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econ > midterm 2 > Flashcards

midterm 2 Flashcards

1
Q

ATC

A

ATC(q) = TC(q)/Q

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2
Q

AVC

A

AVC(q) = VC(q)/Q

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3
Q

AFC

A

AFC(q) = FC(q)/Q

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4
Q

MC, marginal cost

A

MC(q) = TC(q) - TC(q-1)

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5
Q

FC

A

FC= TC-VC

always same.

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6
Q

VC

A

VC = TC-FC

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7
Q

TC

A

TC= FC+VC

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8
Q

Diseconomies of scale

A

as you Increasing output there are increases LR AC. slope upwards.

decreasing returns of sale.

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9
Q

Economies of Scale

A

as you increasing output you reduces LR AC

slope downwards
increasing returns of sale

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10
Q

Constant Returns of Scale

A

Straight line ________

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11
Q

TR, total revenue

A

TR(q) = P * q

amount paid to a firm for selling a particular quantity.

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12
Q

AR, average revenue

A

AR(q) = TR(q) / q =P

AR is always price.

average amount paid to a firm per unit sold.

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13
Q

MR, marginal Revenue

A

MR(q) = TR(q) - TR(q-1) = P

MR is always price

additional amount paid to a firm for selling one more unit.

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14
Q

Profit

A

Profit(q) = TR(q) - TC(q)

Profit = (P - ATC) * Q

Profit will increase by MR(q) - MC(q)
Produce as long as MR(q) ≥ MC(q)
Profit is maximized at q where MR(q) = MC(q)

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15
Q

PC

Long Run exit if

A

TR < TC
P < ATC

Total Profit < 0
AR < AC

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16
Q

PC

Short Run shut down if

A

P same as AR < AVC
Total Profit < -FC

still have to pay FC

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17
Q

PC

Short Run: P and MC determine..

A

P and MC –> determine firm q

If MR > MC, the firm should increase its output.
If MC > MR, the firm should decrease its output.
At the profit-maximizing level of output, MR = MC.

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18
Q

PC

Short Run: P and AC determine..

A

P and AC –> determine average profit –> times by q to get total profit.

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19
Q

PC

Long run: Profit (or loss)

A

–> firms enter (or leave) in the long run –> increases (or decreases) industry supply

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20
Q

PC

Long run: continues until profit=..

A

profit = 0

21
Q

PC

Long Run: what occurs where MC = AC

A

MC = AC –> LR market price

22
Q

PC

Costs in the SR

A

only some variable inputs can be adjusted. fixed inputs cannot change.

23
Q

PC

Costs in the LR

A

you can change fixed inputs.

PRATC = minimum of all SRATC

24
Q

PC

AC curve: SR and LR

A

SR: U shaped. MC crosses at lowest point.

LR: not always a U-shape.

25
Q

PC

Profit maximization

A

Should I produce to the qth unit?

  • producing it raises revenue by MRq
  • Producing it raises costs by MCq
  • So profit will increase by MRq - MCq

Produce it as long as MRq >= MCq

Profit is maximized at q where MRq = MCq

26
Q

Profit maximization in PC

A

MRq = P

  • so max profit occurs at q where MCq = P
  • the firms MC curve is the firms supply curve (with a caveat on shutting down.)
  • Leave the industry (in the long run) if profits are negative
27
Q

homogenous product.

A

A homogeneous product is one that cannot be distinguished from competing products from different suppliers.
product has essentially the same physical characteristics and quality as similar products from other suppliers. One product can easily be substituted for the other.

28
Q

Perfectly Competitive market

A
  • Many sellers and many buyers
  • free entry
  • price Takers
  • homogenous products

0 Profits

a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker

29
Q

Monopolistically competitive market

A
  • Many sellers and many buyers (brand loyalty)
  • free entry
  • price Makers
  • differentiated products

0 Profits

a market structure in which many firms sell products that are similar but not identical

30
Q

Oligopoly

A
  • Few sellers and many buyers
  • barriers to entry
  • price Makers
  • homogenous products

0 Profits - monopoly profits

a market structure in which only a few sellers offer similar or identical products

31
Q

monopoly

A
  • One sellers and many buyers
  • barriers to entry
  • price Makers
  • N/A to homogenous products

monopoly profits

a firm that is the sole seller of a product without any close substitutes

32
Q

natural monopoly

A

a type of monopoly that arises because a single firm can supply a good or service to an entire market at a lower cost than could two or more firms

33
Q

compared to a perfectly competitive firm, a monopolist produces..

A

more DWL, less CS

34
Q

Monopoly

maximum profit

A

maximized at Q where MRq = MCq

-but MR is not longer constant

35
Q

Externalities
Costs and Benefits
MPC, MEC, MSC, MPB, MEB, MSB

A
  • marginal private cost (MPC): MC to the actor making the choice
  • Marginal external cost (MEC): MC imposed on others.
  • Marginal Social Cost (MSC): MPC + MEC
  • Marginal Private Benefit (MPB): benefit to the actor (individual demand curve)
  • Marginal external benefit (MEB): benefits that spill over to others.
  • Marginal Social Benefit (MSB) = MPB + MEB
36
Q

Public Goods:

  • non-excludable:
  • non-rival:
  • public goods:
  • common resource:
A
  • non-excludable: firm cannot prevent individuals from using their good
  • non-rival: one person’s use of the good doesn’t diminish another’s ability to use it.
  • public goods: a good that is non-excludable and non-rival
  • common resource: a good that is non-excludable and rival
37
Q

Market Failure in Public Goods

A

Non-excludable : free riders
people benefit from it but do not pay for it
market demand will not reflect true marginal value (external benefits)

Non-Rival: Zero marginal cost of use.
Efficient price of use if 0.
Competitive market will not survive.

38
Q

Tragedy of commons

A

depletes the natural resource faster than optimal.

39
Q

Solution to market failure in common resources.

A

private owner will charge for use.

in comp market, price will equal the marginal cost.

40
Q

Govt Failures

Bureaucracy

A

process is slow and the result may not reflect society’s preferences

41
Q

Govt Failures

Rent Seeking

A

People will seek special advantages from gov’t

42
Q

Govt Failures

Limitations on information

A

gov’t cant always discern true preferences, costs

43
Q

Govt Failures

Restrictions on choice

A

Regulation only limits choice, and we value freedom

44
Q

Adverse selection

A

when only the worst outcomes are left in market

45
Q

Moral Hazard

A

when the agent’s actions are inefficient due to limited information.

46
Q

Rational Ignorance

A

search for more information until the MC = expected marginal benefit

47
Q

Risk Premium

A

higher return on risky investment or lower price on risky products.

48
Q

Solutions to public goods

A

technical solutions
public financing
complementary goods

econ (3 decks)

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