Unit 3 Test! Flashcards
Equation for economitc profit or loss for one unit
Price - ATC
In the short run, at least ___ inputs cant be fixed and cannot be changed
1
In the long run, there are ___ fixed inputs
zero! All inputs can be changed
In the short run, the shapes of the ATC and MC curves result from
diminishing marginal productivity of the resources (U shaped)
In the long run, the shape of the ATC results from
economies and diseconomies of scale
Economies of scale
where output increases and ATC decreases in the long run.
What is the main cause of economies of scale?
specialization
Diseconomies of scale
The forces that cause larger firms and gov’ to produce goods and services at increased per unit costs
Long Run Sources of Economies of Scale (Long Run ATC decreases as output increases) [FIBER]
increase in shared Facilities; reduce per unit costs of factor Inputs; effective use of production Byproducts; more efficient use of Equipment; specialization of Resources
Sources of Diseconomies of scale (decreasing returns to scale)
limitations on management decision making; competition for factor inputs; as firms increase in size, increased monitoring costs and loss of team spirit
Increasing returns to scale
if output increases by more than that proportional change in inputs
Constant returns to scale
if output increases by that same proportional change
Decreasing returns to scale
If output increases by less than that proportional change in inputs
Characteristics of perfect competition:
VERY MANY firms; Homogenous products; NO barriers (hella easy entry); Price TAKERS; BOTH allocatively and productively efficient; Only normal profits in long run. Example: doesn’t exist, but maybe agriculture?
The demand curve is also
MR DARP. Marginal revenue, demand, average revenue, price…they’re all equal
Supply is equal to
Marginal Cost above minimum AVC
If the firms are making economic profits,
more firms will enter the industry because there are no barriers to entry
Perf. competitive firm in long run: productive and allocatively efficient when…
the firm is at the lowest point on ATC
Allocative efficiency
P = MC or P = S (supply and MC are the same thing!)
Productive efficiency
producing a good with as few inputs as possible (MC = ATC or P = minimum ATC)
Long term the perf. competitive firm breaks even at
the minimum ATC
Method of Marginals
if MB > MC, do one more.
Shutdown point
Where P = MR is below AVC
Long Run equilibrium is where
MC = minimum ATC = MR. The firm is breaking even.
Firms will only produce in the ___ portion of the demand curve where ________
elastic; where marginal revenue is positive
Total revenue is at its maximum where
MR = 0
Produces most profit
Where MR = MC
Monopolists are allocatively ____
inefficient; they are producing less and charging more than MC
Monopolistic competition characteristics:
Many firms; Differentitated products; Relativiely easy to enter; no barriers; somewhat price setting power; considerable non-price competition; less eficient; normal profits. EX: fast food, retail, cosmetics.
Oligopoly characteristics
Few firms; Homogenous/differentiated products; not easy to enter; limited price setting power; considerable non price competition; less efficient than perf. competition; positive normal and ecnomic profits in long run. EX: cars, steel, soft drinks, cereals, computers.
Monopoly characterisitics:
one firm; only product of its kind; impossible ease of entry; absolute price setting power; inefficient; high normal and economic profits. EX: small town newspaper, rural gas station.
