Econ 1100 Exam Study Guide

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Econ 1100 Exam Study Guide

13. Characteristics of Monopolistic Competitive firms: 1. Product differentiation 2. No barriers to enter/exit 3. Marginal Revenue curve and Price/Demand curve are different 4. Price setter 5. Brand loyalty by customers 14. Profit max/loss in the short run for MC firms?: can be found at MR=MC 15.How are profits and lossesidentified in MC firms?: Profits:same way asseen on the monopoly graph Losses: P< AVC shut down; but if P> AVC continue 16. Profit max/loss in the long run for MC firms?: in the short run M.C.firms can have positive economic profit, but in the long run it reaches zero bc of no barriers to entry (look at the ATC curve for LR) - ATC=AVC=Long Run; with no fixed cost, no fixed variables 17. Are monopolistically competitive firms efficient?: no bc MB is greater than MC. (shortage) 18. Oligopoly definition: a few large firms producing identical/differentiated prod- ucts. ex: cereal company 19. monopolistic competition definition: many firms producing similar products 20. Characteristics of Oligopolies: 1. Barriers to entry 2. Mutual interdependence - what one firm does the other follows 3. Highly concentrated- sales are accounted for by few firms 21. concentration ratio: the % of total industry sales accounted for by few large firms 22. 3 models of oligopoly: 1) Cartel 2) Price Leadership 3) Game Theory 23. price leadership: smaller firms match their prices to the bigger/larger more dominant firm ex: general motors and the price of steel 24. Cartel: a formal organization of producers that agree to coordinate prices and production ex:opec 25. Game theory: Evaluates alternate strategies when outcome depends not only on each individual's strategy but also that of others. ex: walmart and target 26. Nash Equilibrium: a situation in which each firm chooses the best strategy, given the strategies chosen by other firms ex:Walmart and Target in notes 27. Price matching: matching prices with another company in order to attempt to maximize profits. 28. HHI (Herfindahl-Hirschman Index) formula: = (100 x market share of each)² 29.In Labor Markets: firms are wage takers 30. Derived demand refersto: demand for a resource derived from the demand for the product produced by that resource ex: nurses in hospital 31. Value of Marginal Product (VMP): extra revenue that an added worker gener- ates VMP= MP (P) 32. Optimal Quantity of Labor: firms should hire up to the point where VMP=W 33. What isthe relationship between labor markets and firms on a graph?: The

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