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Sellers surplus: difference between the price and the ____ value.
sellers
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Buyers surplus: difference between the price and the ____ value.
Buyers
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Subsidies encourage ____ customers to buy OR ____ sellers to sell
low-value; high-value
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____ ____ ____: that the firm is earning less than equity holders expect to make from their investment in the firm.
Negative economic profit
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____ is negative when investors could invest their money elsewhere and receive a higher rate of return.
Economic profit
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Firms can show ____ profit, while experiencing an economic loss.
Accounting
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If MR>MC, sell ____
MORE!!
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The transfer price of an internally-produced input should be set equal to ___ of the input.
the opportunity cost
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What shows the change in total cost arising from the production of an additional unit?
Marginal Cost Curve
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If MR<MC, sell ____
LESS!!
-
-
How to avoid holdup:
Mergers, Contracts, Exchange of Hostages
-
Variable for price elasticity of demand
e
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If |e| > 1, demand is
elastic
-
If |e| < 1, demand is
Inelastic
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For ____ goods, demand increases as income increases.
normal
-
For ____ goods, demand decreases as income increases.
Inferior
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Products with close substitutes have (more/less) elastic demand.
More
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Demand for an individual brand is (more/less) elastic than industry aggregate demand.
More
-
Products with many complements have (more/less) elastic demand.
Less
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In the long run, demand curves become (more/less) elastic.
More
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Positive cross-price elasticity means that Good B is a ____ for Good A.
Substitute
-
Negative cross-price elasticity means that Good B is a ____ for Good A.
Complement
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If the cost of producing two products jointly is less than the cost of producing those two products separately there are economies of ____ between the products.
Scope
-
Changes in ____ lead to movements ALONG the supply and demand curves.
Price
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Competitive Industry: Firms produce a product/service (with/without) close substitutes, so theres very (elastic/inelastic) demand.
With; elastic
-
Competitive Industry: Firms have (few/many) rivals and no cost advantages.
Many
-
Competitive Industry: Has ___ barriers to entry and exit.
No
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Competitive Industry: In the long run, earn no more than ____.
Average rate of return
-
Porters Five Forces. Best industries have:
High entry barriers, low buyer power, low supplier power, low threat of substitutes, low rivalry between existing firms.
-
Three ways to generate superior economic performance:
Cost reduction, product differentiation, reduction in competitive intensity
-
Its critical that a firm adopting a cost-reduction strategy adopt methods of achieving the reductions that are ____.
difficult to imitate
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If a firm successfully adopts a product differentiation strategy, the elasticity of demand for its product will (increase/decrease).
Decrease
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After acquiring a substitute good, ___ the price of (one/both) goods.
Raise; both.
-
After acquiring a producer of substitute goods, to move individuals to the higher-margin good, raise the price (more/less) on the low-margin good than you do on the high-margin good.
MORE
-
To reduce____, reposition products so they dont compete directly with one another.
Cannibalization
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After acquiring a complementary product, (raise/lower) price on both products to increase profit.
Lower
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In a business with a fixed capacity, price to____.
fill available capacity
-
If the cost of overpricing is smaller than the cost of underpricing, then price ____ than would fill capacity.
Higher
-
If promotional expenditures make demand more price elastic, then you should (raise/lower) price when you promote a product.
Lower
-
5 steps to get out of a prisoners dilemma:
Be nice, be easily provoked, be forgiving, dont be envious, be clear.
-
To improve your bargaining position, improve your ____ option on decrease your opponents.
Outside
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Is collusion more likely in small, frequent auctions or big, infrequent ones?
Small, frequent auctions.
-
Is collusion more likely in first-price and sealed-bid auctions or oral and second-price auctions?
Oral and second-price auctions
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Does identifying winners and winning bids make collusion more or less likely?
More
-
____ Auctions are sealed bid and the item is awarded to the highest bidder, who pays the second-highest bid.
Vickery or Second Price
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____ Auction: the value is the same for each bidder, but nobody knows the true value. Each bidder is estimating the unknown value. (Oil fields)
Common Value
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____: since the highest and most optimistic estimate is likely to exceed the actual value, the winner will lose, on average.
Winners Curse
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To avoid the winners curse, bid assuming youre the (most/least) optimistic bidder.
MOST
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To avoid the winners curse, bid (more/less) aggressively as the number of bidders increases.
LESS
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To drive up price in a common value auction, the seller should release (more/less) information.
MORE
-
Oral auctions return (higher/lower) prices in a common value-setting.
Higher
-
When will screening be successful?
When its NOT profitable for high-risk consumers to mimic the choice of low-risk consumers.
-
Primary demand for insurance comes from those who are risk (averse/seeking/neutral).
Neutral
-
How do you calculate incentives to avoid shirking?
(% increase in likelihood of favorable outcome by working hard)(value of incentive) > Cost of Hard Work
-
____: post-contractual increase in risky or negative behavior.
Moral Hazard
-
Challenge of functionally organized firms:
Its difficult to ensure theyre all working toward a common goal.
-
____ firm: divisions perform all the tasks necessary to serve customers of a particular product or in a particular geographic area.
M-form
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____: the practice of offering multiple goods for sale as one combined product.
Bundling
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____: the practice of making the sale of one good conditional on the purchase of an additional, separate good.
Tying
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In a repeated prisoner's dilemma if you are in a Nash equilibrium, you should...
signal your intention to your opponent.
-
A monopoly (price searcher) will always set its price...
in the elastic portion of the demand curve.
-
___ price at the profit maximizing price, so any changes in cost must be absorbed.
Monopolies
-
Why do monopolies price in the elastic portion of the demand curve?
Because they are the only provider, demand for them is highly inelastic. Still, as price increases, elasticity increases. Pricing at the elastic portion of the curve signals to the monopoly that they've priced as high as possible.
-
____ reduce the effects of free-riding by discounters on services and promotional activities of full-service retailers. Can also help control product quality.
Exclusive territories
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