View
- Term
- Definition
- Both Sides
Study
- All (41)
Shortcut Show
Next
Prev
Flip
Eco 2030: Exam 3
Profit=
|
TR (amount a firm receives from output) - TC (market value of the inputs a firm uses in production
|
explicit costs
|
outlay of money
ex: workers' wages |
implicit costs
|
costs other than cash outlay
ex: opportunity cost of owner's time |
accounting profit
|
TR- total explicit costs
|
economic profit
|
TR- TC (explicit+implicit)
|
production function
|
shows relationship between quantity of inputs used to produce a good and the quantity of output of that good
|
marginal product
|
increase in output arising from an additional unit of input
MPL (of labor)= Change in Q/ Change in L |
Why does MPL diminish?
|
MP of an input declines as Q of input increases (avg worker has less land to work with, etc.)
|
Fixed Costs
|
do not vary with Q of output
|
Variable Costs
|
vary with the Q produced
|
Total Costs=
|
FC+VC
|
Marginal Cost=
|
Change in TC/ change in Q
|
Average fixed cost
|
FC/Q
|
Average variable cost
|
VC/Q
|
Average Total Cost
|
ATC=TC/Q
ATC= AFC+AVC |
For competitive firm, P also =
|
MR=P=AR
|
Perfect Competition characteristics
|
many buyers/sellers
goods for sale are largely the same
firms can freely enter/exit market |
Revenues of a competitive firm
|
TR=PQ
AR= TR/Q =P
MR= change in TR/ change in Q |
MR=P only true for...
|
firms in competitive markets
|
Profit Maximization
|
the level of Q that makes distance between TR and TC the greatest
|
slope of TR and TC are the same at..
|
the profit maximizing Q
|
find profit maximizing Q when
|
slope of TR (MR)= slope of TC (MC)
MR=MC
[Price=MC] |
What Q maximizes the firm's profit?
|
if MR>MC, increase Q to raise profit
if MR<MC, reduce Q to raise profit
|
Competitive markets: MR is always
|
horizontal
|
shut down if
|
TR<VC or P<AVC
|
Exit if...
|
TR<TC
P<ATC |
Enter market if..
|
TR>TC
P>ATC |
long-run equilibrium
|
the process of entry/exit complete- remaining firms earn zero economic profit
|
zero economic profit occurs when...
|
P=ATC
[P=MR=MC=ATC]
in the long run, P=minimum ATC |
Monopoly
|
sole seller of a product without close substitutes
|
difference between monopoly and perfect competition
|
monopoly has market power: ability to influence market price of the product it sells
|
barriers to entry in monopolies
|
single firm owns a key resource
government gives single firm the exclusive right to produce good
natural monopoly- single firm can produce entire market Q at lower cost than could several firms |
Demand Curves: Monopoly vs. Competition
|
Competition: indv. firms- horizontal at P=MR
Monopoly: only seller, MR does not =P, faces market demand curve |
Increasing Q has 2 effects on revenue:
|
Output effect- higher output raises revenue
Price effect- lower price reduces revenue |
oligopoly
|
market with few sellers
|
game theory
|
study of how people behave in strategic situations (oligopoly)
|
collusion
|
agreement among firms in a market about Q to produce or P to charge
|
Cartel
|
group of firms acting in unison
|
nash equilibrium
|
a situation in which economic participants interacting with one another each choose their best strategy given the strategies that all others have chosen
|
oligopoly market P&Q comparisons
|
Q: monopoly<oligopoly<competitive
P: competitive<oligopoly<monopoly |
game theory
|
rests on players choosing dominant strategy for themselves
|