Module 3 Flashcards
____________ is the minimum amount of money that a supplier is willing to accept in return for the input it sells (e.g., labor, machines, other forms of capital).
Willingness to sell (WTS)
The concepts of WTS and cost on the supplier side are __________ to the concepts of WTP and price on the consumer side.
analogous
The _________ by a firm is the difference between the WTP of its consumers and the WTS of its suppliers.
value created
The difference between the price that it charges its consumers and the price it pays its suppliers (also referred to as the firm’s cost) is its _____, or ________ by the firm.
profit; value captured
The difference between WTP and price is the value captured by the consumer, or ___________.
consumer surplus
The difference between the firm’s cost and WTS of its suppliers is the value captured the supplier, or __________.
supplier surplus
_____ are important in analyzing whether a company’s business is in good shape and in deciding how much a company should ______.
Costs; produce
An important distinction is between a firm’s _____ costs versus _____ costs.
fixed; variable
Fixed costs are costs that _____ vary as quantity produced rises or falls.
do not
Variable costs are costs that _____ vary with the
level of production.
do
Fixed costs that have already been incurred (at the time that the firm is making a production or pricing decision) are
called ________, and should not impact decision-making.
“sunk costs”
Sound decision making requires taking into account not only the direct costs of resources, but also their _________.
opportunity costs
Opportunity cost is the value of the best _________ of that resource.
alternative use
A firm’s __________ refers to the total cost of an activity, taking into account the direct or explicit costs as well as
its opportunity costs.
“economic cost”
A firm’s __________ is the measure of profits that also takes into account the
opportunity cost of the next best alternatives.
“economic profit”
__________ is the analysis of a how a firm’s costs compare to its competitors for each activity in its business.
Relative cost analysis
Relative cost analysis is most useful when calculated on a _______ basis.
per-product
Knowing a ___________ can help a firm predict the range of prices that the competitor would be willing to charge (including how low it might be willing to go in a price war).
competitor’s costs
Relative cost analysis can also help a firm understand how _______ its own production process is.
efficient
A relative cost analysis for all the firms in the industry results in a _________.
supply curve
Just as a demand curve illustrates how much of a good a buyer will _______ at each price, a supply curve describes how much of a good a supplier will be willing to ______ at each price.
purchase; provide
A firm that is already in an industry will be willing to sell its product for any price at or above its _________.
variable costs
A firm that is considering _______ an industry will aim to cover both its variable costs and its fixed costs.
entering
Since fixed costs do not vary with quantity produced, per-unit fixed costs (or “average fixed cost”) will _________ as total quantity produced increases.
decrease
While total variable costs increase with quantity produced, per unit variable costs may ________ as quantity produced increases. (Per-unit variable costs and marginal costs are often used interchangeably; they are the same when per-unit variable costs are the same across different units of production).
not change
A firm’s ______ are the sum of its fixed costs and its total variable costs.
total costs
A firm’s ________ is its total cost divided by the total volume of goods produced.
average total cost
___________ result from firms being able to spread their fixed costs over larger units of production.
“Economies of scale”
Industries with _____ levels of fixed costs are therefore more attractive if a firm knows that it can produce at large scale, since it can spread these costs over many units.
high;
Industries with high fixed costs are also likely to have _____ firms competing in them.
fewer
Industries with low fixed costs are easier to enter and have a low ___________.
minimum efficient scale
