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Econ 102 > Midterm 3 > Flashcards

Midterm 3 Flashcards

1
Q

Total revenue

A

The amount a firm receives for the sale of its output

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2
Q

Total cost

A

The market value of the inputs a firm uses in production

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3
Q

Profit

A

Total revenue - total cost

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4
Q

Explicit costs

A

Input costs that require an outlay of money by the firm

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5
Q

Implicit costs

A

Input costs that do not require an outlay of money by the firm

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6
Q

An important implicit cost

A

Opportunity cost of the financial capital that has been invested

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7
Q

Economic profit

A

Total revenue minus total cost, including both explicit and implicit costs

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8
Q

Accounting profit

A

Total revenue-total explicit cost

- usually larger than economic profit

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9
Q

Production function

A

The relationship between quantity of inputs used to make a good and the quantity of output of that good

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10
Q

Marginal product

A

The increase in output the arises from an additional unit of input

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11
Q

Diminishing marginal product

A

The property whereby the marginal product of an input declines as the quantity of the input increases

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12
Q

The total cost curve gets steeper as

A

The amount produced rises

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13
Q

In the production function it gets flatter as

A

Production rises

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14
Q

Fixed costs

A

Costs that do not vary with the quantity of output produced

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15
Q

Variable costs

A

Costs that vary with the quantity of output produced

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16
Q

Average total cost

A

Total cost divided by the quantity of output

TC/Q
AVC + AFC

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17
Q

Average fixed cost

A
  • declines as output rises

Fixed cost/quantity

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18
Q

Average variable cost

A
  • rises as output is increased

Variable cost/quantity

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19
Q

Marginal cost

A

The increase in total cost that arises from an extra unit of production

Change in total cost/change in quantity

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20
Q

Efficient scale

A

The quantity of output that minimizes average total cost

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21
Q

Shape of the average total cost curve

A

U shaped

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22
Q

Where does the marginal cost curve cross the average total cost curve?

A

At the minimum of the average total cost curve

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23
Q

Which average total curve is flatter?

A

The long run

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24
Q

Where do shore run curves lie

A

On or above long run

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25
Q

Economies of scale

A

The property whereby long run average total cost FALLS as the quantity of output increase

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26
Q

Diseconomies of scale

A

The property whereby long run average total cost RISES as the quantity of output increases

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27
Q

Constant returns to scale

A

Long run average total cost rises as the quantity of output changes

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28
Q

Competitive market

A

Many buyers and many sellers and goods offered by the various sellers are largely the same

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29
Q

Does a single buyer have a huge effect on the market?

A

No

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30
Q

Characteristics of a competitive market

A

Firms can freely enter or exit the market

Firms try to maximize profit

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31
Q

Revenue

A

Price times quantity

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32
Q

Marginal revenue

A

Change in total revenue/ change in quantity

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33
Q

Average revenue

A

Total revenue/quantity sold

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34
Q

Change in profit

A

Marginal revenue - marginal cost

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35
Q

Marginal cost curve

A

Upward sloping

Crosses average total cost curve at the minimum of average total cost

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36
Q

If marginal revenue is greater than marginal cost, the firm should

A

Increase output

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37
Q

If marginal cost is greater than marginal revenue the firm should

A

Decrease output

38
Q

At profit maximizing level, marginal revenue and marginal cost are

A

Exactly equal

39
Q

Shut down

A

A short run decision to not produce anything during a specific time period bc of current market conditions

40
Q

Exit

A

Long run decision to leave the market

41
Q

Total revenue less than variable cost

A

Shut down

42
Q

Total revenue/quantity is less than variable cost/quantity

A

Shut down

43
Q

Price less than average variable cost

A

Shut down

44
Q

Sunk cost

A

A cost that has already been committed and cannot be recovered
- should ignore them bc nothing can be done

