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The Production Function
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is the relationship between the quantity of inputs of a firm uses and the quantity of output it produces.
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Long run.
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Nothing is fixed, everything is variable.
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Short run
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Everything is fixed except labor.
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Total product curve
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shows how the quantity of output depends on the quantity of the variable...
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Total product
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How many units you produce a day or in a given period
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Know that the Total Cost is
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the mirror image of total product
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Total cost TC
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is the cost of all resources used.
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Diminishing returns effect
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the larger the output, the greater the amount of variable input required to produce additional units, leading to higher average variable cost
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The law of decreasing returns
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explain why the demand for labor is downward sloping
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When marginal cost =ATC
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ATC rises as Q rises. When productivity is high, costs are low. When productivity is low, costs are high.
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The short run is a period that is
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Long enoug in which to vary output but not plant capacity
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The sum of fixed and variable costs is
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total costs
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An example of a vairable
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an employee
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Fixed input
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An input whose quantity that doesn't vary; land, technology, capital-it's equipment and buildings.
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Total cost is the sum of fixed costs and
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Variable costs
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Total product curve
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will become flatter as output increases, if there are diminishing returns to the variable input.
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The marginal product of labor is the
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change in output resulting from adding one more worker
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The steeper the slope of the Total Cost Curve the
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larger is the marginal product of labor & the more costs are rising due to diminishing returns to the variable input.
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What is the opposite of marginal cost
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marginal product (curve)
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product and cost are
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inverses of each other
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Diminishing marginal returns occur when
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an additional variable factor adds less to the total output than the previous factor; like a worker or machine.
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Dinimishing returns is a reason why
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the marginal cost curve is upward-sloping.
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A university that benefits from lower costs per unit as it grows is an example of:
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Economies of scale
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The LRAC cost curve is generally
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U-shaped
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The slope of the total cost curve is
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Marginal cost; it is what changes total
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If marginal cost is greater than average total cost, then
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Average cost is increasing; magnet
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If ATC is = to MC, then on is operating
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at the minimum point of ATC
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Total cost divided by the quantity of output produced is
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Average Total Cost
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Chapter 12
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review
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Perfect competition is the only market structure where demand
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is perfectly elastic, flat & horizontal
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Profit is maximized in perfect competition when
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P=MC=MR;
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If price is below variable cost
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shut down
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Long run
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you have to cover your ATC, if you're not-shut down.
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Market structures are categorized by the following two criteria
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the number of firms and whether or not products are differentiated.
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One characteristic of a perfectly competitive market is that there are ____ sellers of the good or service
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Hundreds or thousands of sellers
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Perfect competition is characterized by:
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the inability of any one firm to influence price.
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The demand curve for a perfectly competitive firm is
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perfectly elastic; flat
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For the Colorado beef industry to be classified as perfectly competitive, ranchers in Colorado must have ____ on prices and beef is a ___ product.
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No noticeable effect; differntiated
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The competitive model assumes all of the following except
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Patents and copyrights. It DOES: assume a large number of buyers, easy entry & exit from the market & standardized product.
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If perfectly competitive firms are making positive economic profits in the short run, then in the long run:
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firms will enter the industry.
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In the short run the fixed costs of running a farm should play no role in determining the level of production
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True; only foucs on that which varies with your decision to expand or contract
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A perfectly competitive firm will incur an economic loss but will continue producing output in the short run if price is
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Greater than the average variable cost but less than average total cost.
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If a firm shuts down it
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incurs an economic loss equal to its total fixed cost.
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A perfectly competitive firm's marginal cost curve above the average variable cost curve is its:
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Short-run supply curve
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When a perfectly competitive firm is in long-run equilibrium, the firm is
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producing at minimum long-run average total cost.
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Ch 13
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Monopoly
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The driving force behind the "zero economic profits" idea is
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....
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all firms go where
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MR=MC, the difference with a monopoly is they charge a higher price
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Natural monopoly
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when one firm can serve the entire market cheaper than two.
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look up
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quantity effect vs price effect
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Whch of the following is true concerning monopoly
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All of the above
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Compared to a perfectly.....
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less; higher
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Patents create monopolies by restricting
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entry
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Compared to a competitive industry, a monopoly transfers
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consumer surplus to producers.
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A natural monopoly exists whenevver a single frim
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experiences economies of schale over the entire range of production....
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Most electric, gas,....
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...
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The demand curve facing a monopolist is
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downward-sloping....
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A monopoly in the long run
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entry will not occur because of barriers
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If a monopolist is producitn a qunatitiy....
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is maximized.
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Suppose a perfectly competitieve markets is ....
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price to rise, output to fall, consumer t surlus to fall, producer surplus ro rise, and deadweight loss to rise.
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To maintain profits....
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True
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A monopoly increases price ....
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True
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Diamond rings are elatively scarce becuaes
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DeBeers limits....
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Marginal revenue for a monolplist is
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always less than price, becuase of price effect and the quantity effect
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If you local government gives you the ex....
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...
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Ch 14
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Oligopoly
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Oligopoly is an industry with
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Interdependence, only a few producers compete,Boeing or Airbus, coke and Pepsi ...
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Collusion
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engaging in price fixing; restrict output; keep prices high. Usually somebody cheats.
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For Cartels to be successful they must
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have complete control over supply, methods to monitor eahc other's production quotas & they must have the support of the government behind them.
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Oligopoly is a market ....
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..
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Oligopoly is a market st...
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...
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in Oligopoly ...
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B. that is must pursue policies while always remembering ther will be a reaction.....all of the above
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By practicing ______....
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...
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An unwriten, unspoken agreemtne through ...
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....
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Which of the followin g scenarios...
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Disney; Coca-cola and Pepsi sell most of the.....
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Gary's Gas and Franks.....
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neither firm cheats of the agreement; Gary cheats on the agreement and Frank does not cheat.
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A strategy of tit for tat involves....
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True
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Game theory proves most ....
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Oligopoly
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An industry....
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Duopoly Boeing and Airbus
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If the only....
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Collusion restrict output; keep prices high.
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Each frim in a cartel...
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True; strong temptation to cheat
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Collusive.....
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Each firm can increase profits by cheating. .....
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Price wars are
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most likely ....
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A four-firm concentration...
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....
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Tacit collusion is limited ....
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Large number of firms and bargaining power of buyers like Walmart.
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Ch 15
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Monopolistic Competition
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Monopolistic Competition
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price is greater than MC, small market share, no collusion, no market dominance
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In a large shooping areas...
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Monopolistic competition
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Monopolistic competition....
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a large number of firms
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the main chaacteristic...
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differentiated products; everybody does MR=MC but just charge more so price is greater than MR=MC
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In order....
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att the level at which marginal cost...
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The failure to produce enough to minimize average total cost is termed
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excess capacity
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Excess capacity and high....
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Monopolistic competition
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Whithin a Monopolistic competitive industry
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each firm faces....all of the above
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The loss of efficiency that occurs....
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greater product variety.
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