econ test 3 Flashcards
total cost
fixed cost+variable cost
explicit cost
cost that involves spending money
implicit cost
non monetary cost opportunity
economic costs
explicit+implicit costs
average total cost
total variable cost + fixed cost/output (or average fixed cost+ average variable cost)
shape of average total cost curve
U
total cost shape curve
check mark
law of diminishing turns applies in
short run
marginal product of labor is decreasing but still positive
total output is increasing at decreasing rate
average product of labor
change in input/change in number of workers
marginal product of labor > average product of labor
average product of labor is increasing
what type of costs in the long run
no fixed cost, only variable
economies of scale
firms long run average costs fall as it increases the quantity of output it produces
constant returns to scale
firms long run average cost remains unchanged as it increases output
diseconomies of scale
firms long run average cost rise as firm increases output
total revenue>total cost
= profit
price<average variable cost
firm should shut down
behavioral economics
when consumers and firms don’t appear to be making rational decisions
endowment effect
strong attachment to what they own
demand curve upward sloping
inferior good with income effect larger than substitution effect
AVC (average variable cost)
variable cost/output or TVC/MPL
accounting profit
Total revenue-explicit costs (include interests to people)
economic profit
total revenue - (explicit and implicit costs- savings etc)
opportunity cost here in numerical problems is for
value of best alternative
graph profit
(price-atc) x Q
total variable cost
wage x number workers
whens the shutdown price
minimum AVC
monopoly
large single firm, unique product, entry blocked
oligiopoly
few and large, product differentiation, hard to enter (beer)
monopolistic competition
many small firms, differentiated, easy to enter (blue jeans- large initial entry costs)
perfect competition
many small firms, identical goods, easy to enter
networking externality
product usefulness dependent on number of people using it
normal profit
price (demand curve) = ATC
economically efficient
price (demand curve)= MC
maximize profits
MR=MC
virtuous cycle
firm initially attracts enough buyers to increase usefulness and uses it to attract more.
profit
TR-TC
MC=ATC
break even point
MC=AVC
shut down point
invisible hand
self interested individuals driven by self interest benefit society as a whole
break even price
total cost/output
invisible hand properties
p=mc is minimilazation of total industry costs ; entry & exit result in best use of limited resources
P>AC
enter
2 ways to control monopoly
regulation and anti trust laws (sherman act)
