question
economic cost
answer
economic cost as the payment that must be made to obtain and retain the services of a resource. It is the income the firm must provide to resource suppliers to attract resources away from alternative uses.
question
explicit cost
answer
The monetary payment made by a firm to an outsider to obtain a resource.
question
implicit cost
answer
The monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market; equal to what the resource could have earned in the best-paying alternative employment; includes a normal profit.
question
Economic costs
answer
Economic costs = Explicit costs + Implicit costs
question
accounting profit
answer
The total revenue of a firm less its explicit costs; the profit (or net income) that appears on accounting statements and that is reported to the government for tax purposes. Total sales revenue - total (explicit) costs
question
normal profit
answer
The payment made by a firm to obtain and retain entrepreneurial ability; the minimum income that entrepreneurial ability must receive to induce entrepreneurs to provide their entrepreneurial ability to a firm; the level of accounting profit at which a firm generates an economic profit of zero after paying for entrepreneurial ability.
question
economic profit
answer
The return flowing to those who provide the economy with the economic resource of entrepreneurial ability; the total revenue of a firm less its economic costs (which include both explicit costs and implicit costs); also called "pure profit" and "above-normal profit."
Economic Profit = Revenue − Explicit Costs − Implicit Costs.
Economic Profit = Revenue − Explicit Costs − Implicit Costs.
question
short run
answer
In microeconomics, a period of time in which producers are able to change the quantities of some but not all of the resources they employ; a period in which some resources (usually plant) are fixed and some are variable. (fixed plant)
question
long run
answer
In microeconomics, a period of time long enough to enable producers of a product to change the quantities of all the resources they employ, so that all resources and costs are variable and no resources or costs are fixed (variable plant)
question
total product (TP)
answer
The total output of a particular good or service produced by a firm (or a group of firms or the entire economy).
question
marginal product (MP)
answer
The additional output produced when 1 additional unit of a resource is employed (the quantity of all other resources employed remaining constant); equal to the change in total product divided by the change in the quantity of a resource employed.
question
average product
answer
(AP) The total output produced per unit of a resource employed (total product divided by the quantity of that employed resource).
question
law of diminishing returns
answer
The principle that as successive increments of a variable resource are added to a fixed resource, the marginal product of the variable resource will eventually decrease.
question
Fixed Cost
answer
Any cost that in total does not change when the firm changes its output. Rent payments, interest on a firm's debts, and insurance premiums are generally fixed costs; they do not change even if a firm produces more.
Fixed costs are beyond the business manager's current control; they are incurred in the short run and must be paid regardless of output level.
Fixed costs are beyond the business manager's current control; they are incurred in the short run and must be paid regardless of output level.
question
Variable cost
answer
A cost that increases when the firm increases its output and decreases when the firm reduces its output. They include payments for materials, fuel, power, transportation services, and most labor.
can be controlled or altered in the short run by changing production levels.
can be controlled or altered in the short run by changing production levels.
question
total cost
answer
is the sum of total fixed cost and total variable cost at each level of output:
question
Average fixed cost (AFC)
answer
for any output level is found by dividing total fixed cost (TFC) by that amount of output (Q).
That is,
average fixed cost (AFC) A firm's total fixed cost divided by output (the quantity of product produced).
That is,
average fixed cost (AFC) A firm's total fixed cost divided by output (the quantity of product produced).
question
average variable cost (AVC)
answer
A firm's total variable cost divided by output (the quantity of product produced).
(AVC) for any output level is calculated by dividing total variable cost (TVC) by that amount of output (Q):
(AVC) for any output level is calculated by dividing total variable cost (TVC) by that amount of output (Q):
question
average total cost (ATC)
answer
A firm's total cost divided by output (the quantity of product produced); equal to average fixed cost plus average variable cost.
question
marginal cost (MC)
answer
The extra (additional) cost of producing 1 more unit of output; equal to the change in total cost divided by the change in output (and, in the short run, to the change in total variable cost divided by the change in output).
question
economies of scale
answer
The situation when a firm's average total cost of producing a product decreases in the long run as the firm increases the size of its plant (and, hence, its output).
question
Diseconomies of Scale
answer
In time the expansion of a firm may lead to diseconomies and therefore higher average total costs.
The situation when a firm's average total cost of producing a product increases in the long run as the firm increases the size of its plant (and, hence, its output).
