question
profit
answer
total revenue - total cost
question
revenue
answer
# output x price of good
question
cost
answer
# output x cost to produce that output
question
fixed costs
answer
Costs that do not vary with the quantity of output produced (even when producing nothing)
question
variable costs
answer
costs that vary with the quantity of output produced
question
average total cost (ATC)
answer
total costs divided by quantity of output
question
average fixed cost (AFC)
answer
total fixed costs divided by quantity of output
question
average variable cost (AVC)
answer
total variable costs divided by quantity of output
question
total cost (TC)
answer
fixed cost + variable cost
question
marginal cost (MC)
answer
the extra cost incurred by producing one more unit of a product
change in total cost/change in output
change in total cost/change in output
question
economies of scale versus constant versus diseconomies of scale
answer
increase in a firm's scale of production
- lowers cost per unit produced
- no change on cost
- increases cost per unit produced
- lowers cost per unit produced
- no change on cost
- increases cost per unit produced
question
law of diminishing marginal product (of labor)
answer
as amount of labor increases, the extra amount of output we get from an additional unit of labor decreases.
question
Marginal product of labor (MPL)
answer
slope of production function
increase in output divided by increase in amount of labor
increase in output divided by increase in amount of labor
question
perfect competition (PC)
answer
many small firms, producing homogeneous products, taking the market price (selling as much as they want), and entering and exiting freely --> NO economic profit
horizontal demand curve (elastic) = MR = Price
horizontal demand curve (elastic) = MR = Price
question
monopoly (M)
answer
single large firm (IS the industry), selling homogeneous product, making the price, entry is blocked. must lower price to sell more output
downward sloping demand curve
downward sloping demand curve
question
monopolistic competition (MC)
answer
many firms selling differentiated products, making prices, with free entry and exit into industry, zero economic profit
downward sloping demand curve
downward sloping demand curve
question
oligopoly (O)
answer
few large firms selling homogeneous or diff. products, making the price, with significant barriers to entry
question
average revenue (AR)
answer
total revenue/amount of output
(P x Q) / Q = P! (Price!)
(P x Q) / Q = P! (Price!)
question
marginal revenue (MR)
answer
additional revenue gained when increasing output by one
change in revenue/change in output
change in revenue/change in output
question
Demand = MR = Price
answer
horizontal demand curve in PC only
question
profit maximization
answer
1) find MC
2) find where MC = MR
this is the profit maximizing quantity
3) go up to demand to find p.m. price
2) find where MC = MR
this is the profit maximizing quantity
3) go up to demand to find p.m. price
question
at the profit maximizing quantity...
answer
extra revenue generated from selling one extra unit is equal to the extra cost incurred from producing on extra unit
question
if MR is greater than MC
answer
increase Q to raise profit
question
if MR is less than MC
answer
decrease Q to raise profit
question
In PC markets, MC curve is the ...
answer
supply curve because it determines the quantity at every price (ABOVE THE AVC curve)
question
PC in short run when price is greater than AVC
answer
company will continue to produce
question
PC in short run when price is less than AVC
answer
company will shut down
question
PC in long run when price is greater than ATC
answer
company will stay in industry
question
PC in long run when price is less than the ATC
answer
company will exit the industry
question
PC when price is more than AVC but less than ATC
answer
produce in short run
exit industry in long run
exit industry in long run
question
how do short run events correspond to long run?
