Microeconomics-Erhardt Exam 2 Terms

Shows all combinations of goods that provide the consumer with the same satisfaction, or the same utility (the consumer finds all combinations of the curve equally preferred).

The number of "A" you are willing to give up to get more of "B", neither gaining nor losing utility in the process.

States that as your consumption of "A" increases, the amount of "B" you are willing to give up to get another "A" declines.

A graphical representation of a consumer's tastes. Each curve reflects a different level of utility.

A particular indifference curve reflects a constant level of utility, so the consumer is indifferent about all consumption combinations along a given curve. Combinations are equally attractive.

If total utility is to remain constant, an increase in the consumption of one good must be offset by a decrease in the consumption of the other good, so each indifference curve slopes downward.

Because the law of diminishing marginal rate of substitution, indifference curves bow towards the origin.

Higher indifference curves represent higher levels of utility

Indifference curves do not intersect.

Depicts all possible combinations of videos and pizzas, given their prices and your budgets.

Utility maximisation.

Opportunity Cost of resources employed by a firm that takes the form of cash payments.

A firm's opportunity cost of using its own resources of those provided by its owners without a corresponding cast payment.

A firm's total revenue minus its explicit and implicit costs.

A firm's total revenue minus its explicit and implicit costs.

The accounting profit earned when all resources earn their opportunity cost.

Any resource that can be varied in the short run to increase or decrease production.

Any resource that cannot be varied in the short run.

A period during which at least one of a firm's resource is fixed.

A period during all resources under the firm's control are variable.

The total output produced by a firm.

The relationship between the amount of resources employed by a firm's total product.

The change in total product that occurs when the use of a particular resource increases by one unit, all other resources constant.

The marginal product of a variable resource increases as each additional unit of that resource is employed.

As more of a variable resource is added to a given amount is a fixed resource, marginal product eventually declines and could become negative.

Any production cost that is independent of the firm's rate of output.

Any production cost that changes as the rate of output changes

The sum of fixed cost and variable cost, or TC=FC+VC

The cost divided by output; AVC=VC/Q

Total cost divided by output; ATC=TC/Q; the sum of average fixed ost and average variable cost; ATC=AFC+AVC

Forces that reduces a firm's average cost as the scale of operation increases in the long run.

Forces that may eventually increase a firm's average cost as the scale of operation increases in the long run.

A cost that occurs when, over some range of output, long run average cost neither increases nor decreases with changes in the firm's size.

A curve that shows all the technologically efficient combinations of two resources, such as labour and capital, that produce a certain rate of output.

Isoquants further from the origin represent greater output rates

Isoquants have negative slopes because along the given Isoquant, the quantity of labour employed inversely relates to the quantity of capital employed.

Isoquants do not intersect because each isoquant refers to a specific rate of output

Isoquants are usually convex to the origin.

Rate at which labour substitutes for capital without affecting output.

Identifies all combinations of capital and labour the firm can hire for a given total cost.

The line formed by connecting tangency points.

Important features of a market, such as the number of firms, product uniformity across firms, firms' ease of entry and exit, and forms of competition.

A market structure with many fully informed buyers and sellers of a standardised product and no obstacles to entry or exit of firms in the long run.

A standardized product, a product that does not differ across producers, such as a bushel of wheat or an ounce of gold

A firm that faces a given market price where whose quantity supplied has no effort on that price; a perfectly competitive firm

The change in total revenue from selling an additional unity; in perfect competition, marginal revenue is also the market price.

To maximise profit or minimize loss, a firm should produce the quantity at which marginal revenue equals marginal cost; this rule holds for all market structures.

Total revenue divided by output, or AR=TR/Q; in all market structures, average revenue equals the market price.

A curve that shows the quantity a firm supplies at each price in the short run; in perfect competition that portion of a firm's marginal cost curve that intersects and rises above the low point on its average variable cost curve.

A curve that indicates the quantity supplied by the industry at each price in the short run; in perfect competition, the horizontal sum of each firm's short run supply curve.

A curve that shows the relationship between price and quantity supplied by the industry once firms adjust fully to any change in market demand.

An industry that can expand or contract without affecting the long run per-unit cost of production; the long-run industry supply curve is horizontal.

An industry that faces higher per-unit production costs as industry output expands in the long run; the long run industry supply curve slopes upward.

The condition that exists when market output is produced using the least-cost combination of inputs; minimum average cost in the long run.

The condition that exists when firms produce the output most preferred by consumers; marginal benefit equals marginal cost.

A bonus for producer in the short run; the amount by which total revenue from production exceeds variable costs.

The overall well-being of people in the economy; maximized when the marginal cost of production equals the marginal benefit to consumers.

A firm that must find the profit maximizing price, when the demand curve for its output slopes downward [Graph Monopoly]

Net loss to society when a firm uses its market power to restrict output and increase price [graph: losses from monopoly]

Activities undertaken by individual or firms to influence public policy in a way that will increase their incomes.

First Class Mail

Increasing profit by charging different groups of consumers different prices when the price differences are not justified by differences in costs.

A monopolist who charges a different price for each unit sold; also called the monopolist's dream.

A market structure with many firms selling products that are substitutes but different enough from each firm's demand curve slopes downward; firm entry is relatively easy.

-These types of firms are Price Makers
-Barriers to entry are low
-But there are enough sellers that they behave competitively.
-they can act independently or interdependently.

Products differentiates themselves in four basic ways:

1. Physical Differences
-Packaging, colour, weight
2. Location
-Spatial Differentiation
-Price/Convenience Stores.
3. Services
-Free Delivery, Guarantees, toll free numbers
4. Product Images
-Endorsements, all natural Starbucks, Image/brand
loyalty, environmentally friendly.