Final Exam Study Guide:Chapter 13: Costs of Production- explicit costs- input costs that require an outlay of money by the firm- implicit costs- input costs that do NOT require an outlay of money by the firm- economic profit- total revenue-total costs (including explicit & implicit)- accounting profit- total revenue-explicit cost- economies of scale- property whereby long-run average total cost falls as the quantity of output increases- diseconomies of scale- property whereby long-run average total cost rises as the quality of output increases- constant returns to scale- property whereby long-run average total cost stays the same as the quantity of output changesChapter 14: Firms in Competitive Markets- competitive market- market with many buyers & sellers trading identical products so that each buyer & seller is a price taker- for competitive firms: marginal revenue = price- profit maximizing Q and P is where MC=MR- firm operates at a loss when P is less than ATC- firm shuts down is P is less than AVCChapter 15: Monopoly- Monopoly- firm that is the sole seller of a product without close substitutes- Marginal revenue is always less than demand- The output effect: More output is sold, so Q is higher, which tends to increase total revenue- The price effect: The price falls, so P is lower, which tends to decrease total revenue- Efficient Q is found where demand=MC; monopoly Q is found where MC=MR (P lies on demand curve)- Single price monopoly- firm sells each unit for the same price to all customers- Price discrimination- selling the same good at different prices to different customersChapter 17: Oligopoly- oligopoly- market structure in which only a few sellers offer similar or identical products- game theory- study of how people behave in strategic situations- collusion- agreement among firms in a market about quantities to produce or prices to charge- cartel- a group of firms acting in unison- Nash equilibrium- economic factors interacting with one another each choose their best strategygiven the strategies that all the other factors have chosen- oligopoly price is less than the monopoly price but greater than the competitive price (which equals marginal cost) - The output effect: Because price is above marginal cost, selling 1 more gallon of water at the going price will raise profit- The price effect: Raising production will increase the total amount sold, which will lower the price of water and lower the profit on all the other gallons sold- prisoners’ dilemma- a particular “game” between 2 capture prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial- dominant strategy- a strategy that is best for a player in a game regardless of he strategies chosen by the other playersChapter 22: Uncertainty & Information AsymmetryUncertainty:- expected value- expected average value of an event if it is repeated many times; calculated by taking every outcome and adding the probabilities together- risk averse- person prefers a less risky situation, holding fixed its expected valueAsymmetric Information:- asymmetric information- one side of an economic relationship has more information than another- hidden characteristics- known only to one side of the transaction (used cars, insurance)- hidden actions- actions taken by one side of an economic relationship (real estate agents, doctors prescribing extra tests)- adverse selection- tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party (buyer isn’t sure if car is plum or lemon, so does not buy)- screening- action taken by uninformed party to induce informed party to reveal information- signaling- action taken by informed party to reveal information to uninformed party (warranty)- moral hazard- tendency of a person who is imperfectly monitored to engage in dishonest behavior- agent- person who is performing an act for another person- principal- person for whom another person (agent) is performing some
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