sellers and incentives

Question 1

conditions of a perfectly competitive market (3)

Answer 1

no buyer or seller in the market is big enough to influence the market
sellers in the market produce identical goods
there is free entry and exist into the market

Question 2

seller’s problem steps

Answer 2

turning inputs into outputs
costs of production
revenue

Question 3

short run

Answer 3

period of time when some of the firm’s input can’t be changed (variables)

Question 4

long run

Answer 4

period of time when all firm’s inputs can ve changed (fixed)

Question 5

variable factor of production (2)

Answer 5

inputs that can be changed in the short run
changes if the level of output changes

Question 6

fixed factor of production

Answer 6

input that can’t be changed in the short-run
stays the same, regardless of how much output is produced

Question 7

margarita product

Answer 7

change in total output associated with using one more unit of input/employee

Question 8

negative marginal product

Answer 8

fixed capital and employees getting in each others way

Question 9

specialization

Answer 9

marginal product increases when workers develop new skills

Question 10

law of diminishing returns

Answer 10

successive increases in inputs eventually lead to less additional output

Question 11

short run cost

Answer 11

variable cost + fixed cost

Question 12

variable cost

Answer 12

associated with the fixed factors of production

Question 13

fixed cost

Answer 13

associated with the fixed factors of production

Question 14

average total cost

Answer 14

ATC = AVC (variable) + AFC (fixed)

Question 15

total cost

Answer 15

ATC x Q

Question 16

marginal cost

Answer 16

change in total cost / the change in quantity

Question 17

total revenue

Answer 17

TR = P x Q sold

Question 18

marginal revenue

Answer 18

change in total revenue associated with producing
= market price

Question 19

economic profit

Answer 19

total revenue - total costs (explicit and implicit like opportunity cost)
zero or above is good

Question 20

optimal quantity

Answer 20

MR = MC

Question 21

profit (putting it all together)

Answer 21

Profit = (P-ATC) x Q

Question 22

price elasticity of supply

Answer 22

how responsive producers/quantity supplied are to changes in the market price

Question 23

price elasticity of supply: greater

Answer 23

the more inventory the firm has
the more easily the firm can hire workers
the longer the time horizon

Question 24

shutdown (2)

Answer 24

decision to stop producing in the short run
occurs if the price falls below average variable cost

Question 25

sunk costs

Answer 25

costs that once committed can never be recovered and should not affect current and future production decision

Question 26

producer surplus + formula

Answer 26

difference between market price and marginal cost
base x height / 2

Question 27

planning period

Answer 27

what is the optimal level of capital

Question 28

economies of scale

Answer 28

ATC falls as quantity produce increases

Question 29

constant returns to scale

Answer 29

ATC does not change as output increases

Question 30

diseconomies of scale

Answer 30

ATC increases as output increases

Question 31

long-run competitive equilibrium

Answer 31

firms enter and exit an industry

Question 32

free entry or exit

Answer 32

no legal or technical barriers

Question 33

as more firms enter the market…

Answer 33

new equilibrium and increases in market price

Question 34

as firms exit the market…

Answer 34

new equilibrium and price will decrease