ECON 2000 MARX - Assignment Essays

question

explicit costs

answer

require spending of money

question

implicit costs

answer

do not require spending of money

question

total costs=

answer

explicit costs + implicit costs

question

accounting profit

answer

total revenue minus total explicit cost

question

economic profit

answer

total revenue minus total cost, including both explicit and implicit costs

question

law of diminishing returns

answer

as additional increments of resources are added to producing a good or service, the marginal benefit from those additional increments will decline

question

marginal product

answer

the increase in output that arises from an additional unit of input

question

diminishing marginal product

answer

the marginal product of an input declines as the quantity of the input increases

question

marginal cost

answer

the increase in total cost that arises from an extra unit of production

question

fixed costs

answer

Costs that do not vary with the quantity of output produced

question

variable costs

answer

costs that vary with the quantity of output produced

question

marginal cost

answer

the cost of producing one more unit of a good

question

average fixed cost

answer

fixed cost divided by the quantity of output produced

question

average variable cost

answer

variable cost divided by the quantity of output produced

question

short run

answer

fixed cost inputs (eg. factories, land)

question

long run

answer

inputs are variable (eg. firms can build more factories or sell existing ones)

question

economies of scale

answer

long-run average total cost falls as the quantity of output increases

question

constant returns to scale

answer

Long-run average total cost stays the same as the quantity of output changes

question

diseconomies of scale

answer

long-run average total cost rises as the quantity of output increases

question

economies of scale

answer

(LR)ATC falls as output increases if inputs double, output more than doubles

question

Constant returns to scale

answer

(LR)ATC does not change as output increases If inputs double, output doubles

question

diseconomies of scale

answer

(LR) ATC increases as output increases If inputs double, output increases by less than double

question

constant returns to scale

answer

Long-run average total cost stays the same as the quantity of output changes

question

economies of scale- ATC_____ as quantity increases

answer

falls

question

Constant returns to scale- ATC_____the same as Q increases.

answer

stays

question

Diseconomies of scale: ATC_____as Q increases.

answer

rises

question

average revenue

answer

total revenue/quantity

question

marginal revenue

answer

change in total revenue/ change in quantity

question

competitive firm

answer

can keep increasing its output without affecting the market price

question

shutdown

answer

a short-run decision not to produce anything because of market conditions

question

exit

answer

a long-run decision to leave the market

question

cost of shutting down in short run

answer

revenue loss = TR

question

benefit of shutting down in short run

answer

cost savings = VC

question

sunk cost

answer

a cost that has already been committed and cannot be recovered

question

3 possible levels of the price

answer

Price>ATC: All good, stay in profitable business
ATC>Price>AVC: Continue in business in short term, then exit in long term
AVC>Price: losing money on average for each sale, get out of business in short term

question

If existing firms earn positive economic profit

answer

-new firms enter, SR market supply shifts right
-P falls, reducing profits and slowing entry

question

If existing firms incur losses

answer

-some firms exit, SR market supply shifts left
-P rises, reducing remaining firms' losses

question

long run equilibrium

answer

the process of entry or exit is complete - remaining firms earn zero economic profit

question

Zero economic profit occurs when

answer

P = ATC

question

long run supply curve is horizontal if

answer

all firms have identical costs and costs do not change as other firms enter or exit the market

question

long run supply curve might slope upward if

answer

- Firms have different costs
- Or costs rise as firms enter the market

question

profit maximization

answer

MR=MC

question

Monopoly

answer

A market in which there are many buyers but only one seller. MR=MC

question

three barriers to entry

answer

1. monopoly resources
2. government regulation
3. the production process

question

Recall

answer

A procedure for submitting to popular vote the removal of officials from office before the end of their term.

question

monopoly equilibrium

answer

P>MR=MC

question

welfare cost of monopoly

answer

The monopoly quantity is too low you could increase total surplus with a larger quantity, the monopoly result in a deadweight loss which means people who want the good and would pay for it if it were a competitive market cannot afford it at the higher monopoly price

question

price discrimination

answer

the business practice of selling the same good at different prices to different customers

question

perfect price discrimination

answer

Occurs when a firm charges the maximum amount that buyers are willing to pay for each unit.

question

single-price monopoly

answer

A monopoly that must sell each unit of its output for the same price to all its customers.

question

market power

answer

the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

question

Public Policy Toward Monopolies

answer

1. increasing competition with antitrust laws
2. regulation
3. public ownership
4. do nothing

question

Two Extremes

answer

Perfect competition: many firms, identical products
Monopoly: one firm

question

imperfect competition

answer

oligopoly and monopolistic competition

question

long run equilibrium

answer

the process of entry or exit is complete - remaining firms earn zero economic profit

question

monopolistic competition

answer

a market structure in which many companies sell products that are similar but not identical

question

monopolistic competitive markets

answer

do not have all the desirable welfare properties of perfectly competitive markets

question

Sources of inefficiency

answer

- markup of price over marginal cost
- too much or too little entry

question

product-variety externality

answer

surplus consumers get from the introduction of new products

question

business-stealing externality

answer

losses incurred by existing firms when new firms enter market

question

Incentive to advertise

answer

When firms sell differentiated products and charge prices above marginal cost
Advertise to attract more buyers

question

advertising spending

answer

Highly differentiated goods: 10-20% of revenue
Industrial products: Little advertising
Homogenous products: No advertising

