ECON 202 Ole Miss McGinness Complete Study Questions with 100% Correct Answers

ECON 202 Ole Miss McGinness Complete Study Questions with 100% Correct Answers 1. What market structure results in the socially efficient level of production? - ANSWER Equilibrium 2. In labor markets, what is the socially efficient level of employment? - ANSWER MRPL=PL 3. What does MRPL represent to society? - ANSWER The additional value of the last unit of labor 4. What are barriers to entry? - ANSWER Legal Barriers such as Patents and Government Franchises. Government Monopoles Sole Ownership of a Key Resource Network Externalities Natural Monopolies (there are significant barriers to entry to prevent other firms from entering the industry to compete for profits) 5. What is a Natural Monopoly? - ANSWER An industry that realizes such large economies of scale in producing its product that single firm production of that good or service is most efficient 6. Describe the demand for a Monopolies product. - ANSWER The demand for a monopolies product depends on how much output they want produce. Because there is not substitutes, the monopolist can choose a point on the demand curve where it wants to be. 7. How does a monopolist increase their output? - ANSWER The marginal revenue slopes down because to raise output and sell it, the firm must lower the price it charges. selling additional output raises revenue. 8. What is a Monopoly's Marginal Revenue curve, and how does it get its shape? - ANSWER It's halfway to the horizontal intercept to the demand curve. MR= Change in TR/ change in Q TR= P x Qd 9. How does a Monopoly maximize profit? - ANSWER raising output as long as marginal revenue is greater than marginal cost (MR=MC) 10.What is the relationship between MR and the demand curve? - ANSWER Marginal revenue curve bisects the quantity axis between the origin and point where demand curve hits the quantity axis 11.Make sure you can read a Monopolies graph including finding the profit maximizing output, price, and profit. (page 267) - ANSWER CH 13 notes 12.What decisions to Monopolies face in the short-run and long-run? - ANSWER Short-run: a monopolist has to set both price and quantity, and the amount of output it supplies depends on its MC and the demand curve it faces Long-run: firms you patents, economies of scale, and government rule to provide barriers and prevent entry from other competitors 13.Can and how does a Monopolist earn an economic profit in the long-run? - ANSWER The firm will charge a price that is equal to or greater than longrun average cost. The firm will charge a price that is higher than long-run marginal cost. 14.What is rent seeking behavior? - ANSWER actions taken by households or firms to preserve positive profits 15.How much would a Monopolist spend on rent seeking behavior? - ANSWER In the case of rent-seeking behavior in a monopolistic market the net loss to society is greater than it would have been in the absence of rentseeking behavior. 16.Do Monopolies produce the socially efficient level of production? Why or why not? - ANSWER monopolies lead to inefficient levels of output by producing less and charging more which makes it socially inefficient. 17.Be able to identify the deadweight loss from Monopoly on a graph with constant Marginal Cost. (page 273) - ANSWER CH 15 18.What was the first legislation enacted to break up and prevent monopolies? - ANSWER The Sherman act of 1890 19.If MRPL PL, what does that mean to society? - ANSWER If MRPL PL, the additional value created to society from the last unit of labor is less than the opportunity cost of employing that unit of labor. Therefore, the firm should be using less labor from Society's Point of View 20.What is market failure? - ANSWER When free markets fail to reach the optimal outcome to society 21.Name the 4 sources of market failure. - ANSWER 1) Imperfect Competition 2) Externalities 3) Public Goods 4) Imperfect or Asymmetric Information 22.What are public goods? - ANSWER A commodity or service that is provided without profit to all members of a society, either by the government or a private individual or organization. 23.What does Economies of Scale mean? Diseconomies of Scale? - ANSWER Economies of Scale = the firm increases in size and average cost falls Diseconomies of Scale = the firm increases in size and average cost rises 24.In Resource Markets, who demands and who supplies? - ANSWER Firms demand and households supply