Microeconomics Exam 2-Erhardt

The total satisfaction a consumer derives from consumption; it could refer to either the total utility of consuming a particular good or the total utility from all consumption

The change in total utility derived from a one unit change in consumption of a good

The more of a good a person consumes per period, the smaller the increase in total utility from consuming one more unit (o.t.c)

The condition in which an individual consumers budget is spent and the last dollar spent on each good yields the same marginal utility; therefore, the utility is maximized

The dollar value of the marginal utility derived from consuming each additional unit of a good

Difference between the maximum amount that a consumer is willing to pay for a given quantity of a good and what the consumer actually pays

Shows all combinations of goods that provide the customer with the same satisfaction, or the same utility. (the consumer finds all combinations on a 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 consumers taste. 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 consumption of one good must be offset by a decrease in the consumption of the other good, so each indifference curve slopes downward

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

Higher indifference curves represent higher levels of utility

Indifference curves do not intersect

Depicts all possible combinations of "A" and "B", given their prices and your budget

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

A firms opportunity cost of using its own resources or those provided by its owners without a corresponding cash payment

A firms total revenue minus its explicit costs

A firms total revenue minus its explicit and implicit costs

The accounting profit earned when all resources earn their opportunity costs

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 the firms resources is FIXED

A period during which all resources under the firms control are variable

The total output produced by a firm

The relationship between the amount of resources employed and a firms 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 individual unit of that resource is employed

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

Any production cost that is independent of the firms 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

Variable cost divided by output, or AVC=VC/q

Total cost divided by output or ATC=TC/q, the sum of average fixed cost and average variable cost, or ATC=AFC+AVC

A curve that indicates the lowest average cost of production at each rate of output when the size, or scale, of the firm varies; also called the planning curve

Forces that reduce a firms average cost as the scale of operation increases in the long run

Forces that may eventually increase a firms 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 change in firm size

Identifies the maximum quantities of a particular good or service that can be produced per time period with various combinations of resources for a given level of technology

can be presented as an equation, a graph, or table

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

Isoquants farther from the origin represent greater output rates

Isoquants have negative slopes because along a given isoquant, the quantity of labor employed inversely relates to the quantity of capitol employed

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

Isoquants are usually convex to the origin

The rate at which labor substitutes for capitol without affecting output

Identifies all combinations of capitol and labor the firm can hire for a given total cost

The hire 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 standardized 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 bushels of wheat or an ounce of gold

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

The change in total revenue from selling an additional unit; in perfect competition, this term is also the market price

To maximize 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 firms 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 cost 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 producers in the short run; the amount by which total revenue from production exceeds variable cost

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

Any impediment that prevents new firms from entering an industry and competing on an equal basis with existing firms

A legal barrier to entry that grants its holder the exclusive right to sell a product for 20 years from the date the _____application is filed [pharmaceuticals]

The process of turning an innovation into a marketable product

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 individuals or firms to influence public policy in a way that will increase their incomes

Increasing profit by charging different groups of consumers' different prices when the price differences are not justified by difference 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 that each firms demand curve slopes downward; firm entry is relatively easy

Differentiate themselves in 4 basic ways:

- PHYSICAL DIFFERENCES
packaging, colors, weight
-LOCATION
spatial differentiation, price/convenience stores
-SERVICES
free delivery, guarantees, toll free numbers
-PRODUCT IMAGE
endorsements, all natural, image/brand loyalty, environmentally friendly,

The difference between a firms profit maximizing quantity and the quantity that minimizes average cost

A market structure characterized by a few firms whose behavior is interdependent

An agreement among firms to increase economic profit by dividing the market or fixing the prices

A group of firms that agree to coordinate the production and pricing decisions to act like a monopolist

A firm whose price is adopted by other firms in the industry