45
Q

Total revenue less than total cost

A

Exit

46
Q

Total revenue/quantity is less than total cost/quantity

A

Exit

47
Q

Price less than average total cost

A

Exit

48
Q

Price is greater than average total cost

A

Enter

49
Q

Profit equations

A

Total revenue-total cost
(Total revenue/quantity - total cost/quantity) times quantity
(Price - average total cost) times quantity

50
Q

When does the process of entry and exit ends only when

A

The price and average total cost are driven to equality

51
Q

Firms can enter and exit more easily in the

A

Long run

52
Q

The long run supply curve is _______ than the short run supply curve

A

typically more elastic

53
Q

Monopoly

A

A firm is the sole seller of its product and the product does not have close subsitutes

54
Q

3 sources of barriers to entry

A
  1. A key resource is owned by a single firm
  2. Government gives the single firm exclusive rights
  3. The single firm can produce at a lower cost than other firms
55
Q

Natural monopoly

A

When a single firm can supply a good or service to an entire market at a lower cost than could two or more firms
- distribution of water

56
Q

Difference between competition and monopoly is

A

The monopoly’s ability to influence the price of its output

57
Q

Competitive market demand curve

A

Horizontal line

58
Q

Monopoly’s demand curve

A

Downward sloping

59
Q

Average revenue in a monopoly is always equal to

A

The price of the good

60
Q

A monopolists marginal revenue is always less than

A

The price of the good

61
Q

A monopoly’s marginal revenue curve is

A

Below its demand curve

62
Q

Where is the monopolists profit maximizing quantity

A

The intersection of the marginal revenue curve and the marginal cost curve

63
Q

Do monopoly’s have supply curves?

A

No

64
Q

From owners standpoint monopoly is

A

Desirable

65
Q

The socially efficient quantity if found where

A

The demand curve and the marginal cost curve intersect

66
Q

Monopolists produce _____ than the socially efficient quantity of output

A

Less

67
Q

Inefficiency of monopoly is measured with

A

The deadweight loss triangle

68
Q

Total surplus lost bc of monopoly pricing

A

Area between demand curve and marginal cost curve

69
Q

In taxes, government gets profits. In monopolies, _____ gets profits

A

Firms

70
Q

Is monopoly profit a social problem

A

No

71
Q

When do problems in monopolies occur?

A

When firms produce/sell a quantity below the level that maximizes total surplus

72
Q

price discrimination

A

The business practice of selling the same good at different price to different customers
- only exists in monopolies

73
Q

Public policies towards monopolies

A
  1. Governments can try to make industries more competitive
  2. Regulate behavior of monopolies
  3. Turning some monopolies into public enterprises
  4. Do nothing at all
74
Q

Industrial organization

A

The study of how firms decisions about prices and quantities depend on the market conditions they face

75
Q

Marginal cost and marginal product have an

A

Inverse relationship

76
Q

How to find total cost from ATC

A

ATC times Q

77
Q

** trick question economies of scale deal with what

A

AVERAGE total cost

78
Q

If average variable cost is the same everywhere then

A

AVC = MC

79
Q

when a firm is operating at an efficient scale the ______ is minimized

A

ATC

80
Q

What things are equal in a perfectly competitive market

A

Demand = market price = MR = average revenue

81
Q

Graph of one firm in a perfectly competitive market

A 
Marginal cost (upward sloping)
Average total cost curve
82
Q

The lowest price you can accept in a competitive firm is the

A

Minimum average variable cost

83
Q

Price > ATC > AVC

A

Good

Making profit

84
Q

ATC > Price > AVC

A
  • losing money
    SR: stay open
    LR: exit
85
Q

ATC > AVC > Price

A

SR: shut down
LR: exit

86
Q

Profit is maximized where

A

MR = MC

87
Q

In a monopoly what is equal

A

Price = average revenue

Price > MR = MC

88
Q

Maximizing its profits?

A

MR=MC

89
Q

In perfect price discrimination CS and DWL are equal to

A

Zero

90
Q

Biggest problem with monopolies

A

Deadweight loss

Econ 102 (3 decks)

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