Week 9 - Theory of the firm II: The competitive environment Flashcards
What formula represents Production in the long run
q (K, L)
What is an Isoquant
A graphical depiction of the relationship between inputs for a given output level
What are 2 rules of the relationship between Isoquants and Production technology
- Different output level isoquants for the same production technology will never cross
- Different technologies will have different shaped isoquants
At which point for a given level of production (long run) is the cost-minimizing choice of inputs
Where the isocost line is tangent to the isoquant
What is Scale (x2)
Refers to the output of a firm when all inputs can be varied
It is a measure of size
What are Returns to scale (x3)
Refer to the relationship between long-run average costs and output:
1. Increasing returns to scale - LAC is decreasing as Q increases
2. Constant returns to scale - LAC does not change as Q increases
3. Decreasing returns to scale - LAC is increasing as Q increases
What is the Minimum efficient scale point
The lowest level of production at which a firm can achieve the lowest LAC
What causes Economies of scale
Operational efficiencies that improve with increased scale of production
What is First degree price discrimination
Charging consumers the maximum price that they are willing to pay for a good or service (consumer surplus is entirely captured by the firm)
What is Second degree price discrimination
Charging consumers a different price for different quantities of a good or service
What is Third degree price discrimination
Charging different groups of consumers a different price for the same good/service (elasticity)
What are the characteristics of a Monopoly market
- Only one seller
- Price maker
- High barriers to entry and exit
- Differentiated goods/services
- Imperfect information
- Supernormal profits (MC = MR)
