Unit 2 (☠️) Flashcards
How to calculate average total cost/average cost
Divide total cost by quantity (TC/Q)
How to calculate average variable cost
Divide variable cost by total product/output
How to calculate marginal cost
Divide the change in total cost by the change in quantity
Short run average cost characteristics
Fixed assets are held fixed
All SRAC curves are above the LRAC
Less flexibility
Higher costs
Long run average cost characteristics
Costs are variable
Less flexible
All LRAC curves are below the SRAC
How to calculate economic profit
Revenue minus explicit costs minus opportunity cost
(R-EC-OC)
Perfectly competitive firm
Many firms produce identical products
Many buyers are available to buy the product and many sellers are available to sell the product
Sellers and buyers have all relevant information to make rational decisions about the product
Firms can enter and leave the market with zero restrictions (free entry/exit)
PRICE TAKER!!!!!
When should a firm enter or exit the market under perfect competition?
If there are profits to be made, firms will enter the market
If there is negative profit, firms will exit the market
If existing firms are taking economic losses, then the firms with the highest costs will leave the market a
How to find profit maximizing point
MR=MC
How to calculate average fixed cost
Total fixed cost divided by quantity
Characteristics of monopolies
One firm produces all the output in a market (no competition)
Barriers to entry/exit
How to calculate marginal revenue
Change in total revenue divided by change in quantity
How to calculate area of profit for a monopoly
Use the average cost curve to determine production costs, then subtract that number from the total revenue
Characteristics of monopolistic competitive firms
Large number of competing firms that sell non identical products
Characteristics of oligopolies
Dominated by small number of firms
High barriers to entry
Dominant strategy
It always earns more than every other strategy for the player no matter what others do
Dominated strategy
Always earns less than another strategy for that player no matter what others do
How to find nash equilibrium
Model out each possible scenario and identify the optimal strategy
Diseconomies of scale
The long-run average cost of producing output increases as total output increases
How to calculate marginal product
Change in total product divided by change in quantity
Revenue
Price times quantity sold
Break even point
Level of output where the marginal cost curve intersects the average cost curve at the minimum point of AC; if the price is at this point, the firm is earning zero economic profits
For a perfectly competitive firm in the long run their profit is equal to
Zero in the long run
How to calculate HHI of firms
Square each share and add them all
