Economics Flashcards
What on price / quantity curve reflects short run profit maximisation?
Where short run marginal cost meets marginal revenue curve.
What on price / quantity curve reflects profit maximisation in long run?
Where average total costs meets marginal revenue curve.
What does it mean if a firms revenue is equal to its economic costs?
It is covering the the opportunity costs of all of its factors of production, including capital. Economists would say the firm is earning a normal profit, not positive economic profit. It is earning the rate of return an investor could expect to earn in an alternatively, equally risky investment. (opportunity cost). This does not imply that the company is not making an accounting profit.
When does a firm shutdown?
A firm cannot make less than zero profit in the long run. However in the short run it can operate so long as it meets its variable costs, with the hope that the price increases back to/above ATC, it otherwise will exit the market.
What is economies of scale?
When you increase your inputs and the cost per unit falls
What is monopolistic competition?
Imperfect, highly competitive competition. A large number of firms but like a monopoly in some ways, in terms of product differentiation. if you convince consumers your shoes are the best brand/you can exercise pricing power over the market.
What is an oligopoly?
Oligopoly implies a small number of firms supplying a market. The nature of the market results in retaliatory pricing strategies. Strategic, example - airlines.
What is a monopoly?
Least competitive market. A pure monopoly is when there are no substitutes for a good/a seller. Local electric provider.
What factors determine market structure?
No. of suppliers/firms.
Degree of product differentiation.
Power of the seller over pricing.
Relative strength of barriers to entry/exit.
Degree of non price competition.
Profit maximising output on graph?
Where short run marginal cost equals marginal revenue.
