Microeconomics exam 2 Flashcards
Short run
at least one of firms inputs (labour or capital) is fixed
Long run
None of firms inputs to production are fixed
Diminishing returns
as successive units of variable input are added and all other inputs are fixed, then the marginal product of that inout with decrease beyond some amount of that variable input
Inputs to production
resources used to create goods and services - land, labour, capital
Total product
Total amount go good a firm produced
Marginal Product of an input
Additional output associated with additional unit of an input - total quantity / total unit of input
Average input of a product
output per unit of an input
Explicit cost
Monetary payments a firm makes to those from whom it purchases resources it doesn’t own
Implicit cost
Opportunity cost of using resources the firm already owns
total fixed cost
does not change wot output, arises from fixed input
total variable cost
costs that do not change with output
total cost
Total variable + Total fixed cost
average fixed cost
TFC / Q
average variable cost
TVC / Q
average total cost
TC / Q or AVC + AFC
marginal cost
Additional cost to produce next unit of output
= ATC / Total Q = ATVC / Total Q
constant returns to scale
economies of scale
Feature of the firms technology that causes the long run average to decrease
labour specialisation
Results in decrease long run costs
cube square rule
doubling down size does not necessarily equal doubling the cost
technological tradeoff
Some technologies are cost minimising only at larger quantities of output
indivisibilities of capital
cost of unused capacity is spread over more units of production: some items cannot be halved
diseconomies of scale
feature of the firms technology that causes the long run average cost to increase
monitoring costs
more resources must be used to keep workers on task as more workers are hired
communication costs
relaying information about costs to others takes up time that could have been used more effectively
minimun efficient scale
The lowest level of output at which the firm may minimise its long run average cost
pure competition
firms compete
multiple assumptions:
large number of firms - enough that no 1 controls price
product homogenous - firms produce same
firms are price takers
perfect information - know cost, price, action of firms
free entry and exit - no barriers to entry
goal of firms is to maximise profit
pure monopoly
one firm
monopolistic competition
product is differentiated
oligopoly
only a few firms which sell same product. Cartel; a group of firms cooperating instead of competing with each other
standardised products
each firm produces the same product
price taking assumptions
assumes that he or she can purchase any quantity at the market price—without affecting that price
p = mc
individual firms supply curve
short run supply curve
the individual’s marginal cost at all points greater than the minimum average variable cost.
firms supply curve
tells us how much output the firm is willing to bring to market at different prices
free entry and exit
firms have no barriers preventing them from entering or exiting the market
barriers to entry
factors that can prevent or impede newcomers into a market or industry sector
shutdown price
if profit is less than MC = AVC or p = mc
market supply curve
measures the relationship between total output and the common marginal cost of producing this output.
equilibrium price
supply of good matches demand
equilibrium quantity
when there is no shortage or surplus of a product in the market
market equilibrium in the short run
point where the quantity supplied equals the quantity demanded, where the number of producers is held fixed.
identical costs
competing firms have identical costs
constant cost industry
industry where each firm’s costs aren’t impacted by the entry or exit of new firms
long run supply curve
the summation of output produced by each firm at every price level at which firms earn zero profit
increasing cost industry
industry where costs go up as more firms compete
decreasing cost industry
industry where costs go down as more firms compete
zero profit condition
condition that occurs when an industry or type of business has an extremely low (near-zero) cost of entry to or exit from the industry.