The situation when a firm's average total cost of producing a product increases in the long run as the firm increases the size of its plant (and, hence, its output).
question
constant returns to scale
answer
The situation when a firm's average total cost of producing a product remains unchanged in the long run as the firm varies the size of its plant (and, hence, its output).
question
minimum efficient scale (MES)
answer
The lowest level of output at which a firm can minimize long-run average total cost.
question
natural monopoly
answer
An industry in which economies of scale are so great that a single firm can produce the industry's product at a lower average total cost than would be possible if more than one firm produced the product.
question
Entry and exit only
answer
The only long-run adjustment in our graphical analysis is caused by firms' entry or exit. Moreover, we ignore all short-run adjustments in order to concentrate on the effects of the long-run adjustments.
question
Identical costs
answer
All firms in the industry have identical cost curves. This assumption lets us discuss an "average," or "representative," firm, knowing that all other firms in the industry are similarly affected by any long-run adjustments.
question
Constant-cost industry
answer
The industry is a constant-cost industry. That is, the entry and exit of firms do not affect resource prices or, consequently, the individual firms' ATC curves.
question
long-run supply
answer
A schedule or curve showing the prices at which a purely competitive industry will make various quantities of the product available in the long run.
question
constant-cost industry
answer
An industry in which the entry and exit of firms have no effect on the prices firms in the industry must pay for resources and thus no effect on production costs.
question
increasing-cost industry
answer
An industry in which expansion through the entry of new firms raises the prices firms in the industry must pay for resources and therefore increases their production costs.
question
decreasing-cost industry
answer
An industry in which expansion through the entry of firms lowers the prices that firms in the industry must pay for resources and therefore decreases their production costs.
question
productive efficiency
answer
The production of a good in the least costly way; occurs when production takes place at the output level at which per-unit production costs are minimized.
question
allocative efficiency
answer
The apportionment of resources among firms and industries to obtain the production of the products most wanted by society (consumers); the output of each product at which its marginal cost and price or marginal benefit are equal, and at which the sum of consumer surplus and producer surplus is maximized.
question
consumer surplus
answer
The difference between the maximum price a consumer is (or consumers are) willing to pay for an additional unit of a product and its market price; the triangular area below the demand curve and above the market price.
question
producer surplus
answer
The difference between the actual price a producer receives (or producers receive) and the minimum acceptable price; the triangular area above the supply curve and below the market price.
question
creative destruction
answer
The hypothesis that the creation of new products and production methods destroys the market power of existing monopolies.
question
pure monopoly
answer
A market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which nonprice competition may or may not be found.
question
Single seller
answer
In a pure, or absolute, monopoly, a single firm is the sole producer of a specific good or the sole supplier of a service; the firm and the industry are synonymous.
question
No close substitutes
answer
A pure monopoly's product is unique in that there are no close substitutes. The consumer who chooses not to buy the monopolized product must do without it.
question
Price maker
answer
The pure monopolist controls the total quantity supplied and thus has considerable control over price; it is a price maker (unlike a pure competitor, which has no such control and therefore is a price taker). The pure monopolist confronts the usual downward sloping product demand curve. It can change its product price by changing the quantity of the product it produces. The monopolist will use this power whenever it is advantageous to do so.Page 229
question
Blocked entry
answer
A pure monopolist has no immediate competitors because certain barriers keep potential competitors from entering the industry. Those barriers may be economic, technological, legal, or of some other type.
question
Nonprice competition
answer
The product produced by a pure monopolist may be either standardized (as with natural gas and electricity) or differentiated (as with the Windows operating system or Frisbees). Monopolists that have standardized products engage mainly in public relations advertising, whereas those with differentiated products sometimes advertise their products' attributes.
question
barrier to entry
answer
Anything that artificially prevents the entry of firms into an industry.
question
Patents
answer
A patent is the exclusive right of an inventor to use, or to allow another to use, her or his invention
question
simultaneous consumption
answer
The same-time derivation of utility from some product by a large number of consumers.
question
network effects Increases in the value of a product to each user, including existing users, as the total number of users rises.
answer
Increases in the value of a product to each user, including existing users, as the total number of users rises.
question
X-Inefficiency
answer
In constructing all the average-total-cost curves used in this book, we have assumed that the firm uses the most efficient existing technology. This assumption is natural because firms cannot maximize profits unless they are minimizing costs. X-inefficiency occurs when a firm produces output at a higher cost than is necessary to produce it.Page 240
question
X-inefficiency
answer
The production of output, whatever its level, at a higher average (and total) cost than is necessary for producing that level of output.
question
rent-seeking behavior
answer
Attempts by individuals, firms, or unions to use political influence to receive payments in excess of the minimum amount they would normally be willing to accept to provide a particular good or service.
question
price discrimination
answer
The selling of a product to different buyers at different prices when the price differences are not justified by differences in cost.
question
socially optimal price
answer
The price of a product that results in the most efficient allocation of an economy's resources and that is equal to the marginal cost of the product.
