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Firm
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An economic institution that transforms factors of production into goods and services
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Profit
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Total revenue minus Total cost
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Explicit Costs
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Money and accounting costs a firm would incur that an accountant would consider
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Implicit Costs
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Costs associated with a decision that Economists consider
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Long Run Decision
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a firm chooses among all possible production techniques (very flexible - many options available)
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Short Run Decision
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the firm is constrained in regard to what production decisions it can make
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Marginal Product
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the additional output per worker
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Diminishing Marginal Productivity (Flower Pot Law)
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As more and more of a variable input is added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall.
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Economy of Scale
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Situation when long-run average total costs DECREASE as output increases.
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Indivisible Setup Cost
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The cost of an indivisible input for which a certain minimum amount of production must be undertaken before the input becomes economically feasible to use.
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Diseconomies of Scale
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Situation when the long-run average total costs INCREASE as output increases
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Economically Efficient
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A method of production that produces a given level of output at the lowest possible cost.
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Technically Efficient
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A production process uses as few inputs as possible to produce a given level of output.
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Monitoring Costs
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costs incurred by the organizer of production in seeing to it that the employees do what they're supposed to do
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Economies of Scope
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When a firm could easily add production of a similar good; as when Nike expanded from only shoes to athletic apparel
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Marginal Cost
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Increase (decrease) in total cost from increasing (or decreasing) the level of output by one unit.
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Marginal Revenue
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The change in total revenue associated with a change in quantity.
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MC=MR=P
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Profit maximization for a competitive firm
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Perfectly Competitive Market
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A market in which economic forces operate unimpeded
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Monopoly
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A market structure in which one firm makes up the entire market
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Patent
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A legal protection of a technical innovation that gives the person holding it sole right to use that innovation
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Natural Monopoly
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An industry in which a single firm can produce at a lower cost than can two or more firms
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Cartel
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A combination of firms that acts as if it were a single firm.
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Cartel Model of Oligopoly
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when oligopolies act as if they were monopolists that have assigned output quotas to individual member firms of the oligopoly so that total output is consistent with joint profit maximization
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Implicit Collusion
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Multiple Firms make the same pricing decisions even though they have not explicitly consulted with one another.
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Contestable Market Model
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A model of oligopoly in which barriers to entry and barriers to exit, not the structure of the market, determine the a firm's price and output decisions.
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Strategic Decision Making
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taking explicit account of a rival's expected response to a decision you are making
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Antitrust Policy
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The government's policy toward the competitive processes.
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Monitoring Problems
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The need to oversee employees to ensure that their actions are in the best interest of the firm.
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Lazy Monopolists
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Firms that do not push for efficiency, but merely enjoy the position they are already in.
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X- Inefficiency
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Firms operating far less efficiently than they could technically.
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Dynamic Efficiency
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A market's ability to promote cost-reducing or product-enhancing technological change.
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Reverse Engineering
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the process of a firm buying other firms' products, disassembling them, figuring out what's special about them, and then copying them within the limits of the law
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Network Externality
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The phenomenon that the greater use of a product increases the benefit of the product to everyone
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Technological Lock-In
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The prior use of technology makes the adoption of subsequent technologies difficult.
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Price Discrimination
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to charge different prices to different individuals or groups of individuals
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Profit Maximizing Condition
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MC=MR=P, if MR > MC increase production, MR < MC decrease production, if MR=MC the firm is maximizing profit.
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