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Economics Micro > Unit 3 > Flashcards

Unit 3 Flashcards

1
Q

What is production?

A

The conversion of factor inputs into output.

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2
Q

What are the different forms of productivity?

A

Labour Productivity
Capital Productivity
Factor Productivity

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3
Q

What is labour productivity?

A

Output per worker.

Total output/no of workers

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4
Q

What is capital productivity?

A

Output per unit of capital

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5
Q

What is factor productivity?

A

Output of all factors of production

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6
Q

When does short run production occur?

A

When a firm adds variable factors of production to fixed factors of production.

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7
Q

When does long run production occur?

A

When a firm changes the scale of all factors of production.

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8
Q

Whats the equation for productivity?

A

total output / units of fop

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9
Q

What is productive efficiency?

A

Where no additional output can be produced from the factor inputs available at the lowest possible average or unit cost

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10
Q

What’s the equation for Average Total Cost?

A

Total cost/output

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11
Q

How can productive efficiency be shown on a ACC?

A

At the MES (lowest point of curve) where ATC are at their minimum

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12
Q

How can we see when productive efficiency is created?

A
  • Purchasing economies lead to a reduction in costs
  • Specialisation can lead to a more efficient use of inputs
  • Better management leads to an increased output with the same factor inputs.
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13
Q

What is specialisation?

A

When economic units concentrate on producing specific goods or services.

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14
Q

What is specialisation likely to cause?

A

An increased output per worker (productivity) as workers have a better understanding of their job

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15
Q

Why does specialisation lead to increased output?

A
  • Greater understanding of the requirements of production
  • Each economic unit can specialise in what they are best at
  • Efficient use of time as there is no switching between tasks
  • Technical economies of scale as capital equipment is used to produce goods and services
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16
Q

How did we use to exchange?

A

Barter

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17
Q

Benefits of specialisation and division of labour?

A
  • Repetition of a limited range of activities can increase skill and aptitude, leading to a worker becoming an expert e.g. a neurosurgeon.
  • Reduced time spent moving between different tasks or workstations means increased productivity.
  • As tasks are broken up into smaller ones, it becomes efficient to use specialist machinery.
  • DoL allows people to work to their natural strengths, example physical strength or ability to communicate.
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18
Q

What is allocative efficiency?

A

Where consumer satisfaction is maximised in the production of goods/services

19
Q

What is economic efficiency?

A

Where there is allocative and productive efficiency at the same time

20
Q

What are market forces?

A

Push prices towards equilibrium where quantity demanded equals quantity supplied

21
Q

What is static efficiency?

A

When all resources are being used in the most efficient manner at a point in time

22
Q

What influences dynamic efficiency?

A

Research and development

Investment in human and capital

23
Q

What is the profit maximising rule?

A

MR = MC

24
Q

What is the objective of firms?

A

Profit maximisation

25
Q

Why do firms want to profit maximise?

A
  • Re-invest to create new products

- Pay out higher returns to shareholders

26
Q

What is meant by satisficing?

A

Achieving a satisfactory outcome rather than the best possible outcome

27
Q

Why do firms want to satisfice?

A
  • Stakeholder groups
  • Difficult to produce on exactly MC=MR
  • Informational issues
28
Q

What is meant by a divorce of ownership from control?

A

Separation that exists between owners of firms and directors in large public companies

29
Q

What are the assumptions of perfect competition?

A
  • Few barriers to entry
  • Homogenous products
  • Complete or perfect knowledge
  • Large no. of buyers and sellers
  • Market eq determines price
30
Q

Short run and long run profit in perfect competition?

A

Equilibrium MC=MR
AR > AC so firms make supernormal profits

Long Run: New firms will enter the industry due to supernormal profits. The increase in supply will decrease the price, getting rid of the supernormal profit.

31
Q

Assumptions of a monopoly?

A
  • Natural barriers to entry
  • EOS
  • Legal barriers
  • Product differentiation
  • Sunk cost
32
Q

Characteristics of a monopoly?

A
  • Only firm in industry
  • Firms demand curve and market curve are the same
  • Demand curve is AR
  • Operates at MC=MR
  • Profit maximises
  • Price maker
  • Supernormal profits
  • High barriers to entry
33
Q

How is a monopoly dynamically efficient?

A
  • Innovation
  • Technical progress
  • R&D
34
Q

Advantages of a monopoly?

A
  • Achieve economies of scale

- Retained profits to reinvest and innovate

35
Q

Disadvantages of a monopoly?

A
  • Removes competition
  • Charging higher prices to achieve supernormal profits (consumer exploitation)
  • Productively inefficient
  • Allocatively inefficient
  • X inefficient
36
Q

Assumptions of monopolistic competition?

A
  • Large number of producers
  • Similar products which are differentiated from another
  • Low barriers to entry/exit
37
Q

Characteristics of monopolistic competition?

A
  • Large number of firms
  • Differentiated products
  • Low barriers to entry
  • Branding
  • Strong competition
  • Price takers
  • Knowledge
  • Non-price competition
38
Q

Efficiency in monopolistic competition?

A
  • Productive inefficiency
  • Allocative inefficiency
  • Dynamic efficiency
39
Q

Characteristics of oligopolistic markets?

A
  • Exploit customers with high prices
  • Barriers to entry
  • Compete on non-price competition
  • Collusion
  • Branding
  • Spend heavy on product development
  • Few firms
  • High concentration ratio
40
Q

What is the concentration ratio?

A

The number of firms that dominate the market

41
Q

What is collusive pricing?

A

When firms agree to set higher prices and act as a monopolist

42
Q

What is predatory pricing?

A

When a firm attempts to force competition out of the market by setting low prices

43
Q

What is limit-pricing?

A

When a firm operates below the profit-maximising output of MR=MC

Economics Micro (5 decks)

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