year 2 mirco Flashcards
Normal profit
the return needed for a firm to stay in the market
Supernormal profit
The profit above normal profit
profit maximisation
MC=MR
Sales revenue maximisation
MR=0
Sales volume maximisation
AC=AR
Variable factors of production
FOPs that can be put into overtime
sunk costs
costs that will not be regained when a firm leaves the market
Minimum efficient scale
the level of output at which LRAC stops falling
internal economies of scale
economies of scale which that arise from a firms expansion
external economies of scale
Economies of scale which arise from an expansion in the industry
Technical efficiency
the maximum output from a set of inputs
cost efficiency
the appropriate combination of inputs
accounting profit
TR-TC
economic cost
total cost + opportunity cost
market structure
the market environment in which firms operate
prefect competition
a form of market structure which produces allocative and productive efficiency in the long run
price taker
a firm that must accept whatever price is set at the market
allocative efficiency
Achieved when consumer satisfaction is maximised MC=MB or S=D
productive efficiency
when a firm achives minimum average total cost
homogeneous product
a product that is identical to others on the market
perfect knowledge
buyers and firms know prices from other firms, and no firm has superior production technique
monopolistic competition
a market that shares some characteristics of a monopoly and some of perfect comp
product differentiation
a strategy firms use to compete
n-firm concentration ratio
the measure of the market share of the largest n firms in a market
oligopoly
a market with few dominant sellers
non price competition
when firms compete by advertising
cartel
an agreement between firms on price or output
tacit collusion
where firms avoid competing on price without explicitly saying they are going to do so
strategic alliance
a long term cooperative arrangement between firms such as bulk buying
price leadership
a dominant producer sets prices and competitors follow
barometric price leadership
a firms tries to increase a price top see how the market reacts
predatory pricing
when a firm sets prices below variable costs to force rivals out of the market
contestable market
a market in which the existing firm makes only normal profit
hit and run entry
where a firm enters a market to take short run SNP knowing it can exist without incurring costs
sub market
A part of a larger market with its own unique characteristics
derived demand
when the demand for a product is derived not from the product itself but from the goods or services it provides
marginal physical product of labour
the additional quantity of output produced by an additional unit of labour input
marginal revenue product of labour
the additional revenue received by a firm as it increases output from each extra unit of input
marginal revenue product theory
A theory that argues that the demand for labour depends upon balancing the marginal revenue for employing a worker against its marginal cost
labour productivity
a measure of output per hour worked
unit labour cost
the average cost of labour per unit of output
non-pecuniary benefits
benefits offered to workers that are not financial in nature
income effect
the change in demand for a good or service caused by a change in a consumers purchasing power
substitution effect
as prices rise consumers will replace more expensive products with cheaper ones
transfer earnings
the minimum payment required to keep a factor of production in its present use
economic rent
a payment received by a factor of production over and above what is required to keep it in its current use
wage elasticity supply of labour
a measure of the sensitivity of the supply of labour against wages
