Market Structures 1

Question 1

What is a firm?

Answer 1

a business that sells goods or services to make a profit

Question 2

What are some examples of a firm?

Answer 2

apple, coca-cola, nike

Question 3

What is an industry?

Answer 3

name for all firms producing a similar product (usually using same technology)

Question 4

What are some examples of an industry?

Answer 4

technology, soft drink, fashion

Question 5

________ refers to the interactions of both producers and consumers

Answer 5

market

Question 6

___________ refers to all features that may affect the behaviour and performance of the firms in a market

Answer 6

market structure

Question 7

What are the four types of market structures?

Answer 7

1. perfect competition
2. monopolistic competition
3. oligopoly
4. monopoly

Question 8

What determines what kind of market structure a market is?

Answer 8

1. number of firms in the industry
2. type of product
3. ease of entry into firm
4. firm’s control over price
5. firms use of non-price competition (advertising)
6. differentiation of product

Question 9

What is each companies goal?

Answer 9

maximize profits

Question 10

what factors may take away from a company’s ability to maximize profits?

Answer 10

• company morals promote charity, respect

- lack of energy from company owner

Question 11

what are inputs?

Answer 11

factors of production

Question 12

what are outputs?

Answer 12

product being sold

Question 13

What does production technology do?

Answer 13

determines different combinations of inouts and outputs

Question 14

Define total revenue

Answer 14

total income from the sales of a given quantity of good or service

Question 15

How is total revenue calculated?

Answer 15

output (Q) x Price (P)

Question 16

What is average revenue?

Answer 16

Amount of revenue received per unit sold

Question 17

What is marginal revenue?

Answer 17

extra revenue derived from the sale of one more unit

Question 18

What are variable costs?

Answer 18

costs that depend on level of production

Question 19

What are fixed costs?

Answer 19

costs that don’t depend on firm’s level of output. The costs are incurred even if the firm is sinking

Question 20

do fixed costs matter in the short run?

Answer 20

No, you focus on if revenue can cover variable cost

Question 21

Define perfect competition

Answer 21

When no single consumer or producer has any greater power or influence in the market than does any other consumer or produce (level playing fields)

Question 22

What are the features of perfect competition?

Answer 22

1. free to enter and exit the industry
2. homogenous product (identical so no consumer preference)
3. large number of buyers and sellers (no individual seller can influence price)
4. sellers are price takers (firm can alter its rate of production and sales without affecting the market price)
5. perfect information is available to buyers and seller-( consumers know nature of product and price)
6. market is very big and is generic

Question 23

What are some examples of perfect competition?

Answer 23

cotton, rubber, wheat

Question 24

Perfect competition is sometimes referred to as _________

Answer 24

free enterprise

Question 25

What does a perfectly competitive market system require to work effectively?

Answer 25

- extensive specialization and trade - private ownership of productive resources - legal and social foundation

Question 26

In a perfect competition average revenue = ______ = ______

Answer 26

marginal revenue, price

Question 27

What does a demand curve for a perfectly competitive market look like?

Answer 27

horizontal line

Question 28

What are the two big questions that firms have to ask themselves about production?

Answer 28

1. should the firm produce at all? | 2. how much should the firm produce?

Question 29

What decides if a frim should produce?

Answer 29

a firm should not product at all if total variable costs > total revenue or if Avc > P

Question 30

Where should a firm produce?

Answer 30

Where MR = MC

Question 31

What is the shutdown price?

Answer 31

price at which the firm can just cover its average variable cost, and is therfore indifferent between producing and not producing

Question 32

What is the difference between short run and long run?

Answer 32

Amount of firms entering/ leaving the industry

Question 33

In the short run when should producers shut down their business?

Answer 33

If MR does not cover AVC

Question 34

In the long run when should producers leave the industry?

Answer 34

if their revenue can't meet or exceed their total costs

Question 35

When would new producers want to join a perfectly competitive industry?

Answer 35

If their revenue can exceed their costs

Question 36

In the long run when does an equilibrium occer occur?

Answer 36

When firms are earning zeor profit

Question 37

What is the break-even price?

Answer 37

The price at which a firm is covering all costs but making no profit

Question 38

Describe the industries in monopolistic competition?

Answer 38

large number of relatively small firms

Question 39

What percentage of firms in canada are small or medium firms (less than 500 employees)?

Answer 39

99.7%

Question 40

What are some characteristics of monopolistic competition?

Answer 40

- many small firms - retail trade and services have some influence over prices - spend a good deal of money advertising - often have a unique location that may give some local monopoly power over nearby customers

Question 41

Describe the industries of an oligopoly

Answer 41

industries with a small numer of relatively large firms

Question 42

What portion of Canada's GDP is an oligopoly?

Answer 42

1/3

Question 43

what is the concentration ratio?

Answer 43

shows fraction of total market sales controlled by a specified numer of the largest sellers