Chapter 7 - The Firm And Its Customers Flashcards
Differentiated Product
Each product is produced by a single firm and has some unique characteristics that differentiate each firm’s products form those of other firms.
EOS
When doubling all of the inputs to a production process more than double the output.
The shape of the LRAC depends both on returns to scale I. Production and the effects of scale on the prices it pays for its inputs.
Willingness To Pay
An indicator of how much a person values a good, measured by the maximum amount he or she would pay to acquire a unit of the good.
Demand Curve
The quantity consumers will buy at each possible price.
Consumer Surplus
The consumer’s WTP for a good minus the price at which the consumer bought the good, summed across all units sold.
Producer Surplus
The price at which a firm sells a good minus the minimum price at which it would have been willing to sell the good, summed across all units sold.
Deadweight Loss
A loss of total Surplus relative to a Pareto efficient allocation.
Elasticity Of Demand
The % change in demand that would occur in response to a 1% increase in price. We express this as a positive number.
Profit Margin
Price - MC