answer
increase in demand leads to higher prices which leads to profit for firms in market. outside firms want to join market to get profit. this increases the supply, driving price back to where it was before. there are more firms in industry all producing the same amount as before. total market quantity increases
question
natural monopoly (barrier to entry)
answer
industry in which one company can most efficiently supply all needed goods or services (water pipes)
too expensive for another firm to do it as well
too expensive for another firm to do it as well
question
legal and government regulation (monopoly barrier to entry)
answer
USPS no one else can deliver letters
question
key difference between PC and M, MC, and O
answer
making price
PC must take the price as the market sets it
PC must take the price as the market sets it
question
MR is less than Price (after 1st unit sold)
answer
Downward sloping demand curve because you must lower price to sell more
question
When MR is positive, TR is
answer
increasing
question
When MR is negative, TR is
answer
decreasing
question
finding TR on graph
answer
entire rectangle (pxq)
question
finding TC on graph
answer
under the ATC curve
question
finding profit/loss on graph
answer
between ATC and demand curve
question
perfect price discrimination
answer
monopolist knows the WTP of every consumer
MR = Demand curve
Firm will produce so long as MR is greater than MC
no CS, all profit
MR = Demand curve
Firm will produce so long as MR is greater than MC
no CS, all profit
question
horizontal differentiation
answer
products differ in ways that make them better for some people and worse for others (l and r handed scissors)
question
vertical differentiation
answer
a product difference that, from everyone's perspective, makes a product better than rival products (tesla v. nissan)
question
MC making profit in long run
answer
demand curves shift left, as more firms enter market, because an increase in options leads to less demand per firms
question
MC making loss in long run
answer
firms want to exit industry, demand shifts right, as there's fewer products to choose from. profit rises
continues until equilibrium, where there are no profits
continues until equilibrium, where there are no profits
question
are there profits in the long run (MC)
answer
NO.
question
M and MC similarities
answer
Price is greater than MC
downward sloping demand makes price greater than MR
P > MR = MC
produces at a less efficient scale, since price is > MC, some will not buy it
too many or too little firms in market, has to lower prices to produce more
downward sloping demand makes price greater than MR
P > MR = MC
produces at a less efficient scale, since price is > MC, some will not buy it
too many or too little firms in market, has to lower prices to produce more
question
MC and PC similarities
answer
free entry and exit drive profit to zero
price = ATC
price = ATC
question
oligopolies are always...
answer
Competing with each other in price, developing new products, advertising those products, and developing complements to use with the products
question
concentration ratio
answer
the share of industry output in sales or employment accounted for by the top firms
question
collusion
answer
occurs when price and quantity fixing agreements are explicit (formal agreement)
question
tacit collusion
answer
when agreements among producers are implicit (agree on price, no formal agreement)
question
prisoner's dilemma
answer
a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial
question
trust and game theory
answer
more likely to dupe with finite number of rounds
more likely to comply with indefinite number of rounds
more likely to comply with indefinite number of rounds
question
dominant strategy
answer
best option for a player regardless of what their opponent does
when both do this it results in an outcome that isn't preferred by either
when both do this it results in an outcome that isn't preferred by either
question
nash equilibrium
answer
a situation in which an economic actor interacting with one another each choose their best strategy given the strategy that all the other actors have chosen
question
tension between cooperation and self interest
answer
oligopoly main idea
question
O and M
answer
produce more than M but at a lesser price (less profit)
question
O and PC
answer
produce less than PC but at a higher price
question
Profit maximizing quantity of labor
answer
if the benefit of hiring an additional worker exceeds the cost (wage) she will hire the additional worker (how to make hiring decisions)
question
marginal product of labor (MPL)
answer
extra amount of output gained from +1 worker
change in qty. of output/change in qty of labor)
decreases as # of workers increases
change in qty. of output/change in qty of labor)
decreases as # of workers increases
question
marginal revenue product of labor (MRPL) or value of marginal product of labor (VMPL)
answer
dollar benefit the added worker is giving
MPL x price of adding a worker (wage)
MPL x price of adding a worker (wage)
question
if MRPL or VMPL is higher than the wage
answer
hire them!
question
hire workers up to the point where MRPL or VMPL
answer
Wage
question
MRPL or the VMPL is the
answer
labor demand curve
question
price leadership model
answer
Type of oligopoly in which one firm functionally sets the price for the industry. Other firms either defer to the price leader due to its size or traditional role as the anchor firm in the industry.
question
Derived Demand
answer
derived from a firm's decision to supply a good or service in another market
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
