1. Check for understanding
Chapter 16
Check for understanding

2. How is the market for corn different than the market for movies
How is the market for corn different than the market for movies? How are they similar?
Question for the day

3. When a firm’s demand curve is tangent to its ATC curve, the:
Firms economic profit is 0
Firm must be earning economic profit
Firm must be incurring economic profit
Firm must be operating at an efficient scale

4. A
The answer is…

5. Suppose the point of tangency that characterizes long-run equilibrium for a MC firm occurs at Q1 units of output. This level of output:
Exceeds the level of output at which MR =MC
Exceeds the level of output at which MC =ATC
Falls short of the level of output at which Price=MC
Exceeds the firm’s efficient scale of output

6. C
The answer is…

7. Which of the following conditions is characteristic of a MC firm in long-run equilibrium:
P> MR and P = MC
ATC = demand and MR = MC
P< MC and demand = ATC
P> ATC and demand > MR

8. B
The answer is…

9. Free response question
Professional organizations have been active advocates for regulation to restrict the right of professionals to advertise. Describe what economic incentives might exist for existing professionals to restrict advertising.
Free response question

10. Chapter 14 / 15 Firm Type # of firms Product Differentiation?
Entry or Exit into the market?
Price
Vs. MC?
Perfectly Competitive
Monopoly
Yes, both
P = MC
Many No
No Entry
Yes Exit
One
P > MC
Yes, perfect
What does it mean when marginal cost is greater than price? How does that relate to market power?
Chapter 14 / 15

11. Imperfect Competition
Firm Type
# of firms
Product Differentiation?
Entry or Exit into the market?
Price Vs. MC?
Monopolistically
Competitive
Many
Yes, both
P > MC
Yes, some
What does this firm type have in common with perfect competition? How does that manifest itself in the market?
What does this firm have in common with monopolies? How does that manifest itself in the market?
Imperfect Competition
Limited Market Power

12. Know what you know about the graph, what can you tell me about these curves; focus on direction of slope and relation to other curves:
Demand
Marginal Revenue
Average Total Cost
Marginal Cost
Parts of the Graph

13. What about Profit?
Graphing Interlude

14. Profit Short Run: Firms can earn economic profit
How does this compare to perfect competition and monopolies?
Long run: Firms cannot earn economic profit?
Why?
Profit

15. Long Run Equilibrium Draw a Perfectly Competitive firm at LRE
Draw a Monopoly at LRE
How do we know Perfectly Competitive firm is operating at LRE?
How do we know Monopoly is operating at LRE?
Monopolistically Competitive firms operate very similarly to Perfectly Competitive firms
Long Run Equilibrium

16. Rules about ATC still apply
Graphing Interlude

17. Advertising What is the purpose of advertising?
Why do some people think it is bad?
Why do people defend it?
Advertising

18. Quality
Why Advertise?

19. Why Advertise? http://www.youtube.com/watch?v=BHaVW_FbFZ8
Why Advertise?

21. Name Brands What does it mean when something is a name brand?
Why might they be good (economically)?
Why are they bad?
Name Brands

22. For each of the following pairs of firms, explain which firm would be more likely to engage in advertising:
A family owned farm or a family owned restaurant
A manufacturer of forklifts or a manufacturer of cars
A company that invented a very comfortable razor or a company that invented a less comfortable razor
Advertising