question
fair-return price
answer
For natural monopolies subject to rate (price) regulation, the price that would allow the regulated monopoly to earn a normal profit; a price equal to average total cost.
question
oligopoly
answer
A market structure in which a few firms sell either a standardized or differentiated product, into which entry is difficult, in which the firm has limited control over product price because of mutual interdependence (except when there is collusion among firms), and in which there is typically nonprice competition.
question
homogeneous oligopoly
answer
An oligopoly in which firms produce a standardized product.
question
differentiated oligopoly
answer
An oligopoly in which firms produce a differentiated product.
question
strategic behavior
answer
Self-interested economic actions that take into account the expected reactions of others.
question
mutual interdependence
answer
A situation in which a change in price strategy (or in some other strategy) by one firm will affect the sales and profits of another firm (or other firms). Any firm that makes such a change can expect its rivals to react to the change.
question
game theory
answer
The study of how people behave in strategic situations in which individuals must take into account not only their own possible actions but also the possible reactions of others. Originally developed to analyze the best ways to play games like poker and chess.
question
prisoner's dilemma
answer
A famous game analyzed in game theory in which two players who could have reached a mutually beneficial outcome through cooperation will instead end up at a mutually inferior outcome as they pursue their own respective interests (instead of cooperating). Helps to explain why collusion can be difficult for oligopoly firms to achieve or maintain.
question
collusion
answer
A situation in which firms act together and in agreement (collude) to fix prices, divide a market, or otherwise restrict competition.
question
kinked-demand curve
answer
A demand curve that has a flatter slope above the current price than below the current price. Applies to a noncollusive oligopoly firm if its rivals will match any price decrease but ignore any price increase.
question
price war
answer
Successive, competitive, and continued decreases in the prices charged by firms in an oligopolistic industry. At each stage of the price war, one firm lowers its price below its rivals' price, hoping to increase its sales and revenues at its rivals' expense. The war ends when the price decreases cease.
question
cartel
answer
A formal agreement among firms (or countries) in an industry to set the price of a product and establish the outputs of the individual firms (or countries) or to divide the market for the product geographically.
question
price leadership
answer
An informal method that firms in an oligopoly may employ to set the price of their product: One firm (the leader) is the first to announce a change in price, and the other firms (the followers) soon announce identical or similar changes.
question
one-time game
answer
A strategic interaction (game) between two or more parties (players) that all parties know will take place only once.
question
simultaneous game
answer
A strategic interaction (game) between two or more parties (players) in which every player moves (makes a decision) at the same time.
question
positive-sum game
answer
In game theory, a game in which the gains (+) and losses (−) add up to more than zero; one party's gains exceed the other party's losses. A strategic interaction (game) between two or more parties (players) in which the winners' gains exceed the losers' losses so that the gains and losses sum to something positive.
question
zero-sum game
answer
In game theory, a game in which the gains (+) and losses (−) add up to zero; one party's gain equals the other party's loss. A strategic interaction (game) between two or more parties (players) in which the winners' gains exactly offset the losers' losses so that the gains and losses sum to zero.
question
negative-sum game
answer
In game theory, a game in which the gains (+) and losses (−) add up to some amount less than zero; one party's losses exceed the other party's gains. A strategic interaction (game) between two or more parties (players) in which the winners' gains are less than the losers' losses so that the gains and losses sum to a negative number.
question
dominant strategy
answer
In a strategic interaction (game) between two or more players, a course of action (strategy) that a player will wish to undertake no matter what the other players choose to do.
question
Nash equilibrium
answer
The situation that occurs in some simultaneous games wherein every player is playing his or her dominant strategy at the same time and thus no player has any reason to change behavior.
question
credible threat
answer
In a sequential game with two players, a statement made by Player 1 that truthfully (credibly) threatens a penalizing action against Player 2 if Player 2 does something that Player 1 does not want Player 2 to do. Opposite of empty threat.
question
empty threat
answer
In a sequential game with two players, a noncredible (bluffing) statement made by Player 1 that threatens a penalizing action against Player 2 if Player 2 does something that Player 1 does not want Player 2 to do. Opposite of credible threat.
question
repeated game
answer
A strategic interaction (game) between two or more parties (players) that all parties know will take place repeatedly.
question
sequential game
answer
A strategic interaction (game) between two or more parties (players) in which each party moves (makes a decision) in a predetermined order (sequence).
question
first-mover advantage
answer
In game theory, the benefit obtained by the party that moves first in a sequential game. A situation that occurs in a sequential game if the player who gets to move first has an advantage in terms of final outcomes over the player(s) who move subsequently.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
