#22 Microeconomics III - Firms And Decisions

Question 1

Internal economies/diseconomies of scale

Answer 1

refer to a fall/rise in unit cost of production when the FIRM increases output by expanding its scale of production.

Question 2

External economies/diseconomies of scale

Answer 2

refers to the fall/rise in unit cost of production experienced by the firm as a result of growth in the INDUSTRY.

Question 3

Minimum efficient scale (MES)

Answer 3

occurs at the output level where LRAC first stops falling. It corresponds to the lowest point on the LRAC.

Question 4

Profit maximization

Answer 4

Profit maximization is achieved at the level of output where the addition to the total revenue from the sale of the last unit is equal to the addition to total cost of producing it. MR = MC

Question 5

Allocative efficiency

Answer 5

allocation of resources to produce the combination of goods and services most wanted by the society, achieved when P=MC

Question 6

Productive efficiency

Answer 6

production of goods and services at the lowest possible average costs of production

Question 7

Dynamic efficiency (innovation)

Answer 7

the situation where firms are technologically progressive in order to reduce the average cost of production and/or meet the changing needs and wants of consumers over time

Question 8

Equity

Answer 8

fairness in distribution in three dimensions: income, wealth, opportunities

Question 9

Consumer welfare

Answer 9

individual benefits derived from the consumption of goods and services

Question 10

Barriers to entry

Answer 10

obstacles that prevent new firms from entering a market to compete with the existing firms

Question 11

Price discrimination

Answer 11

practice of charging different prices for the same product, for different units of it or to different groups of consumers, not due to difference in costs