Week 1 Flashcards
What is microeconomics?
The study of individual consumers, business firms, and markets that contribute to the understanding of business practices and tactics.
What is marginal analysis?
Evaluating additional costs and benefits of decisions.
What is industrial organization?
A sub field of microeconomics that focuses on behavior & structure of firms and industries.
What is opportunity cost?
What a firms owners must give up to use resources to produce goods and services.
What are market - supplied resources?
Resources owned by others and hired, rented, or leased.
What are owner-supplied resources?
Owned and used by the firm.
What is the total economic cost?
Sum of the opportunity cost of both market-supplied resources and owner-supplied resources.
What are explicit costs?
Monetary opportunity costs of using market-supplied resources.
What are implicit costs?
No monetary opportunity costs of using owner-supplied resources.
What is the formula for total economic cost?
Explicit + implicit costs = total economic cost
What are the 3 types of implicit costs?
- Opportunity cost of cash.
- Opportunity cost of using land or capital.
- Opportunity cost of owner’s time spent.
What is the formula for economic profit?
Total revenue - total economic cost.
What is accounting profit?
Total revenue - explicit costs.
What is risk premium?
An increase in the discount rate to compensate investors for uncertainty about future profits.
What is a complete contract?
An employment contract that protects owners from every possible deviation by managers from value-maximizing decisions.
What are hidden actions?
Actions or decisions taken by managers that cannot be observed by owners for any feasible amount of monitoring effort.
What is a price-taking firm?
A firm that cannot set the prices of its product.
What is a price-setting firm?
A firm that can set the price of its product.
What is a market?
Any arrangement through which buyers and sellers exchange anything of value.
Do markets reduce transaction costs?
Yes or no?
Yes.
What is a market structure?
Market characteristics that determine the economic environment in which a firm operates.
What is an Oligopoly?
A market with few firms who are almost identical in products and ease of entry in low.
What is a monopolistic competition market?
Many firms with differentiated products.
What is a strategic decision?
A decision that does not consider the current market conditions as fixed, but rather attempts to shape or alter the circumstances under which a firm and its rivals compete.
