Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
MicroeconomicsFinal
chapter13,14,15,16,17,18
| Question | Answer |
|---|---|
| Max profit | the firms goal. total revenue-total cost |
| Total revenue | the amount a firm recieves from the sale of its output |
| Total cost | the market value amount paid of input |
| Explicit costs | require an outlay of money. EX. paying wages to workers |
| Implicit costs | do not require a cash outlay. the opportunity cost of the owner's time |
| Accounting profit | total revenue minus total explicit cost |
| Economic profit | total revenue minus total costs including implicit and explicit |
| Production function | shows the relationship between the quantity of inputs used to produce a good and the quantity of output of that good |
| marginal product of any input | the increase in output arising from an additional unit of that input, holding all other inputs constant |
| Delta (triangle) | change in |
| Marginal product of labor | delta Q/delta L |
| Diminishing marginal product | the marginal product of an input declines as the quantity of the input increases |
| Marginal Cost | the increase in total cost from producing one more unit. delta TC/Delta Q |
| Fixed Costs | do not vary with the quantity of output produced. ex. cost of equipment, loan payments, rent |
| Variable costs | vary with the quantity produced |
| Total cost | Fixed cost plus Variable cost |
| Average fixed cost | fixed cost divided by the quantity of output. falls as Q rises since the firm spreads the costs over larger number of units |
| Average total cost | equals total cost divided by the quantity of output |
| Average Variable cost | variable cost divided by the quantity of output. eventuallly will rise as output rises. |
| AFC+AVC | ATC |
| ATC graphing | initially falling AFC pulls ATC down but eventually rising AVC pulls ATC up |
| Efficient scale | the quantity that mimics ATC |
| MC | ATC is falling |
| MC>ATC | ATC is rising |
| cost in the short run | some inputs are fixed. the costs of these inputs are FC |
| cost in the long run | all inputs are variable. ATC at any Q is cost per unit. |
| Economies of scale | ATC falls as Q increses |
| Constant returns to scale | ATC stays the same as Q increases |
| Diseconomies of scale | ATC rises as Q increases |
| Economies of scale occur | increasing production allows greater specialization. Workers a more efficient when they work on a narrow task. more common when Q is low. |
| Diseconomies of scale occur | coordination problems in large organizations. most common when Q is high |
| Characteristtics of perfect competition | many buyers and many sellers, the goods offered for sale are largely the same, firms can freely enter and exit the market |
| price taker | takes the price as given |
| Total revenue | PxQ |
| Average revenue | TR/Q or P |
| Marginal revenue | delta TR/ Delta Q |
| MR=P | only true for firms in competitive markets |
| To increase Q by one unit | revenue rises by MR, and Cost rises by MC |
| MR>MC | increase Q to raise profit |
| MR | reduce Q to raise profit |
| The MC curve | the firms supply curve |
| Shutdown | A short-run decision not to produce anything because of market conditions |
| Exit | A long-run decision to leave the market |
| Difference between shutdown and exit | if firm shuts down in short run must still pay FC. If exit in long run, zero counts |
| cost of shutting down | revenue lost=TR |
| befefits of shutting down | cost savings=VC. must still pay FC |
| shut down if | P |
| short run supply curve | the portion of the MC curve that is above AVC |
| Sunk cost | a cost that has already been committed and cannot be recovered. must pay them regarless of your choice. FC is a sunk cost. |
| cost of exiting the market | revenue loss=TR |
| benefit of exiting the market | cost saving=TC. zero FC in the long run |
| exit the market if | P |
| enter the market for the long run if | TR>TC and divide both sides by Q |
| the long run supply curve | the portion of its MC curve above LRATC |
| all existing firms and potential entrants | have identical costs |
| each firm's cost | do not change as other firms enter or exit the market |
| the number of firms in the market in the short run is | fixed due to fixed costs |
| the number of firms in the market in the long run is | variable due to free entry and exit |
| profit maximizing quantity | P greater than or equal to AVC where MR=MC |
| positive economic profit | as new firms enter the market, supply shifts right. when P falls, reduces profits and slows entry |
| incur losses | some firms exit, supply shifts left. p rises, reducing remaining firms losses |
| long-run equilibrium | the process of entry or exit will continue until the remaining firms earn zero economic profit |
| zero economic profit | P=ATC |
| P= | minimum ATC |
| Long run market supply curve | horizontal at P=min ATC |
| Long run supply curve is horizontal if | all firms have identical cost and costs do not changee as other firms enter or exit the market |
