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AP Microeconomics > Firm Production, Costs, and Revenues > Flashcards

Firm Production, Costs, and Revenues Flashcards

1
Q

Marginal Product (MP)

A

The additional output produced per period when one more unit of an input is added

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2
Q

Marginal Product Curve (MPC)

A

Shows the relationship between total product and labor

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3
Q

Law of Diminishing Marginal Returns

A

States that as the amount of one input is increased, all else equal, the incremental gains in output will eventually decrease

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4
Q

Average Product (AP)

A

(Total Product)/(Quantity of Input)

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5
Q

Total Product Curve (TPC)

A

Shows the relationship between the total amount of output produced and the number of units of a input used

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6
Q

Fixed Costs (FC)

A

Do not change when one more output is produced

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7
Q

Variable Costs (VC)

A

Change as more output is produced

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8
Q

Marginal Cost (MC)

A

The amount by which costs increase when one more unit of output is produced (MC = Change in TC/Change in Quantity = Change in TVC/Change in Quantity)

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9
Q

Average Total Cost (ATC)

A

TC/Q

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10
Q

Average Variable Cost

A

TVC/Q

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11
Q

Average Fixed Cost

A

Total Fixed Cost (TFC)/Q

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12
Q

Long Run and Short Run Difference

A

In the short run, the amount of at least one input cannot change

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13
Q

Economies of Scale

A

Exist over the range of output were the long-run average cost curve slopes downward

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14
Q

Diseconomies of Scale

A

Exist over the range of output where the LRAC is increasing

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15
Q

Increasing Returns To Scale

A

Exist when output increases (proportionally) more than increases in all inputs

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16
Q

Decreasing Returns To Scale

A

Exist when output increases (proportionally) less than increases in all inputs

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17
Q

Constant Returns To Scale

A

Exist when output increases in proportion to increases in all inputs

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18
Q

Diminishing Marginal Returns

A

Exist when an additional unit of an input increases total output by less than the previous unit of input

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19
Q

Increasing Cost Firm

A

A firm facing decreasing returns to scale

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20
Q

Decreasing Cost Firm

A

A firm facing increasing returns to scale

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21
Q

Increasing Cost Industry

A

Experiences increases in average production costs as industry output increases

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22
Q

Constant Cost Industry

A

Does not experience increases production costs as output grows

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23
Q

Decreasing Cost Industry

A

Experiences decreasing average production costs as industry output increases

24
Q

Productive Efficiency

A

Occurs when a firm produces at the lowest unit cost where MC = AC

25
Q

Economies of Scope

A

Exist when a firm’s average production costs decrease because multiple products are being produced

26
Q

Perfect/Pure Competition Characteristics

A
  • Many Sellers
  • Standardized Product
  • Firms are Price Takers
  • Free Entry and Exit
27
Q

Price Takers

A

Accept the market price as given and can sell all that they want at that price

28
Q

Economic Profits

A

Total Revenue - Total Cost (Includes Opportunity Costs)

29
Q

Accounting Profits

A

Consist of only the monetary costs of the firm

30
Q

Normal Profits

A

Earning a return equivalent to the opportunity cost of time (Economic Profit is 0)

31
Q

Total Revenue (TR)

A

The amount of money taken in from the sale of a good (TR = P*Q)

32
Q

Marginal Revenue (MR)

A

The addition to revenue gained from one more unit sold (MR = Change in TR/Change in Q)

33
Q

Average Revenue (AR)

A

TR/Q

34
Q

Profit

A

TR - TC

35
Q

Shut Down Decision

A

Based on whether the firm in a perfectly competitive market covers their AVC

36
Q

Monopoly Characteristics

A
  • Patents
  • Control of Resources
  • Economies of Scale and Other Cost Advantages
  • Exclusive Licenses
37
Q

Price Discrimination

A

Charging different customers different prices that do not reflect differences in production costs

38
Q

Perfect Price Discrimination

A

Ideal for a firm to charge every customer the most they are willing to pay and turning consumer surplus into profit

39
Q

Oligopoly

A

An industry with a small number of firms selling a standardized/differentiated products

40
Q

Market Power

A

The ability of an individual firm to influence price

41
Q

Game Theory

A

Considers the strategic decisions of players in anticipation of their rival’s reactions

42
Q

Payoff Matrix

A

Illustrates decisions and reactions among players

43
Q

Nash Equilibrium

A

Occurs whenever two circles appear in the same square within the payoff matrix

44
Q

Dominant Strategy

A

Strategy with the most payoff for the player

45
Q

Dominant Strategy Equilibrium

A

When all players choose the dominant strategy in order to receive a benefit

46
Q

Prisoner’s Dilemma

A

Explain arms races, failure of cartels, and excessive spending on ads

47
Q

Natural Monopolies

A

Industries that can only support one firm

48
Q

Sherman Act (1890)

A

Declared attempts to monopolize commerce or restrain trade among the states illegal

49
Q

Clayton Act (1914)

A

Specified that monopolistic behavior such as price discrimination, tying contracts, and unlimited mergers are illegal

50
Q

Robinson-Patman Act (1936)

A

Prohibits price discrimination except when it is based on differences in cost, marketability of the product, or in good faith to meet competition

51
Q

Celler-Kefauver Act (1950)

A

Authorized the government to ban vertical, conglomerate, and horizontal mergers

52
Q

Vertical Mergers

A

Mergers of firms at various steps in the production process from raw materials to finished products

53
Q

Conglomerate Mergers

A

Combinations of firms from unrelated industries

54
Q

Horizontal Mergers

A

Mergers of direct competition

55
Q

Herfindahl-Herschman Index (HHI)

A

Takes the market share of each firm in an industry as a percentage, squares each percentage, and adds all of them

56
Q

Concentration Ratio

A

The sum of the market shares of the largest n firms in an industry, where n is any number

AP Microeconomics (6 decks)

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