microeconomics exam 3 review

monopoly

• characterized by a single firm producing all of the output in a market, having complete control over the market, and facing a completely inelastic demand for its product

monopolistic firm maximizing profit output level

• where marginal revenue MR = marginal cost MC and by finding the largest difference btw total revenue and total cost

predatory pricing

• a strategy where a firm uses the threat of sharp price cuts to discourage competition

• a violation of US antitrust law but difficult to prove

intellectual property protects inventors

• grant rights to protect and produce their inventions, sell them, and includes trademark, patent, trade secret legislation, and copyright legislation

20 years

• duration of exclusive patent rights in the US

monopolistic competition

• features a large number of competing firms that sell similar but not identical products, such as various clothing stores in a shopping mall

oligopoly

• exists when a few large firms dominate most of the sales in an industry, leading to limited competition among them

demand curve affecting a firm’s monopoly market power

• a key factor in determining its monopoly market power, as it reflects the relationship btw price and qty demanded

life of author + 70 yrs

• typical duration of copyright protection

monopolistic firms

• do not face competition for their specific products, as their goods cannot be found from other firms, leading to inelastic demand

cartel

• a group of firms that have a formal agreement to collude to produce the monopoly output and sell at the monopoly price

prisoner’s dilemma

• a scenario in which the gains from cooperation are larger than the rewards from pursuing self-interest, making it particularly relevant in oligopoly situations

financial instruments

• financial markets offer

  • stocks

  • equity

  • bonds

  • securities

  • saving accounts

  • deposits

stocks

• highest return with higher risk

bonds/mutual fund

• least return, lowest risk

saving accounts. and deposits

• pay interest

checking accts

• do not pay interest

random walk theory

• on any given day, stock prices are just as likely to rise as to fall, indicating no guarantee of price movement

105,000

• calculate equity

• 240k is current value

• 90k loan

• 15k down payment

tariffs

• taxes that governments place on imported goods, intended to benefit domestic producers and penalize foreign producers

tariff in US

• imposed on imported goods tend to benefit US producers while penalizing producers from other countries

free international trade

• in the import sector, moving to ? results in an increase in consumer surplus, a decrease in producer surplus, and overall gains for the economy

comparative advantage

• occurs when a country can produce goods at a lower opportunity cost

absolute advantage

• country can produce more of a good with the same resources compared to another

comparative advantage

• arises from differences in

  • climate

  • factor endowments

  • tech btw countries

wto

• committed to lowering barriers to trade and overseeing trade agreements

same resources

• if USA and Denmark use the ? they will be able to produce goods efficiently, potentially leading to trade benefits

US production capabilities

• 12 tons of beef or 3 tons of fish

• comparative advantage in beef production

Denmark production capabilities

• 3 tons of beef or 12 tons of fish

• comparative advantage in fish production

resource allocation for beef and fish in us vs denmark

• usa allocates resources to produce 4 tons of beef for every 1 ton of fish

  • 12 tons of beef or 3 tons of fish

• denmark allocates resources to produce 4 tons of fish for every 1 ton of beef

  • 3 tons of beef or 12 tons of fish

comparative advantage in us vs denmark

• us has comparative advantage in beef production

• denmark has comparative advantage in fish production

benefit from trade

• the differing comparative advantages suggests that USA and Denmark that both countries could ? by specializing in their respective strengths

production ratio implications

• indicate USA is more efficient in producing beef

• Denmark more efficient in producing fish, leading to potential trade benefits