All Flashcards
Differentiate between economic and normal profit.
Economic profit considers all costs (explicit and implicit), while normal profit is just enough to keep the firm operating.
What are the key differences between perfect competition and monopoly?
Perfect competition has many small firms, while a monopoly has a single firm. Perfect competition has no barriers to entry, while a monopoly has high barriers.
What are the differences between short-run and long-run in perfect competition?
In the short run, firms can experience profit or loss; in the long run, firms earn zero economic profit.
What are the key differences between allocative and productive efficiency?
Allocative efficiency means P=MC (producing the right amount), while productive efficiency means P=min ATC (producing at the lowest cost).
Compare short-run loss and shutdown decisions.
In short-run loss, firms continue to produce if P > AVC; shutdown occurs when P < AVC.
Differentiate between a price taker and a price maker.
A price taker accepts the market price, while a price maker can influence the market price.
Compare barriers to entry in perfect competition and oligopoly.
Perfect competition has no barriers to entry, while oligopoly has significant barriers to entry.
What are the differences between identical and differentiated products?
Identical products are the same across all firms, while differentiated products have unique characteristics.
Compare the long-run supply curve in perfect competition and increasing cost industry.
The long-run supply curve is perfectly elastic in perfect competition and upward sloping in an increasing cost industry.
What is the difference between accounting profit and economic profit?
Accounting profit only considers explicit costs, while economic profit considers both explicit and implicit costs.
How does a subsidy affect the market?
It decreases the cost of production, increases supply, and lowers the market price.
How does a tax affect the market?
It increases the cost of production, decreases supply, and raises the market price.
How does price control affect the market?
It creates shortages if set below the equilibrium price or surpluses if set above.
What is the impact of regulations on production costs?
Regulations typically increase production costs, leading to decreased supply and higher prices.
What is the effect of removing barriers to entry?
More firms enter the market, increasing supply and decreasing the market price.
How does a price ceiling affect firms?
If binding, it reduces revenue and can lead to losses, potentially causing firms to exit the market.
How does a price floor affect firms?
If binding, it leads to surpluses, meaning firms may not be able to sell all their product.
How does a tariff affect domestic firms?
It increases the price of imported goods, making domestic firms more competitive.
How do consumer protection laws affect firms?
They increase costs due to compliance but can also enhance reputation and demand.
How does antitrust policy affect firms?
It prevents monopolies and encourages competition, potentially limiting the size and market power of individual firms.
What does the horizontal demand curve indicate?
The firm is a price taker and can sell any quantity at the market price.
What does the intersection of MC and MR indicate?
The profit-maximizing quantity for the firm.
How is short-run profit shown on a graph?
Price is above the ATC at the profit-maximizing quantity (MR=MC).
How is short-run loss shown on a graph?
Price is below the ATC but above the AVC at the profit-maximizing quantity (MR=MC).
How is the shutdown point shown on a graph?
Price is below both ATC and AVC at the profit-maximizing quantity (MR=MC).
What does the tangency of P and min ATC signify?
Long-run equilibrium, zero economic profit, and productive efficiency.
What does a shift in the market supply curve indicate?
It indicates a change in the number of firms or production costs in the market.
How does entry of new firms affect the firm's graph?
The firm's demand curve (price line) shifts down as market price decreases.
How does exit of firms affect the firm's graph?
The firm's demand curve (price line) shifts up as market price increases.
What does the side-by-side graph show?
It shows the relationship between the market and the individual firm, illustrating how the market price affects the firm's decisions.