Chapter 2 Flashcards
(23 cards)
Why is the peak of the average product curve the same as the trough of the average variable cost curve?
Bsh
What is the Marginal Product of Labour?
The additional output for each additional unit of labour.
What is the Marginal cost?
The Marginal cost is the cost of each additional unit of product.
What is average product?
The Average product of labour is the output produced per unit of labour.
Define: Increasing Returns to Scale.
As inputs (and therefore costs) rise by some factor, output rises by a larger factor.
Define: Constant returns to scale.
As inputs (and therefore costs) rise by some factor, output rises by the same factor.
Define: Decreasing Returns to Scale.
As inputs (and therefore costs) rise by some factor, output rises by a smaller factor.
Define: Concentrated industry.
Concentrated industries are those where a large fraction of the market is served by relatively few firms.
Define: Unconcentrated Industry.
Unconcentrated industries are those where no firm/group of firms dominate the market.
Define: Monopoly.
A Monopoly is where there is one firm with no competitors.
Define: Oligopoly.
An Oligopoly is a market with relatively few competitors.
What are the four conditions for perfect competition?
- Firms sell a standardised product.
- Firms are price takers.
- Free entry and exit.
- Firms and consumers have perfect information.
What does it mean for a firm to sell a standardised product?
The product that is sold by one firm is assumed to be a perfect substitute for the product sold by any other.
What does it mean if firms are price takers?
This means that the individual firm treats the market price of the product as a given.
What does “Free Entry and Exit” mean?
A firm with perfectly mobile factors of production in the long run.
What does it mean for firms and consumers to have perfect information?
What is the equation for profit?
Profit = TR - TC
What is TR?
Total revenue. The sum of all revenues.
What is TV?
TC is the total cost, including both implicit and explicit costs.
Where can maximum profit be found?
Maximum profit occurs where the Marginal revenue is the same as the marginal cost.
Define: Marginal Revenue.
Marginal revenue is the change in total revenue as a result of a one unit change in quantity sold.
What is the production function?
The production function is the relationship that describes how inputs are transformed into output.
What are the three properties of a short run production function?
- It passes through the origin.
- Initially addition of variable inputs increases output at an increasing rate.
- Beyond some point, output rises at a smaller rate.
