Final Exam Flashcards
1
Q
cost that requires an outlay of money
A
explicit cost
2
Q
cost measured by value in dollar terms of benefits that are forgone
A
implicit cost
3
Q
explicit cost + implicit cost
A
opportunity/economic cost
4
Q
revenue - explicit cost
A
accounting profit
5
Q
revenue - economic cost
A
economic profit
6
Q
economic profit is usually … than accounting profit
A
less
7
Q
total value of assets owned by an individual or firm
A
capital
8
Q
opportunity cost of the use of one’s own capital, income earned if the capital had been used in the next-best alternative use
A
implicit cost of capital
9
Q
when making an either-or choice between two activities, choose the choice…
A
with positive economic profit
10
Q
additional cost incurred by producing one more unit of a good or servivce
A
marginal cost
11
Q
when each additional unit costs more to produce than the previous one
A
increasing marginal cost
12
Q
when each additional unit costs the same to produce as the previous one
A
constant marginal cost
13
Q
quantity that generates the highest possible total profit
A
optimal quantity
14
Q
when making a profit-maximizing how much decision, optimal quantity is..
A
the largest quantity at which marginal benefits are greater than or equal to marginal costs
15
Q
cost that has already been incurred and is nonrecoverable, should be ignored in decisions about future actions
A
sunk cost
16
Q
profit=
A
revenue - cost
17
Q
if the marginal cost is positive, total costs are…
A
increasing
18
Q
if the marginal benefit is positive, total benefits are…
A
increasing
19
Q
when profit is more than 0, resources move…
A
into the industry
20
Q
when profits are equal to 0, resources…
A
do not move
21
Q
when profits are less than 0, resources move…
A
out of the industry
22
Q
what do time horizons determine
A
choices available for firms
23
Q
quantity of an input is fixed, at least one input is fixed
A
short run
24
Q
inputs can vary over time, all inputs can be varied
A
long run
25
inputs that do not change, given quantity
fixed inputs
26
inputs whose quantity change, affects the amount of output
variable inputs
27
change in total output as you change variable factor by one
marginal product
28
declining marginal product due to an increase in the variable factor
diminishing returns
29
marginal costs are found by...
change in total costs/change in output
30
average costs are found by...
total costs/quantity
31
lowest average costs at which you are able to product the quantity with varying inputs
long run average costs
32
what does economics of scale cause
average long run costs decline, hit minimum, then increase
33
relationship between the quantity of inputs a firm uses and the quantity of output it produces
production function
34
shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input
total product curve
35
cost that does not depend on the quantity of an output produced, cost of fixed input
fixed cost
36
cost that depends on the quantity of output produced, cost of variable input
variable cost
37
total cost is the sum of
fixed costs and variable costs
38
total cost per output unit
average (total) cost
39
how is average (total) cost found
total cost/quantity
40
fixed cost per unit of output
average fixed cost
41
how is average fixed cost found
fixed cost/quantity
42
variable cost per unit of output
average variable cost
43
how is average variable cost found
variable cost/quantity
44
quantity of output at which average total cost is lowest
minimum-cost output
45
relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output
long-run average total cost curve
46
long-run average total cost declines as output increases
increasing returns to scale
47
long-run average total cost increases as output increases
decreasing returns to scale
48
long-run average total cost is constant as output increases
constant returns to scale
49
minimum of quantities of scale, lowest long run average costs
minimum efficient scale
50
market in which all market participants are price-takers
perfectly competitive market
51
producers whose actions have no effect on the market price of the good or service it sells
price-taking producers
52
consumer whose actions have no effect on the market price of the good or service they buy
price-taking consumer
53
perfect competition- firm condition
many producers, none of whom have a large market share
54
fraction of the total industry output accounted for by that producer's output
market share
55
perfect competition- product condition
every firm produces a standardized product
56
when consumers regard the product of different producers as the same good
standardized product/commodity
57
perfect competition- entry and exit condition
there are no obstacles to free entry and exit
58
when new producers can easily enter into an industry and existing producers can easily leave that industry
free entry and exit
59
industry that only has one good which has no close substitutes
monopoly
60
ability of a firm to raise prices above the competitive level by reducing output
market power
61
something that prevents other firms from entering the industry
barriers to entry
62
type of barrier to entry, one firm controls a specific input
control of a scarce resource or input
63
type of barrier to entry, existing and larger firms have lower costs
increasing returns to scale
64
type of barrier to entry, one firm is more advanced than the others
technological superiority
65
type of barrier to entry, value of a good or service to an individual is greater when many people use the same good or service
network externality
66
type of barrier to entry, patents and copyrights
government-created barriers
67
gives an inventor a temporary monopoly in the use of sale of an invention
patent
68
gives the creator of a literary or artistic work the sole right to profit from that work
copyright
69
when no one firm has a monopoly so they must compete, but producers still have some market power and can affect prices
imperfect competition
70
when sellers cooperate to raise their joint profits instead of competing
collusion
71
collusion is a key to which market structure
oligopoly
72
profit is maximized by producing quantity of output where MR=MC
optimal output rule
73
profit is maximized by producing the quantity of output at which the market price is equal to the marginal cost, P=MC
price-taking firm's optimal output rule
74
market price where a price-taking firm's profit is zero
break-even price
75
for price-taking firms, when the market price is greater than the minimum average total cost the firm is
profitable
76
for price-taking firms, when the market price is less than the minimum average total cost the firm is
unprofitable
77
for price-taking firms, when the market price is equal to the minimum average total cost the firm is
breaks even
78
a firm should cease production when price falls below the minimum average variable cost
shut-down rule
79
price at which firms cease production in the short run
shut-down price
80
when price lies between the minimum average total cost and minimum average variable cost, the firm...