| the entry of new firms | increases demand for this input, causing price to rise which increases all firms costs |
| monopoly | a firm that is the sole sellers of a product without close subsitutes |
| difference between monopoly and perfect competition | market power |
| main cause of monopolies | barriers to entry. other firms cannot enter the market |
| Three sources of barrier to entry | a single firm owns a key resource, the government gives a single firm the exclusive right to produce a good, natural monopoly |
| natural monopoly | arises when a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms |
| monopolist's demand curve | slopes downward. to sell a larger Q, the firm must reduce P |
| output effect | higher output raises revenue |
| price effect | lower prices reduces revenue |
| a sraight line demand curve | MR curve is twice as steep as the demand curve |
| monopolists's price | the highest price consumers are willing to pay for that quantity. found from the demand curve |
| profit maximizing Q | where MR=MC. and P is found from the demand curve at this Q |
| costs in the short run:monopolists | incur |
| costs in the long run: monopolists | exit the market |
| price maker | monopolists ability to create their own price |
| Supply curve for monopoly | none |
| when patents expire | the market become competitive and generics appear |
| monopolists equilibrium | the value to buyers of an additional unit exceeds the cost of the resources needed to produce the unit |
| price discrimination | selling the same good at different prices to different buyers. willingness to pay is a characteristic |
| perfect price discrimination | the monopolist captures all CS as profit but there is no deadweight loss |
| why perfect price discrimination wont work | no firm knows every buyers willingness to pay and buyers do not announce it to sellers |
| increasing competition with antitrust laws | sherman antitrust act and clayton act. ban some anticompetition practices and allow the government to make up the monopolies |
| regulation of monopolies | government agencies set the monopoly prices. |
| public policy on monopolies | increasing competition with antitrust laws, regulation, public ownership, and doing nothing |
| oligopoly | only a few sellers offer similar or identical products |
| monopolistic competition | many firms sell similar goods but not identical |
| characteristics of monopolistic competition | many sellers, product differentiation, free entry and exit. zero economic profit in the long run. firms have market power. the demand curve is downward sloping. many close substitutes ex. apartments, books, bottled water, clothing etc. |
| characteristics of perfect competition | many sellers. free entry and exit. zero long run economic profits. products are identical. no market power. D curve is horizontal |
| characteristics of monopoly | one seller. free entry and exit. positive long run economic profits. has market power. demand curve is downward sloping. no close substitutes for the product |
| monpolistic competition P | MR=MC since usually P>AVC |
| in the long run monopolistic competition | entry and exit drive economic profits to zero |
| If a monopolistic competition profits in the short run | new firms enter the market which takes some demand away from existing firm decreases prices and profits fall |
| If a monopolistic competition losses in the short run | some firms exit the market remaining firms enjoy higher demand |
| why monopolistic competition is less efficient | excess capacity, mark up over marginal cost |
| the product-variety externality | surplus consumers get from the introduction of new products |
| the business-stealing externality | losses incurred by existing firms when new firms enter market |
| the more differentiated the products | the more advertising firms buy |
| critics of advertising | society is wasting the resources it devotes to advertising, firms advertise to manipulate people's tastes, advertising impedes competition |
| defense of advertising | it provides useful information to buyers, informed buyers can easily find and exploit differences, advertising promotes competition |
| firms with brand names | usually spend more on advertising, and charge higher prices for the products |
| critique of brand names | brand names cause consumers to percieve differences that do not actually exist, willingness to pay is irrational and fostered by advertising, eliminating government protection of trademarks would reduce influence of brand names and lower prices |
| defense of brand names | provide information about quality, incentive to maintain quality to protect the reputation of brand names |
| concentration ratio | the percentage of the market's total output supplied by its four largest firms |
| strategic behavior in oligopoly | a firm's decision about P and Q can affect other firms and cause them to react. the firm will condsider these reactions when making decisions |
| game theory | the study of how people behave in strategic situations |
| duopoly | an oligopoly with two firms |
