Final Exam Section 2 Flashcards
a. Explicit Costs
b. Implicit Costs
a. a cost that is easily recognizable because it involves a monetary payment
b. a non-monetary cost associated with using your own resources - using it for your buisniess instead of renting/making ,money off of it
When firms are losing money/at a loss what are there two options
shutting down or continuing and operating at a loss
if continuing is less expensive then a firm will continue to produce, once it no longer costs less to continue you shut down
a. Pure Competition
b. Monopolistic Competition
c. Oligopoly
d. Monopoly
a. price takers, many sellers, identical products, no substantial barriers to entry
b. many sellers, somewhat differentiated products, no substantial barriers to entry
c. few relatively large sellers and substantial barriers to entry
identical of barely differentiated products
d. Single firm selling a product for which there are no close substitutes and big barriers to entry
Normal profit
an amount equal to what owners of a business could have earned if their resources had been employed elsewhere - you make enough money but not excess
profit = 0
ATC just touches MR (is above otherwise)
Economic profit
the amount by which the total revenue exceeds the total cost - you have excess money
profit>0
ATC is below MR
Loss
the excess of total cost over total revenue - you’re losing money
profit<0
ATC is entirely above/not touching at all MR
a. Price Takers
b. price searcher
a. Firms that have no influence on the price of the product they produce
b. a firm that possesses pricing discretion -> influences price but not quantity demanded
pricing discrimination
when firms charge different consumers different prices for the same product
product differentiation
distinguishing a product from similar products offered by other sellers in the industry through advertising, packaging, or physical product differences
Dominant Strategy
a strategy that should be pursued regardless of the strategy selected by the firms rival
(make more money)
allocative efficiency
producers use societies scarce resources to provide consumers with the proper quantities of goods and services that they desire most
Market Failure
situations in which a market economy produces too much or too little of certain products and thus does not make the most efficient use of societies limited resources
Types of market failure + explanations
a. Inadequate Information- for resources to be allocated efficiently people (consumers, sellers, producers ect.) have to have enough information about market conditions
b. Externalities- Unintended side effect that whether benefits or harms a third party not involved in the activity that caused it
c. Imperfect Competition - Imperfect resource allocations - no incentive to carefully use scarce \ resources
monopolies do it a lot they restrict production which prevents competition and cause a artificial shortages
d. Public Goods - products that are collectively consumed by everyone, true demand is not always shown because people don’t pay for them - Free Rider Problem (consumer benefits from goods they didn’t pay for
Anti-Trust Laws
a. Sherman Antitrust Act
b. Clayton Antitrust Act
c. Robinson Patman Act
a. Sherman Antitrust Act - outlawed agreements to fix price, limit output, or share the market and monopolies
basically outlawed practices that restricted competition/production
b. Clayton Antitrust Act - gives greater power to government against monopolies
outlaws price discrimination
Forbade competitors to merge if the impact of merger would be to lessen competition substantially
c. Robinson-Patman Act-strengthens Clayton act, companies cannot offer special discounts to some customers and not others
What is the profit maximizing level of output
MR = MC
