59 Cards in this Set
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profit
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the total revenue a firm receives from the sale of its product minus all costs--explicit and implicit-- incurred in producing it
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profit-maximizing firm
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a firm whose primary goal is to maximize the difference between its total revenues and total costs
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perfectly competitive market
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a market in which no individual supplier has significant influence on the market price of the product
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price taker
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a firm that has no influence over the price at which it sells its product
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imperfectly competitive firm
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a firm that has at least some control over the market price of its product
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factor of production
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an input used in the production of a good or service
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short run
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a period of time sufficiently short that at least some of the firm's factors of production are fixed
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long run
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a period of time of sufficient length that all the firm's factors of production are variable
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law of diminishing returns
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a property of the relationship between the amount of a good or service produced and the amount of a variable factor required to produce it; the law says that when some factors of production are fixed, increased production of the good eventually required ever-larger increases in the variab…
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fixed factor of production
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an input whose quantity cannot be altered in the short run
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variable factor of production
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an input whose quantity can be altered in the short run
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fixed cost
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the sum of all payments made to the firm's fixed factors of production
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variable cost
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the sum of all payments made to the firm's variable factors of production
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total cost
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the sum of all payments made to the firm's fixed and variable factors of production
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marginal cost
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as output changes from one level to another the change in total cost divided by the corresponding change in output
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average variable cost
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variable cost divided by total output
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average total cost (ATC)
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total cost divided by total output
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profitable firm
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a firm whose total revenue exceeds its total cost
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producer surplus
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the amount by which price exceeds the seller's reservation price
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imperfectly competitive firm
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(price setter)
a firm that has at least some control over the market price of its products
ex. holder of copyright
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Price Taker
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Cannot change market price.
Can only adjust to it.
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Variable Cost
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depend of the number of items produced
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Characteristics of perfectly competitive marks
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All firms sell the same product; market has many buyers and sellers, each of which buys or sells only a small fraction of the total quantity exchanged; productive resources are mobile; and buyers and sellers are well informed.
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If Harry needs to make $6 per hour to make getting cans worth while and at 5 hours he can get 100 more cans than at the 4th hour, how much should he get paid for each can for it to be worth it?
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6 cents
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If Harry can pick up 1300 cans in 3 hours and pick up 1500 cans in 4 hours, how much does he need to make per can to at least make 6 dollars to make it worth his time?
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3 cents
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determents of supply
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technology, input prices, number of suppliers, expectations, changes in prices of other products, expectations, changes in prices of other products
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The ____ facing a perfectly competitive firm is a horizontal line at the price for which industry supply and demand intersect.
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demand curve
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The _______ for a good or service is a schedule that, for any price, tells the quantity that sellers which to _______ at that price.
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supply curve, supply
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The prices at which goods and services are offered for sale in the market depend on the _________ of the resources required to produce them.
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opportunity cost
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Supply curves tend to be ______-sloping, at least in the short run, in part because of the _____________________.
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upward, Principle of Increasing Opportunity Cost
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Rational producers will always take advantage of their best opportunities _____, moving onto more ___________ opportunities only after their best ones have been exhausted.
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first, difficult and costly
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The ______ __ __________ ______, says that when some _________ ___ _________ are held fixed, the amount of additional variable factors required to produce successive increments in outputs grows larger.
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law of diminishing returns, factors of production
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explicit costs
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the actually payments a firm makes to its factors of production and other suppliers
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accounting profit
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the difference between a firm's total revenue and its explicit costs
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implicit costs
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the opportunity costs of the resources supplied by the firm's owners
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economic profit/ excess profit
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the difference between a firm's total revenue and the sum of its explicit and implicit costs
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normal profit
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the opportunity costs of the resources supplied y a firm's owners, equal to accounting profit minus economic profit
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economic loss
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an economic profit less than zero
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rationing function of price
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changes in prices distribute scare goods to those consumers who value them most highly
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allocative function of price
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changes in prices direct resources away from overcrowded markets and toward markets that are underserved
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invisible hand theory
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Adam Smith's theory that the actions of independent, self-interested buyers and sellers will most often result in the most efficient allocation of resources
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barrier to entry
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any force that prevents firms from entering a new market
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economic rent
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the part of the payment for a factor of production that exceeds the owner's reservation price, the price below which the owner would not supply the factor
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efficient (Pareto Efficient)
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a situation is efficient if no change is possible that will help some people without harming others
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price setter
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a firm with at least some latitude to set its own price
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pure monopoly
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the only supplier of a unique product with no close substitutes
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monopolistic competition
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an industry structure in which a large number of firms produce slightly differentiated products that are reasonably close substitutes for one another
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oligopoly
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an industry structure in which a small number of large firms produce products that are either close or perfect substitutes
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market power
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a firm's ability to raise the price a good without losing all its sales
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five sources of market power
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exclusive control over important inputs, patents and copyrights, government licenses or franchises, economies of scale and natural monopolies, network economies
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constant returns to scale
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a production process is said to have constant returns to scale if, when all inputs are changed by a given proportion, output changes by the same proportion
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increasing returns to scale (economies of scale)
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a production process is said to have increasing returns to sale if, when all inputs are changed by a given a proportion, output changes by more than that proportion
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natural monopoly
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a monopoly that results from economies of scale (increasing returns to scale)
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marginal revenue
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the change in a firm's total revenue that results from a one-unit change in output
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price discrimination
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the practice of charging different buyers different prices for essentially the same good or service
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perfectly discriminating monopolist
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a firm that charges each buyer exactly his or her reservation price
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hurdle method of price discrimination
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the practice by which a seller offers a discount to all buyers who overcome some obstacle
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perfect hurdle
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a threshold that completely segregates buyers whose reservation prices lie above it from others whose reservation prices lie below it, imposing no cost on those who jump the hurdle
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cost-plus regulation
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a method of regulation under which the regulated firm is permitted to charge prices that cover explicit costs of production plus a markup to cover the opportunity cost of resources provided by the firm's owners
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ECON 2000: Exam 3