| collusion | an agreement among firms in a market about quantities to produce or prices to charge |
| cartel | a group of firms acting in unison |
| collusion vs self-intrest | it is difficult for oligopoly firms to form cartels and honor their agreement |
| Nash Equilibrium | economic participants interacting with one another. each choose their best strategy given the strategies that all the others have chosen |
| oligopoly Q is greater than | monopoly Q but smaller than competitive Q |
| oligopoly P is greater than | competitive P but smaller than monopoly P |
| output effect | if P>MC selling more output raises profits |
| price effect | raising production increases market quantity, which reduces market price and reduces profit |
| output effect>price effect | the firms increase production on all units sold |
| price effect>output effect | the firm reduces production |
| number of firms in the market increases (oligopoly) | the price effect becomes smaller and the oligopoly looks more like a competitive market. the market quantity approaches the socially efficient quantity |
| benefit of international trade | trade increases the number of firms competing, increases Q, brings P closer to marginal cost |
| Game theory | helps us understand oligopoly and other situations where "players" interact and behave strategically |
| dominant strategy | a strategy that is best for a player in a game regardless of the strategy chosen by the other players |
| Prisoners' dilemma | a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial |
| Oligopolies as a prisoners' dilemma | when oligopolies form a cartel in hopes of reaching the monopoly outcome, they become players in the prisoner dilemma |
| Prisoners' dilemma and society's welfare | prevents them from achieving monopoly profits. Q is closer to the socially efficient |
| strategies lead to cooperation | if your rival reneges in one round, you renege all subsequent rounds. whatever your rival does in one round you do in the following round |
| Role for policymakers for oligopolies | promote competition, prevent cooperation, move the oligopoly outcome closer to the efficient outcome |
| Sherman Antitrust Act | forbids collusion between competitors |
| clayton antitrust act | strengthened rights of individuals damaged by anticompetitive arrangements between firms |
| resale price maintenance "fair trade" | a manufacturer imposes lower limits on the prices retailers can charge. appears to reduce competition. preventing discount retailers from free-riding on the services provided by full service retailers |
| Predatory pricing | a firm cuts prices to prevent entry or drive a competitor out of the market, so that it can change monopoly prices later. it involves selling at a loss, which is extremely costly for the firm. potential entrants make it less likely to recover the loss |
| tying | a manufacturer bundles two products together and sells them for one price. for price discrimination, which is not illegal, and which sometimes increases economic activity |
| factors of production | the inputs used to produce goods and services |
| capital | the equipment and structures used to produce goods and services |
| derived demand | derived from a firm's decision to supply a good in another market |
| We assume... | all markets are competitive/the typical firm is a price taker. AND that firms care only about maximizing profits |
| wage | price of labor |
| production function | the relationship between the quantity of inputs used to make a good and the quatity of output of that good |
| marginal product of labor | the increase in the amount of output form an additional unit of labor. MPL=delta Q/delta L |
| value of the marginal product | the marginal product of an input times the price of the output. PxMPL |
| to maximize profits | hire workers up to the point where VMPL=W |
| VMPL curve | the demand curve |
| anything that increases P or MPL | will increase VMPL |
| Things that shift the labor demand curve | changes in the output price, technological change (affects MPL), the supply of the other factors (affects MPL) |
| Marginal Cost | cost of producing an additional unit of output. delta TC/delta Q. |
| As L rises | MPL falls, causing W/MPL to rise causing MC to rise. |
| Things that shift the labor supply curve | change in taste or attitude regarding the labor-lesiure tradeoff, opportunities for workers in other labor markets, immigration |
| wage always equal | VMPL |
| wage is tied | to labor productivity |
| purchase price | the price a person pays to own that factor indefinently |
| rental price | the price a person pays to use that factor for a limited period of time. wage is a rental price |
| decide how much land to rent by comparing | the price with the value of the marginal product (VMP) of land. price adjusts to balance supply and demand. |
| rental income equals | VMP |
| equilibrium purchase price depends on | both the current VMP and the VMP expected to prevail in future periods |
| having more capital | makes workers more productive MPL and W will rise |
Created by:
missmissie
Popular Business sets