Microeconomics: Market Structures and Factor Markets

Vocabulary flashcards covering market structures, labor economics, and key microeconomic terms from the review notes.

Long Run

where all inputs are variable

Short Run

A period of time less than a year where inputs can be fixed and variable

Price Taker

A firm without market power that must take the price set by the market.

Price Setter

A firm that has some market power and can set the market price

Product Market

market final good and Services

Factor Market

market for inputs

Capital

man-made inputs used in production

Marginal Revenue Product

the change in total revenue that occurs when you change an input $MRP = MPP \times MR$ .

Marginal Factor Cost

The change in total cost that Occurs when you change an input

Marginal Physical Product

the change in output that occurs when you Change an input

Value Marginal Product

the value of an additional output due to additional input

Monopsony

one buyer of a good

Production Function

max outputs given inputs

sunken costs

an expense already incurred that cant be recovered

Price Discrimination

charging Dif people Dif prices for the same good for no aparent reason

1. Sherman Antitrust Act. 2. what importance does it have for the economy?

1. states that it is illegal for 2 or more people to come together to restrict the free trade of a good. 2. it prevents cartels and limits monopolies

Monopolistic Competition

heterogeneous goods

Welfare Triangle (graph)

shows the consumer welfare that could exist with perfect competition. in a monopoly this area doesn’t exist with high prices and low output. when prices drop and output is increased then this area exists showing extra consumer benefits

Oligopoly

limited number of producers. barriers of entry and exit

Cartel. what are the problems associated with them?

a producer organization that aim to keep outputs low and prices high and drive out competition. low outputs, act like a monopoly, high prices. waste resources

Elasticity of Demand for Labor

A measure of the responsiveness of the quantity of labor demanded by employers to a change in the wage rate.

perfect competition characteristics

Many producers, Many consumers, Perfect Information, Freedom of entry & Exit, Homogeneans Goods, No externalities

monopoly characteristics

one producer, barriers to entry and exit, Monopolistic competition, Heterogenous Goods

oligopoly characteristics

limited number of producers and Barriers to entry and exit

Which market structure do economists prefer and why?

Economists prefer perfect competiton since they produce at the lowest prices and no one has the power to change the market, more consumer welfare

Assuming the monopolist is a profit maximizer, how does the monopolist decide how much to produce and charge?

In a perfectly competitive market, the producer decides to produce and charge where the marginal revenue is equal to the marginal cost

Is it possible for a monopolist to produce under losses? What conditions must occur for this to happen?

yes a producer under perfect comp. would produce at a loss when ATC>P>AVC. the producer would shut down when the ATC>AVC>P, which means their fixed costs are less than what it would cost them to stay open.

Why do monopolies occur? Why do governments try to regulate or eliminate monopolies?

happens when a single company dominates an entire market preventing new competitors from entering the market. government doesn’t like because Since there is little or no competition, a monopoly can charge more because consumers have fewer alternatives.

why are cartels formed

Cartels are formed to increase profits by reducing competition.

what problems are associated with cartels

higher prices, lower production, less competition, fewer choices