Perfect markets definitions Flashcards
1
Q
Define Economic loss.
A
- When total costs are greater than total revenue.
2
Q
Define Economic profit
A
- Profit that is made in addition to normal profit.
- When average revenue is greater than average cost the firm makes an economic profit
3
Q
What is Explicit costs?
A
- Actual expenditure of business, e.g. wages and interest
4
Q
What is Implicit costs?
A
- Value of inputs owned by entrepreneur and used in the production process.
5
Q
What is meant by Long run in markets?
A
- The period of production where all factors can change.
- The time is long enough for variable and fixed factors to change.
- It allows enough time for new firms to enter the industry and/or existing firms to exit.
6
Q
What is a market?
A
- An institution that brings together buyers and sellers of goods or services
7
Q
What is meant by Market structure?
A
How a market is organised
8
Q
Explain Monopolistic competition
A
- A market structure in which businesses have many competitors, but each one sells a slightly different product (e.g. CD’s and books)
9
Q
What is meant by Monopoly?
A
Exclusive control of a commodity or service in a particular market
10
Q
Explain Normal profit
A
- The minimum earnings required to prevent an entrepreneur from leaving the industry.
- Normal profit: average revenue = average cost
11
Q
Define Oligopoly
A
A market structure controlled by a small group of businesses
12
Q
What is meant by Perfect competition?
A
A market structure with large numbers of producers and buyers
13
Q
Define Price taker
A
- Has no influence on price.
- Takes price that is determined by the market
14
Q
What is a Short run?
A
- The period of production where only the variable factors of production can change while at least one factor is fixed.
- The time period is too short to permit the number of firms in the industry to change.
15
Q
Explain Shut-down point
A
- A business will shut down if it cannot meet its average or total variable costs.
- MC=AVC
