Definitions Flashcards
Allocative efficiency
Occurs when resources are distributed in such a way that no consumers could be better off without other consumers being worse off.
-exists when P=MC
Average cost / Average total cost
AC of production per unit
AC = TC/Q
Average fixed costs
Average variable costs
AFC = total fixed costs/output. TFC/Q
AVC= total variable cost/output. TVC/Q
Average revenue
AR = TR/Q = P x Q/Q = P
Barriers to entry
Factors/obstacles which make it difficult for a firm to enter an industry and compete with others
Barriers to exit
Factors/obstacles making it difficult for a firm to leave an industry
Break even point
The level of output where total revenue equals total cost
Concentrated market
A few firms have control in the market and most of the output is produced by these firms
Concentration ratio
Is a measure of the total output produced in an industry by a given number of firms in the industry.
Conglomerate merger
A merger from two firms producing unrelated products
Contestable market
A market where there is freedom of entry to the industry and where cost of exit are low
Deadweight welfare loss
A loss to society due to market failure
Decreasing returns to scale
A doubling of input leads to a less than doubling of output
Demerger
When a firm splits into two or more independent businesses
Deregulation
The process of removing government controls from markets
Diseconomies of scale
Economies of scale
A rise in the long run average costs of production as output increases
A fall in long run average costs of production as output rises
External economies of scale
External eos occurs when an industry grows and it’s long run average costs fall
Fixed costs
Costs which do not vary with the level of output
Game theory
The analysis of situations in which players are interdependent
Heterogeneous products.
Homogenous products
Branded goods which are similar but not identical made by different firms
Products made by different firms but which are identical
Horizontal merger/intervention
A merger between two firms in the same industry at the same stage of production
Increasing returns to scale
A doubling of Inputs lead to a more than doubling of output
Interdependence
- oiligopoly
- firms make a decision in the light of the behaviour or expected reactions of the other firms in the industry
Limit pricing
When a firm rather than profit maximising, sets a low enough price to deter new entrants, from coming into its market
