Microeconomics Tulane Final Toni Weiss

the situation in which a firm is earning exactly a normal rate of return

1. Firms that earn economic profit
2. Firms that suffer economic loss but continue to operate to reduce or minimize those losses
3. Firms that decide to shut down and bear losses just equal to fixed costs

Price x Quantity

TC/Q

ATC*Q

1. Those that find it advantageous to shut down operations immediately and bear losses equal to total fixed costs

2. Those that continue to operate in the short run in order to minimize their losses. Firms cannot exit the industry in the short run

The lowest point on the average variable cost curve. When price falls below the minimum point on AVC, total revenue is insufficient to cover variable costs and the firm will shut down and bear losses equal to fixed costs.

The sum of the marginal cost curves (Above AVC) of all the firms in an industry

How much additional revenue does a firm get when they sell one more unit of output

How much additional cost does a firm take to produce one more unit

occurs where MR = MC on the upward sloping portion of the marginal cost curve

the additional amount of labor it takes to product one more unit

ATC < P = MC

(Total Revenue) - (explicit costs) - (implicit costs)

total revenue - explicit costs

Illustrates the quantity of output a firm will produce at various prices holding everything else constant

the amounts of all factors of production can vary; there is enough time to enter or exit the industry

when inputs increase by a certain percentage and output increases by a larger percentage

when inputs increase by a certain percentage and outputs increase by the same percentage

when inputs increase by a certain percentage and outputs increase by a smaller percentage

as industry output increases, input price increases; upward sloping long-run supply curve

as industry output increases, input price stays the same; horizontal supply curve

as industry output increases, input price decreases - downward sloping long-run supply curve

the demand for resources (inputs) that is dependent on the demand for the outputs those resources can be used to produce

the amount of output produced per unit of that input

the additional revenue a firm earns by employing one additional unit of an input, ceteris paribus

MRP = MP * Px (MP = marginal product of labor; Px = price of output)

MUx/MUy; the ratio at which a household is willing to sub good y for good x

The price of a good that is in fixed supply; it is determined exclusively by what households and firms are willing to pay for the good.

the return to any factor of production that is in fixed supply

the introduction of new methods of production or new products intended to increase the productivity of existing inputs or to raise marginal products

P = MRP (P is the price of output; MRP is the marginal revenue product)

1. markets for inputs to production
2. Includes land, labor, and capital

1. individuals decide how many hours to work
2. Wage
3. opportunity cost
4. non-wage benefits

1. firms demand labor to produce a final good
2. The wage
3. Productivity
4. the price of the good produced - how much money will the worker generate for the firm

the demand for resources (inputs) that is dependent on the demand for the outputs those resources can be used to produce

the additional output produced by 1 additional unit of labor

Occurs when resources are misallocated, or allocated inefficiently. The result is waste or lost value.

goods that are nonrival in consumption and their benefits are nonexcludable

actions of one party impose costs or benefits on a second party

The absence of full knowledge concerning product characteristics, available prices, and so on.

an industry in which individual firms have some control over the price of their output

an imperfectly competitive firm's ability to raise price without losing all of the quantity demanded for its product

MR = P + (change in P/ change in Q) * Q

factors that prevent new firms from entering and competing in imperfectly competitive industries

An industry that realizes such large economies of scale in producing its product that single-firm production of that good or service is most efficient.

a barrier to entry that grants exclusive use of the patented product or process to the inventor

the value of a product to a consumer increases with the number of that product being sold or used in the market

the social cost associated with the distortion in consumption from a monopoly price

occurs when the government becomes the tool of the rent seeker and the allocation of resources is made even less efficient by the intervention of government

charging different prices to different customers for the same product when the price differences are not due to differences in cost

Occurs when a firm charges the maximum amount that buyers are willing to pay for each unit.

to effectively price discriminate, firms must prevent customers from reselling

The criterion introduced by the Supreme Court in 1911 to determine whether a particular action was illegal ("unreasonable") or legal ("reasonable") within the terms of the Sherman Act

Passed by Congress in 1914 to strengthen the Sherman Act and clarify the rule of reason, the act outlawed specific monopolistic behaviors such as tying contracts, price discrimination, and unlimited mergers.

A federal regulatory group created by Congress in 1914 to investigate the structure and behavior of firms engaging in interstate commerce, to determine what constitutes unlawful "unfair" behavior, and to issue cease-and-desist orders to those found in violation of antitrust law.

-one seller
-a unique product without close substitutes
-high barriers to entry
-price making

MR = MC < P

In the long run:

MR = MC < ATC < P

actions of one party impose costs or benefits on a second party

the total cost to society of producing an additional unit of a good or service

a court order forbidding the continuation of behavior that leads to damages

laws that require A to compensate B for damages that A imposed on B