2ND EXAM TERMS

Question 1

total revenue

Answer 1

the amount that a firm receives from the sale of goods and services; Q x P

Question 2

total cost

Answer 2

the amount that a firm pays for all of the inputs that go into producing goods and services; fixed costs + variable costs

Question 3

profit

Answer 3

the difference between total revenue and total cost; TR-TC

Question 4

fixed costs

Answer 4

costs that do not depend on the quantity of output produced

Question 5

variable costs

Answer 5

costs that depend on the quantity of output produced

Question 6

explicit costs

Answer 6

costs that require a firm to spend money

Question 7

implicit costs

Answer 7

costs that represent forgone opportunities

Question 8

accounting profit

Answer 8

total revenue - explicit costs

Question 9

economic profit

Answer 9

total revenue - explicit costs - implicit costs

Question 10

marginal product

Answer 10

the increase in output that is generated by an additional unit of input

Question 11

diminishing marginal product

Answer 11

a principle stating that the marginal product of an input decreases as the quantity of the input increases

Question 12

average fixed cost

Answer 12

fixed cost/quantity

Question 13

average variable cost

Answer 13

variable cost/quantity

Question 14

average total cost

Answer 14

total cost/quantity

Question 15

marginal cost

Answer 15

the additional cost incurred by a firm when it produces one additional unit of output; change in total cost/ change in quantity

Question 16

economies of scale

Answer 16

returns that occur when an increase in the quantity of output decreases average total cost; long-run ATC curve slopes down

Question 17

diseconomies of scale

Answer 17

returns that occur when an increase in the quantity of output increases average total cost; long-run ATC curve slopes up

Question 18

constant returns to scale

Answer 18

returns that occur when average total cost does not depend on the quantity of output; long-run ATC curve has flat portion in the middle

Question 19

efficient scale

Answer 19

the quantity of output at which average total cost is minimized

Question 20

market power

Answer 20

the ability to noticeably affect market prices

Question 21

average revenue

Answer 21

total revenue/quantity sold; for any firm selling one product, AR equals price

Question 22

marginal revenue

Answer 22

change in total revenue/change in quantity sold

Question 23

effects of market exit on the long-run supply curve

Answer 23

firms earn zero economic profit, firms operate at an efficient scale, supply is perfectly elastic

Question 24

monopoly

Answer 24

a firm that is the only producer of a good or service with no close substitutes

Question 25

barriers to entry

Answer 25

scarce resources, economies of scale, government intervention, aggressive tactics

Question 26

natural monopoly

Answer 26

a market in which a single firm can produce, at a lower cost than multiple firms, the entire quantity of output demanded

Question 27

public policy responses to monopolies

Answer 27

antitrust laws, public ownership, regulation, vertical splits, no response

Question 28

price discrimination

Answer 28

the practice of charging customers different prices for the same good

Question 29

oligopoly

Answer 29

a market with only a few firms, which sell a similar good or service

Question 30

monopolistic competition

Answer 30

a market with many firms that sell goods and services that are similar, but slightly different

Question 31

product differentiation

Answer 31

the creation of products that are similar to competitors’ products but more attractive in some ways

Question 32

collusion

Answer 32

the act of working together to make decisions about price and quantity

Question 33

marginal utility

Answer 33

the change in total utility that comes from consuming one additional unit of a good or service

Question 34

diminishing marginal utility

Answer 34

the principle that the additional utility gained from consuming successive units of a good or service tends to be smaller than the utility gained from the previous unit

Question 35

budget constraint

Answer 35

a line that is composed of all of the possible combinations of goods and services that a consumer can buy with her or his income

Question 36

income effect

Answer 36

the change in consumption that results from a change in effective wealth due to higher or lower prices

Question 37

substitution effect

Answer 37

the change in consumption that results from a change in the relative price of goods

Question 38

altruism

Answer 38

a motive for action in which a person’s utility increases simply because someone else’s utility increases

Question 39

reciprocity

Answer 39

responding to another’s action with a similar action

Question 40

time inconsistency

Answer 40

a situation in which we change our minds about what we want simply because of the timing of the decision

Question 41

commitment device

Answer 41

a mechanism that allows people to voluntarily restrict their choices in order to make it easier to stick to plans

Question 42

fungible

Answer 42

easily exchangeable or substitutable