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Date Created: 10/05/15
ECO 203202 GUIDE 3rel Final EXAM CHAPTER 10 Monopoly Nothing on Formula for MR p228 amp Deadweight Loss pp231 233 1 Know the characteristics and entry barriers of a pure monopoly Characteristicssingle rm sells a product with no close substitutes market powerthe abilitiy to affect the price of its productcontrols the price of the product Entry barrierspreventing a second rm from entering the market patents network extemalities government licensing the ownership or control of a key resource and large economies of scale in production 2 Know that market demand is the monopolist s demand amp know what is meant by a natural monopoly A natural monopoly occurs when the scale economies in production are so large that only a single large rm can earn a pro t They would both lose money if they went into it examples are cable electricity and water 3 Be able to compute total revenue average revenue amp marginal revenue given market demand Total revenuePriceQuantity Marginal Revenuechange in total revenuechange in quantity 4 Given demand revenue amp cost information tables amp graphs be able to use the TR TC approach and the MR MC approach to determine using tables amp graphs the pro t maximizing output level amp price a monopolist will set to maximize pro ts To maximize pro t nd the point where marginal revenue equals marginal cost 5 Be able to graphically show amp calculate the area representing Total economic pro t or w 6 Know why shortrun economic pro ts may persist in the long run 7 7 For the short run know the shutdownoperating decision for all rms facing a loss Shut down if average variable cost is greater than price If average total cost is greater than price continue to produce 8 Remember all rms must breakeven or earn economic pro t in the long run to stay in business Economic pro t total revenue otal economic costsexplicitimplicit What is meant by price discrimination amp why might a monopolist seek to price discriminate Price discrimination the practice of selling a good at different prices to different consumers 3 conditions must be met to do this market power different consumer groups resale not possible 10 Know what is meant by arbitrage 11 the practice of taking advantage of a price difference between two or more markets 11 Compare contrast the outcomes of the perfectly competitive market and the monopoly market in terms of Price Quantity produced Economic pro t long run Research amp Development RampDtech progress CHAPTER 11 Monopolistic Competition 1 Know the characteristics of monopolistic competition amp how products are differentiated A market served by many rms that sell slightly different products Each rm in the market produces a slightly different good that makes them have a tiny slice of monopoly basically There is intense competition 2 What are some examples of nonprice competition Firm tries to distinguish its product or service from competing products on the basis of attributes like design and workmanshipexample advertising 3 Be able to determine the pro t maximizing output level and price for monopolistically competitive rms in the short run and long run given cost and demand revenue information In long run equilibrium with monopolistic competition price equals average cost and economic pro t is zero The same as the others when marginal revenue marginal cost 4 What do rms hope will happen to their demand schedules when they advertise Increase the demand for the product and selling more 5 Which market structures tend to do a lot of advertising 6 Know the basic discussion socialeconomic pros and cons of advertising 7 Why does a monopolistically competitive rm expect only normal pro t in the long run There will be more rms in the certain market and rms quit entering when the economic pro t 0 What does this imply in terms of private funds for research and development That there won t be much RampD because the Economic pro t is usually used for it CHAPTER 12 Oligopoly N0 Game Trees 01 Payoff Matrix ex Fig 123 p267 amp Fig 127 p275 1 Know the characteristics of an oligopoly market A market served by only a couple rms 2 It occurs for 3 reasonsl Government barrier to entry 2 economies of scale in production 3 advertising campaigns Understand that the key characteristic of the monopolistically competitive market is product differentiation and in the oligopoly market it is pricing interdependence 3 Know the discussion of the price amp output decisions for interdependent oligopolies businesses have to take into account likely reactions of rivals to any change in price and output a cartels group of rms that act in unison coordinating their price and quantity decisions b price leadersh may be an acknowledged market leader which informally sets prices to which other producers respong c kin demand curve a kink in the demand curve at price p and output q means that there is a discontinuity in the rrr marginal revenue curve d price warss the players will closely monitor each others prices and be prepared to respond to any price cuts e nonprice competitionadvertising loyalty cards 4 What is a cartel What is meant by explicit formally agree to control the market and implicit collusion informally agree to control market like price leadership 5 Know why the theory of the kinked demand curve predicts rigid prices for long periods of time kinked demand curve means at one point they believe there competitors will not follow price increase or they wi believe competitors will follow price decrease 6 For oligopolies understand why shortrun economic pro ts can persist into the long run As long as they play the game right it can continue things like 7 Be able to comparecontrast the 4 market structures including the social bene ts amp shortcomings of each Over for More CHAPTER 17 The Labor Market Income amp Poverty Nothing on Labor Demand Long Run p369 1 Know that the labor market just like any other market is subject to the laws of demand amp supply 2 Be able to calculate the marginal revenue product MRP of labor the rm s Demand for labor change in total revenue earned by a rm that results from employing one more unit of labor MRPmarginal product price of output 3 Know that the market s supply of labor is upwardsloping and in a competitive labor market the individual rm s supply of labor is a horizontal line at the wage rate determined by the Big labor market 4 Be familiar with the shifters of the rm s amp market demand for labor What is the expected outcome Key determinant for demand for labor 7 MRP Aproductivity gtAMRP Lower productivity gt lower MRP 5 Be familiar with the shifters of the market supply of labor What is the expected outcome How many workers will a rm hire depends on how much power a rm has when hiring workers rm is a wage taker An increase in supply decreases the equilibrium wage but increases the quantity available 6 Be familiar with the general information concerning household income income distribution amp poverty CHAPTER 18 Monopsony Power amp Unions 1 What is a monopsony and what is the impact of monopsony power in a labor market Market form which only one buyer faces many sellers A monopsony producer has signi cant buying power in tl market for their inputs including the purchasing of labor inputs A monopsony employer may be able to use their buying power to drive down wage rates 2 Know that the appropriate pro tmaximizing quantity of labor to employ is where MRP MLC 3 What is the effect of minimum wage laws in monopsony markets Know how this discussion re ects the comparison of the wage and quantity of labor employed in a competitive versus a monopsonistic labor market 4 Know what is meant by a Bilateral 2sided Monopoly and be able to work with the Bilateral Monopoly model gt understand that the wage and employment levels can not be determined A monopoly and a monopsony in the same market 5 Know the impact of unions on wagesit raises it and with higher wages means less employment opportunities unionized labor markets THE END
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