Question | Answer |
When is productive efficiency achieved? | At AC min
|
When is allocative efficiency achieved? | When P=MC
| Apart from accounting costs, what other Economic Costs does a firm have to cover in order to make a normal profit? | Opportunity Costs
| Why can’t a firm in Monopolistic Competition earn abnormal profits in the long run? | Because there are no barriers to entry
| How can an oligopolist earn abnormal profits? | By colluding
| Give one of the conditions for price discrimination | Market power/can separate consumers into groups/consumers have different PEDs
| Which diagram can be used to explain why Oligopoly is characterized by price stability? | The kinked demand curve
| Why might one firm in a collusive Oligopoly break their collusive behavior? | To grab a portion of its rivals market share
| Can a firm in perfect competition earn supernormal profit in the short run? | No
| In what sort of a market might a Monopoly decide not to earn Monopoly profits? | A contestable market
| What might minimum prices cause an excess of? | Supply
| What is the difference between Economies of Scale and the Law of Diminishing Returns? | Economies of Scale happen in the long run
| Where does MC intersect AC? | At AC minimum
| Give one example of a market where there may be asymmetric information? | E.g. insurance market
| Give one example of a regulation that could be used to reduce a given negative externality of consumption | Accurate example
| If left to the market, why will merit goods be underprovided by the market? | Their MSB is higher than their MPB/Firms do not have a financial incentive to provide enough of them
| What does the triangle in an externality diagram show? | Welfare loss/deadweight loss
| What is the equation for cross elasticity of demand? | % change in price of good X divided by % change in price of good Y |