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micro economics > chapter 9 > Flashcards

chapter 9 Flashcards

1
Q

Total Revenue =

A

Price * Quantity

P * Q

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2
Q

Total cost =

In terms of TVC and TFC

A

Total variable cost + Total Fixed Cost

TVC +TFC

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3
Q

Total cost =

in terms of ATC and Q

A

Average Total cost * Quantity

ATC * Q

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4
Q

Total profit =

A

Total revenue - Total cost

TR - TC

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5
Q

Cost of all inputs is called what?

A

Explicit costs

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6
Q

Cost of Owner’s time and capital (opportunity cost) is called what?

A

Implicit Cost

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7
Q

Economic profit is

A

The accounting profit - implicit cost

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8
Q

Accounting profit is

A

the total profit or cost of all inputs which is also the explicit cost

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9
Q

What is negative economic profit?

A

It means the resources would have a higher alue in another use.

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10
Q

Can firms earn a negative economic profit and remain in business?

A

In short run yes however in long run, if a firm continues to make negative economic profit the firm will leave the industry.

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11
Q

Positive economic profit is what? causing what?

A

a powerful signal in the market place. It causes new firms to enter the industry thus causing a supply increase. This lowers price and reduces positive economic profit

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12
Q

Zero economic profit is what?

A

also called normal accounting profit which means that the explicit and implicit cost are paid.

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13
Q

Economist measure both explicit and implicit cost in order to do what?

A

help people make better decisions regarding the allocation of their scarce resources

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14
Q

Marginal cost always intercepts what at its minimal point?

A

Average total cost (ATC)

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15
Q

What are the two ways of determining the profit of a firm

A

1) arithmetically

2) geometrically

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16
Q

How is profit determined arithmetically?

A

TR- TC where TR = P * Q

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17
Q

Total cost =

A

1) Q * ATC
2) Total fixed cost - total variable cost
(TFC - TVC)

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18
Q

Marginal cost is what

A

additional cost of producing one or more units of output

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19
Q

Marginal Revenue is

A

additional revenue obtained from selling one more unit of output.

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20
Q

If MR > MC than profit does what

A

Profit increases

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21
Q

If MR = MC than profit is what?

A

profit is maximized

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22
Q

If MR < MC than profit is what?

A

Profit decreases

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23
Q

MR formula is what?

A

Change in total revenue / change in output

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24
Q

MC formula is what?

A

change in total cost / change in quantity

25
Q

If MR > AR than what happens to AR?

A

AR increases

26
Q

If MR < AR than what happens to AR?

A

AR Decreases

27
Q

The demand curve is also the ____ curve?

A

average revenue curve (revenue per unit)

28
Q

AR and MR are related to each other like any what?

A

MR and AR curves are related

29
Q

For a downward sloping demand curve the MR curve will also lie where? meaning what?

A

will lie below the demand curve meaning MR < AR thus AR will decrease

30
Q

What are the characteristics if a perfect competition?

A

1) large number of firms, no firm has market control
2) Easy entry/ exit into the market
3) Standardized product

31
Q

An individual farmer has what type of demand curve in a perfectly competitive market?

A

completely elastic in a perfectly competitive market. D= AR = MR

32
Q

The farmers are the price ____; meaning what?

A

“price takers”; takes the price determined in the market

33
Q

Zero economic profit =

A

Implicit + explicit profit

34
Q

What does it mean by zero economic profit?

A

Means firms can not earn more than normal profit. If a firm earns above normal profit than more firms enter the industry and profits drop.

35
Q

Monopoly of a market structure is characterized by what?

A

1) one firm )since only one firm. consumers only have only one place to buy the good)
2) Entry is impossible so firms can earn above normal profits
3) Only one product and really no close substitutes.

36
Q

A monopoly may come onto existence because of what?

A

economies of scale

37
Q

what is economies of scale?

A

cost/unit decreases as output increases

38
Q

The larger the firm the lower what

A

lower the cost per unit of output produced by the firm.

39
Q

What is a natural monopoly?

A

A monopoly that emerges because of economies of scale

40
Q

Utilities Company is an example of what type of monopoly?

A

Natural Monopoly

41
Q

What are examples of monopolies that emerges by laws that restrict entry?

A
  • post office because their is a law their is a monopoly over mail delivery.
  • Federal Reserve bank because by law their is only one who could print US currency
42
Q

Patents that granted are what type of monopoly?

A

Monopoly that emerges by laws that restrict entry; patents are granted which grants by law only one supplier

43
Q

What is a monopoly that emerges by monopolization of the market?

A

Unfair and anticompetitive practices engaged by firms to eliminate competition.

44
Q

Standard oil of New Jersey, Alcoa Aluminum and Microsoft are examples of what type of monopoly?

A

Monopolization of the market

45
Q

What is a local monopoly?

A

When their is only one supplier in the town.

46
Q

Cable company, Newspaper, Hotel in the center of town are all examples of what possible type of monopoly?

A

Local monopoly

47
Q

A firms demand curve is the same as the demand curve of what?

A

The markets demand curve.

48
Q

Firms are called ______ because of what?

A

Price makers because they set the price of the product it sells.

49
Q

Three features of monopolistic competition

A

1) A large number of firms
2) Easy entry
3) Differentiated products

50
Q

Monopolistic competition is also a price maker. Why?

A

Because of differentiated market.

51
Q

What is a sticky price?

A

Prices that are very similar to each other

52
Q

What are the characteristics of an oligopoly?

A

1) Few firms (between 2-8) that dominate the market
2) Entry is very difficult
3) Products may be differentiated or may not

53
Q

The oil industry is an example of what type of market structure?

A

Oligopoly

54
Q

Oligopolies are Interdependent which means what?

A

They must take into account very seriously the actions of other firms

55
Q

If an oligopoly decreases or increases prices they must take into consideration what? This explains what?

A

whether their competitors will follow. If they decrease price usually their competitors will follow if they increase price usually their competitors will not follow. This explains why oligopolies are curved.

56
Q

What are the four market structures?

A

1) Perfect Competition
2) Monopolistic competition
3) Oligopoly
4) monopoly

57
Q

short run

A

A time period when at least 1 resource is fixed

58
Q

Long run

A

A time period when all resources can vary

59
Q

Production

A

The transformation of resources into G/S

micro economics (4 decks)

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