sellers and incentives Flashcards
(34 cards)
conditions of a perfectly competitive market (3)
no buyer or seller in the market is big enough to influence the market
sellers in the market produce identical goods
there is free entry and exist into the market
seller’s problem steps
turning inputs into outputs
costs of production
revenue
short run
period of time when some of the firm’s input can’t be changed (variables)
long run
period of time when all firm’s inputs can ve changed (fixed)
variable factor of production (2)
inputs that can be changed in the short run
changes if the level of output changes
fixed factor of production
input that can’t be changed in the short-run
stays the same, regardless of how much output is produced
margarita product
change in total output associated with using one more unit of input/employee
negative marginal product
fixed capital and employees getting in each others way
specialization
marginal product increases when workers develop new skills
law of diminishing returns
successive increases in inputs eventually lead to less additional output
short run cost
variable cost + fixed cost
variable cost
associated with the fixed factors of production
fixed cost
associated with the fixed factors of production
average total cost
ATC = AVC (variable) + AFC (fixed)
total cost
ATC x Q
marginal cost
change in total cost / the change in quantity
total revenue
TR = P x Q sold
marginal revenue
change in total revenue associated with producing
= market price
economic profit
total revenue - total costs (explicit and implicit like opportunity cost)
zero or above is good
optimal quantity
MR = MC
profit (putting it all together)
Profit = (P-ATC) x Q
price elasticity of supply
how responsive producers/quantity supplied are to changes in the market price
price elasticity of supply: greater
the more inventory the firm has
the more easily the firm can hire workers
the longer the time horizon
shutdown (2)
decision to stop producing in the short run
occurs if the price falls below average variable cost
