question
Consumer Surplus (CS)
answer
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it (1/2bh)
question
Producer Surplus
answer
the amount a seller is paid for a good minus the seller's cost of providing it (1/2bh)
question
Deadweight Loss (DWL)
answer
the reduction in total surplus that occurs as a result of a market inefficiency (1/2bh)
question
Cost of Production
answer
Explicit + Implicit Costs
question
Explicit Cost
answer
definite, clearly stated cost
question
Implicit Cost
answer
a non-monetary opportunity cost
question
Fixed Cost
answer
do NOT change when output changes (rent)
question
Variable Cost
answer
changes depending on output (labor & input)
question
Total Cost
answer
fixed + variable
question
Short Run
answer
at least one thing is fixed
question
Long Run
answer
everything is variable
question
Average X (aka how to average anything)
answer
X / Quantity
question
Marginal Cost
answer
change in total cost / change in quantity
question
Marginal Revenue
answer
change in total revenue / change in quantity
question
Marginal Product
answer
change in total product / change in labor
question
Decreasing Marginal Product / Diminishing Marginal Returns
answer
when you hire the next person, they give you less than the previous person. Will happen when you start sharing resources and space! (TOO MANY COOKS)
question
Minimum ATC
answer
where ATC intersects MC
question
Minimum AVC
answer
where AVC intersects MC
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LRAC
answer
- U-shaped because of economies and diseconomies of scale
- Smaller firms can lower costs by growing, but if they get too big, costs can grow
- Combination of the short run costs
- Smaller firms can lower costs by growing, but if they get too big, costs can grow
- Combination of the short run costs
question
Perfect Competition
answer
- many firms
- homogenous (same exact) product
- perfect knowledge
- no barriers to entry
- sellers are "price takers"
- no LR profit
- homogenous (same exact) product
- perfect knowledge
- no barriers to entry
- sellers are "price takers"
- no LR profit
question
Perfect Competition P and Q
answer
P* is given
Q* is MC=MR
Q* is MC=MR
question
Perfect Competition Shut Down
answer
MR=MC < AVC (aka we cannot pay for our variable costs anymore)
question
PC Short Run Supply Curve
answer
MC curve above the AVC curve
question
Monopoly
answer
- one firm
- unique good
- barriers to entry/exit
- sellers are "price makers"
- unique good
- barriers to entry/exit
- sellers are "price makers"
question
Monopoly P and Q
answer
P* is the point above MC=MR on the demand curve
Q* is MC=MR
Q* is MC=MR
question
Natural Monopoly
answer
it is cheaper for one firm to make it (think utility companies)
question
Governmental/Legal Monopoly
answer
the government says that only one person can make it (think a patent)
question
Resource/Location-Based Monopoly
answer
the firm has control over all of the resources (think Arkansas diamonds in the US)
question
Economies of Scale
answer
producer's long-run average cost per unit to fall as output rises
question
Diseconomies of Scale
answer
a firm's long-run average costs rise as the firm increases output
question
Constant Returns to Scale
answer
long-run average total cost stays the same as the quantity of output changes
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