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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
Economies of scale
The property whereby long run average total cost FALLS as the quantity of output increase
26
Diseconomies of scale
The property whereby long run average total cost RISES as the quantity of output increases
27
Constant returns to scale
Long run average total cost rises as the quantity of output changes
28
Competitive market
Many buyers and many sellers and goods offered by the various sellers are largely the same
29
Does a single buyer have a huge effect on the market?
No
30
Characteristics of a competitive market
Firms can freely enter or exit the market Firms try to maximize profit
31
Revenue
Price times quantity
32
Marginal revenue
Change in total revenue/ change in quantity
33
Average revenue
Total revenue/quantity sold
34
Change in profit
Marginal revenue - marginal cost
35
Marginal cost curve
Upward sloping | Crosses average total cost curve at the minimum of average total cost
36
If marginal revenue is greater than marginal cost, the firm should
Increase output
37
If marginal cost is greater than marginal revenue the firm should
Decrease output
38
At profit maximizing level, marginal revenue and marginal cost are
Exactly equal
39
Shut down
A short run decision to not produce anything during a specific time period bc of current market conditions
40
Exit
Long run decision to leave the market
41
Total revenue less than variable cost
Shut down
42
Total revenue/quantity is less than variable cost/quantity
Shut down
43
Price less than average variable cost
Shut down
44
Sunk cost
A cost that has already been committed and cannot be recovered - should ignore them bc nothing can be done
45
Total revenue less than total cost
Exit
46
Total revenue/quantity is less than total cost/quantity
Exit
47
Price less than average total cost
Exit
48
Price is greater than average total cost
Enter
49
Profit equations
Total revenue-total cost (Total revenue/quantity - total cost/quantity) times quantity (Price - average total cost) times quantity
50
When does the process of entry and exit ends only when
The price and average total cost are driven to equality
51
Firms can enter and exit more easily in the
Long run
52
The long run supply curve is _______ than the short run supply curve
typically more elastic
53
Monopoly
A firm is the sole seller of its product and the product does not have close subsitutes
54
3 sources of barriers to entry
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
Natural monopoly
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
Difference between competition and monopoly is
The monopoly's ability to influence the price of its output
57
Competitive market demand curve
Horizontal line
58
Monopoly's demand curve
Downward sloping
59
Average revenue in a monopoly is always equal to
The price of the good
60
A monopolists marginal revenue is always less than
The price of the good
61
A monopoly's marginal revenue curve is
Below its demand curve
62
Where is the monopolists profit maximizing quantity
The intersection of the marginal revenue curve and the marginal cost curve
63
Do monopoly's have supply curves?
No
64
From owners standpoint monopoly is
Desirable
65
The socially efficient quantity if found where
The demand curve and the marginal cost curve intersect
66
Monopolists produce _____ than the socially efficient quantity of output
Less
67
Inefficiency of monopoly is measured with
The deadweight loss triangle
68
Total surplus lost bc of monopoly pricing
Area between demand curve and marginal cost curve
69
In taxes, government gets profits. In monopolies, _____ gets profits
Firms
70
Is monopoly profit a social problem
No
71
When do problems in monopolies occur?
When firms produce/sell a quantity below the level that maximizes total surplus
72
price discrimination
The business practice of selling the same good at different price to different customers - only exists in monopolies
73
Public policies towards monopolies
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
Industrial organization
The study of how firms decisions about prices and quantities depend on the market conditions they face
75
Marginal cost and marginal product have an
Inverse relationship
76
How to find total cost from ATC
ATC times Q
77
** trick question economies of scale deal with what
AVERAGE total cost
78
If average variable cost is the same everywhere then
AVC = MC
79
when a firm is operating at an efficient scale the ______ is minimized
ATC
80
What things are equal in a perfectly competitive market
Demand = market price = MR = average revenue
81
Graph of one firm in a perfectly competitive market
``` Marginal cost (upward sloping) Average total cost curve ```
82
The lowest price you can accept in a competitive firm is the
Minimum average variable cost
83
Price > ATC > AVC
Good | Making profit
84
ATC > Price > AVC
- losing money SR: stay open LR: exit
85
ATC > AVC > Price
SR: shut down LR: exit
86
Profit is maximized where
MR = MC
87
In a monopoly what is equal
Price = average revenue | Price > MR = MC
88
Maximizing its profits?
MR=MC
89
In perfect price discrimination CS and DWL are equal to
Zero
90
Biggest problem with monopolies
Deadweight loss

Econ 102 (3 decks)

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