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ecn382
exam3
18
Economics
Undergraduate 3
11/04/2009

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Term
perfect competition
Definition
firms are price takers, easy entry/exit, many buyers/sellers, homogeneous product, perfect knowledge
Term
monopoly
Definition
one firm, no entry
Term
Why do we study perfect competition when there is no real world example of this type of market structure?
Definition
We study it to show why the move towards competition is desirable
Term
positive economic profits
Definition
entry, capital moves towards the activity
Term
negative economic profits
Definition
capital moves away from the economic activity
Term
zero economic profit
Definition
no change, capital is no different
Term
where will a firm produce on the MR and MC curves
Definition
MR = MC
Term
What is the rule use to determine where a firm will produce?
Definition
• Profit is maximized when the additional revenue from producing and selling an additional unit of output equals the additional cost
Term
what is the formula for TR
Definition
P * Q
Term
what is the formula for TC
Definition
ATC * Q
Term
what is the formula for TFC
Definition
ATC-AVC
Term
what is the formula for profits
Definition
TR-TC
Term
Economies of scale
Definition
as the size of a firm increase its per-unit cost declines. o If economies of scale exist, a larger firm can produce a product at a lower per-unit cost than can a smaller firm
Term
Differentiation
Definition
Brand names and reputation, Guarantees and warranties
Term
Internal strategic assets
Definition
 Anything that gives a firm an advantage and is not easily imitated serves as a strategic asset Ex: patents, licenses, brand names
Term
Why did the antitrust laws come about?
Definition
o Came about to control growth of monopolies and prevent firms from engaging in undesirable practices (or minimize monopoly power)
Term
two categories of government regulation
Definition
economic, social
Term
economic regulation
Definition
• Refers to the prescribing of prices and output levels for a particular industry or line of business
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