effect, total revenue decreases

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ECON 202 Lecture Notes - Lecture 12: Market Power, Taipei Metro, Marginal Revenue

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