Micro Final Flashcards
Comparative advantage
Differences in relative costs that determine patterns of trade
Why do MoCos earn a zero economic profit in the long run?
Because, like in perfectly competitive markets, there are few barriers to entry and exit. This means that if one MoCo is making a profit, then many firms will enter, which will drive the price down.
Colluding leads to…
Colluding leads to monopolies, which is why it is illegal.
Profit maximizing
MC=MR, MC=MR on demand curve in imperfect competition.
Revenue maximizing
When marginal revenue = 0. Why? Because when marginal revenue = 0, then you are “maxed out”; producing another output would not give you more revenue. It’s like marginal utility; your total utility is at its greatest when marginal utility = 0 because if you eat even one more slice of pizza, you will be disgusted and MU will be negative, thus taking away from your total utility.
When is a firm allocatively inefficient?
Anytime there Is dead weight loss! And when is there dead weight loss? Anytime price does not equal marginal cost (so when the price is not MC=MR on demand curve, or when it’s not MRDARP.) So when price is greater than or less than marginal cost.
What quantity of laborers should firms hire?
Until the value of marginal product of labor = the value of wage. The demand for laborers = wage.
In the long run, MoCos charge what price for their good?
A price that is equal to their average total cost but greater than their Marginal Cost.
Derived demand is…
When workers need the Firm’s salaries in order to create the demand.