question

critiques of advertising

answer

-firms advertise to manipulate peoples tastes
-Advertising impedes competition

question

defense of advertising

answer

-the defense of advertising
-case studies

1 of 64

question

explicit costs

answer

require spending of money

question

implicit costs

answer

do not require spending of money

question

total costs=

answer

explicit costs + implicit costs

question

accounting profit

answer

total revenue minus total explicit cost

question

economic profit

answer

total revenue minus total cost, including both explicit and implicit costs

question

law of diminishing returns

answer

as additional increments of resources are added to producing a good or service, the marginal benefit from those additional increments will decline

question

marginal product

answer

the increase in output that arises from an additional unit of input

question

diminishing marginal product

answer

the marginal product of an input declines as the quantity of the input increases

question

marginal cost

answer

the increase in total cost that arises from an extra unit of production

question

fixed costs

answer

Costs that do not vary with the quantity of output produced

question

variable costs

answer

costs that vary with the quantity of output produced

question

marginal cost

answer

the cost of producing one more unit of a good

question

average fixed cost

answer

fixed cost divided by the quantity of output produced

question

average variable cost

answer

variable cost divided by the quantity of output produced

question

short run

answer

fixed cost inputs (eg. factories, land)

question

long run

answer

inputs are variable (eg. firms can build more factories or sell existing ones)

question

economies of scale

answer

long-run average total cost falls as the quantity of output increases

question

constant returns to scale

answer

Long-run average total cost stays the same as the quantity of output changes

question

diseconomies of scale

answer

long-run average total cost rises as the quantity of output increases

question

economies of scale

answer

(LR)ATC falls as output increases if inputs double, output more than doubles

question

Constant returns to scale

answer

(LR)ATC does not change as output increases If inputs double, output doubles

question

diseconomies of scale

answer

(LR) ATC increases as output increases If inputs double, output increases by less than double

question

constant returns to scale

answer

Long-run average total cost stays the same as the quantity of output changes

question

economies of scale- ATC_____ as quantity increases

answer

falls

question

Constant returns to scale- ATC_____the same as Q increases.

answer

stays

question

Diseconomies of scale: ATC_____as Q increases.

answer

rises

question

average revenue

answer

total revenue/quantity

question

marginal revenue

answer

change in total revenue/ change in quantity

question

competitive firm

answer

can keep increasing its output without affecting the market price

question

shutdown

answer

a short-run decision not to produce anything because of market conditions

question

exit

answer

a long-run decision to leave the market

question

cost of shutting down in short run

answer

revenue loss = TR

question

benefit of shutting down in short run

answer

cost savings = VC

question

sunk cost

answer

a cost that has already been committed and cannot be recovered

question

3 possible levels of the price

answer

question

If existing firms earn positive economic profit

answer

-new firms enter, SR market supply shifts right
-P falls, reducing profits and slowing entry

question

If existing firms incur losses

answer

-some firms exit, SR market supply shifts left
-P rises, reducing remaining firms' losses

question

long run equilibrium

answer

the process of entry or exit is complete - remaining firms earn zero economic profit

question

Zero economic profit occurs when

answer

P = ATC

question

long run supply curve is horizontal if

answer

all firms have identical costs and costs do not change as other firms enter or exit the market

question

long run supply curve might slope upward if

answer

- Firms have different costs
- Or costs rise as firms enter the market

question

profit maximization

answer

MR=MC

question

Monopoly

answer

A market in which there are many buyers but only one seller. MR=MC

question

three barriers to entry

answer

1. monopoly resources
2. government regulation
3. the production process

question

Recall

answer

A procedure for submitting to popular vote the removal of officials from office before the end of their term.

question

monopoly equilibrium

answer

P>MR=MC

question

welfare cost of monopoly

answer

question

price discrimination

answer

the business practice of selling the same good at different prices to different customers

question

perfect price discrimination

answer

Occurs when a firm charges the maximum amount that buyers are willing to pay for each unit.

question

single-price monopoly

answer

A monopoly that must sell each unit of its output for the same price to all its customers.

question

market power

answer

the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

question

Public Policy Toward Monopolies

answer

1. increasing competition with antitrust laws
2. regulation
3. public ownership
4. do nothing

question

Two Extremes

answer

Perfect competition: many firms, identical products
Monopoly: one firm

question

imperfect competition

answer

oligopoly and monopolistic competition

question

long run equilibrium

answer

the process of entry or exit is complete - remaining firms earn zero economic profit

question

monopolistic competition

answer

a market structure in which many companies sell products that are similar but not identical

question

monopolistic competitive markets

answer

do not have all the desirable welfare properties of perfectly competitive markets

question

Sources of inefficiency

answer

- markup of price over marginal cost
- too much or too little entry

question

product-variety externality

answer

surplus consumers get from the introduction of new products

question

business-stealing externality

answer

losses incurred by existing firms when new firms enter market

question

Incentive to advertise

answer

When firms sell differentiated products and charge prices above marginal cost
Advertise to attract more buyers

question

advertising spending

answer

Highly differentiated goods: 10-20% of revenue
Industrial products: Little advertising
Homogenous products: No advertising

question

critiques of advertising

answer

-firms advertise to manipulate peoples tastes
-Advertising impedes competition

question

defense of advertising

answer

-the defense of advertising
-case studies

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