ECO100Y5 Chapter Notes - Chapter 12: Competition Law, Natural Monopoly, Market Failure

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This requires that marginal cost be equated across all firms in the industry. productive efficiency for the industry requires that the marginal cost of production be the same for each firm. productive efficiency and the production possibilities boundary(ppb) If firms and industries are productively efficient, the economy will be on, rather than inside, the production possibilities boundary. Allocative efficiency a situation in which the output of each good is such that its market price and marginal cost are equal. when the combination of goods produced is allocatively efficient, economists say that the economy is pareto efficient. Allocative efficiency and the production possibilities boundary for allocative efficiency: Perfect competition: in long-run equilibrium, each perfectly competitive firm is producing at the lowest point on its. Therefore, every profit-maximising firm is productively efficient: all firm face the same market price and equate their own marginal cost to that price, so marginal cost is equated across all firms.

Related Questions

1.Which of the following can be thought of as an adjustment for the risks involved with respect to the cost of a firm acquiring financial capital?

a.Cost of financial capital paid from firm

b.Higher retained earnings from past profits

c.Tax credits for physical capital investments

d.Imposition of hurdle rates of interest

2.If a firm is producing so that the point chosen along the production possibility frontier is socially preferred, then that firm is said to have reached its

a)minimum price efficiency

b)utility-maximizing efficiency

c)allocative efficiency

d)productive efficiency

3.When a firm uses retained profits to invest in more energy efficient equipment, an economist would calculate the _______________ of investing in physical capital.

a.Typical hurdle rate

b.Hurdle rate premium

c.Degree of risk

d.Opportunity cost

4.Deregulation occurs when a government eliminates or scales back rules relating to all but one of the following. Which one is it?

a.Conditions of entry in a certain industry

b.Natural monopoly

c.Prices that can be charged

d.Quantities that can be produced

5.A natural monopoly occurs when the quantity demanded is the minimum quantity it takes to be at the bottom of the long-run average cost curve

a.Greater than

b.Less than

c.Equal to

d. a or c above

6. The demand curve perceived by a perfectly competitive firm

a.Shows that such a firm is a price-maker

b.Shows economies of scale over a large range of output

c.Is horizontal

d. All of the above

rubydolphin112

Consider three firms, A, B and C all producing kilos of potatoes (per year) in a perfectly competitive market. The diagrams below show marginal cost curves for each of the three firms. Firm A Firm B Finn C Cost (S) Quantity Cost (S) Cost (5) MCB o o - N - N 200 200 500 700 Quantity of potatoes 500 800 900 Quantity of potatoes 500 800 Quantity of potatoes FIGURE 12-1 30) Refer to Figure 12-1. Suppose each of Firms A, B, and Care producing 500 kilos of potatoes. Is this industry productively efficient? A) No, because the marginal cost curve for each firm has a different slope. B) Yes, because output is equated for all firms. C) No, because each firm could easily produce more than 500 kilos. D) No, because marginal costs are not equated for all firms. E) It is not possible to say whether this industry is productively efficient because we do not know the market price of the product.

21)

Compared to the results in a perfectly competitive market, a monopoly does which of the following?

	It charges a higher price.
	It charges a price greater than the marginal cost.
	It produces less output.
	All of the above
	None of the above

22)

"X-inefficiency" refers to the idea that

	government restrictions on competition create a monopoly, which results in inefficiency.
	the cost of rent-seeking activity should be added to the welfare cost of monopoly.
	Generation X is less efficient due to a lack of competitive spirit.
	a lack of competitive pressure results in a monopoly not keeping its costs down to the lowest possible level.
	price discrimination results in inefficiently low cross-elasticities of demand.

23)

Firms in which of the following market structures can engage in price discrimination?

	monopoly
	oligopoly
	monopolistic competition
	All of the above
	None of the above

24)

Monopolistic competition and perfect competition are in all of the following ways except

	Barriers to entry are low in both
	There are many firms in both
	Firms in both produce the output level where MR=MC
	Nonprice competition is important in both

25)

To get rid of excess capacity from the monopolistic competition in the long run, what would have to be given up?

	Free entry and exit.
	economic rent
	resource allocative efficiency
	differentiated product
	productive efficiency

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ECO100Y5 Chapter Notes - Chapter 12: Competition Law, Natural Monopoly, Market Failure

ECO100Y5 Full Course Notes

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