Firm Behavior and Market Structure Flashcards
marginal revenue formula
change in total revenue / change in quantity
marginal cost formula
change in total cost / change in quantity
the change in a firm’s revenue from producing one more unit of a good
Marginal revenue
the change in a firm’s cost from producing one more unit of a good
marginal cost
profit point of production
where marginal revenue is equal to marginal cost
if marginal revenue is greater than marginal cost the firm should produce more/less goods
more
if marginal revenue is less than marginal cost the firm should produce more/less goods
less
a firm cannot increase profits by producing any more or any less than the point where
marginal revenue equals marginal cost, or marginal profits equals 0
marginal revenue stay constant and equal to the price under what condition
perfect competition (price taker can’t influence the price on their own)
a firm will shut down production any time the price is below
average variable cost
the short-run supply curve for the firm is the marginal cost curve at any point below/above (blank blank) cost
above average variable cost
the long run supply curve is the marginal cost curve below/above average (blank blank)
above average total cost
if the marginal revenue line crosses marginal cost at a point that the price is greater than average total cost, there is a profit/loss
profit
if the marginal revenue line crosses marginal cost at a point that the price is less than average total cost, there is a profit/loss
loss
When the price is equal to average total cost (blank) economic profits will be realized
zero, no incentive to enter/exit a market
lots of buyers and sellers able to enter and exit a market freely results in
perfect competition
a (blank blank) causes a monopoly when one company is holding onto sole ownership of a key resource in production
resource restriction
this type of monopoly is created when a firm is granted exclusive rights to produce or sell the specific good, usually related to contract laws, property right laws, copyright laws, or patent laws.
government created
a (blank) monopoly is created when it costs less to society to have one firm producing the good than to have more than one firm producing - one firm can provide the good at a lower cost than two or more
natural
difference between monopoly outcomes and socially efficient outcomes
deadweight loss
profit formula
Profit = Total revenue − Total cost
= (Price)(Quantity produced) − (Average cost)(Quantity produced)
graphically, a perfectly competitive market will show the sales price where marginal (blank) equals marginal (blank)
marginal revenue equals marginal cost
shutdown point formula
marginal cost => average variable cost
the point where marginal cost intersects with average cost
zero-profit point
average variable cost formula
total variable cost / quantity produced
goods being produced and sold at the
lowest possible average cost is (blank) efficiency
productive
among the points on the production possibility frontier, the point that is chosen as socially preferred is (blank) efficiency
allocative
the conditions in an industry, such as number of sellers, how easy or difficult it is for a new firm to enter, and the type of products that are sold
market structure
long-run equilibrium is reached when
all firms earn zero economic profits producing the output level where P = MR = MC and P = AC
Marginal utility per dollar formula
marginal utility / price
the utility-maximizing choice between consumption goods occurs where the (blank) is the same for both goods.
marginal utility per dollar
the situation when high-wage people can earn so much that they respond to a still-higher wage by working fewer hours
backward-bending supply curve for labor
a branch of economics that seeks to enrich the understanding of decision-making by integrating the insights of psychology and by investigating how given dollar amounts can mean different things to individuals depending on the situation.
behavioral economics
shows the possible combinations of two goods that are affordable given a consumer’s limited income
budget constraint line
when the ratio of the prices of goods is equal to the ratio of the marginal utilities (point at which the consumer can get the most satisfaction)
consumer equilibrium
removing government controls over setting prices and quantities in certain industries
deregulation
when an existing firm uses sharp but temporary price cuts to discourage new competition
predatory pricing
a proportionate saving in costs gained by an increased level of production
economy of scale