produces in the short run to minimize loss
81
what are the two short run dimensions
number of firms, closeness of goods
82
what is the one long run dimension
conditions of entry and exit
83
perfect competition- market power condition
no market power
84
monopolistic competition- firm condition
large amount of firms
85
monopolistic competition- product condition
differentiated products
86
monopolistic competition- market power condition
small amount of market power
87
monopolistic competition- entry and exit condition
very low barriers, free entry and exit
88
oligopoly- firm condition
few large firms
89
oligopoly- product condition
identical or differentiated products
90
oligopoly- market power condition
lots of market power, mutual interdependence, collusion
91
oligopoly- entry and exit condition
significant barriers to new firms
92
monopoly- firm condition
one firm
93
monopoly- product condition
single product with no substitutes
94
monopoly- market power condition
considerable market power
95
monopoly- entry and exit condition
blocked by barriers that prevent new firms, no entry
96
what is the elasticity of perfect competition
perfectly elastic
97
in perfect competition, marginal revenue and market price are
equal
98
in perfect competition, when profits are more than 0 the firm should
produce Q*
99
in perfect competition, when profits are equal to 0 the firm should
produce Q*
100
in perfect competition, when profit are less than 0 the firm should
pick the decision that minimizes the losses
101
if the supply goes down, the price and profit
go up
102
if the supply goes up, the price and profit
go down
103
what is the long run outcome for profit in perfect competition
zero profit
104
what is the efficiency of perfect competition
effient
105
when does producing instead of shutting down minimize costs
when the profit of producing Q* is greater than the variable costs
106
in monopolistic competition, oligopoly, and monopoly how do marginal revenue and price compare
marginal revenue is less than price
107
how does product differentiation affect advertising
more differentiation=more advertising
108
when one more unit is sold, there is an increase in revenue by price
quantity effect in monopoly
109
in order to sell last unit, market price must be cut down for all units
price effect in monopoly
110
at low levels of output in monopoly, the quantity effect is...
stronger than the price effect
111
at high levels of output in monopoly, the price effect is...
stronger than the quantity effect
112
when MR is greater than MC, increase profit by
producing more
113
when MR is less than MC, increase profit by
producing less
114
when economies of scale provide a large cost advantage to a single firm that produces all of an industry's output
natural monopoly
115
good is supplied by the government, set prices based on efficiency, have high cost and low quality
public ownership
116
government limiting the firms by limiting the price that can be charged
regulation
117
long run equilibrium for perfect competition
profits=0
118
why are monopolies not efficient
deadweight loss to society, ATC is not minimum
119
monopolists can earn profits in
the short and long runs
120
charging different prices to different consumers in order to increase profits
price discrimination
121
when the pricing and production decisions of one firm significantly affect the profits of its rivals
interdependence
122
firms cooperating to raise their joint profits
collusion
123
agreement among several producers to obey output restrictions and increase their joint profits
cartel
124
when firms ignore the effects of their actions on each others' profits
noncooperative behavior
125
when firms limit production and raise prices in a way that raises one another's profits even though there is not a formal agreement
tacit collusion
126
what are the ways products are differentiated
style/type, location, quality
127
producing less than the output at which average total cost is minimized
excess capacity
128
conditions for price discrimination to hold
must separate the groups, must prevent resale of product
129
charging everyone the amount that they are willing to pay, supplier gets all consumer surplus
perfect price discrimination
