ECON 200: Microeconomics

Increasing marginal revenue

A characteristic of production whereby the marginal product of the next unit of a variable resource utilized is greater than that of the previous variable resource

Diminishing marginal returns

A characteristic of production whereby the marginal product of the next unit of a variable resource utilized is less than that of the previous variable resource

Short-run average total cost curve

A curve showing the average total cost for different levels of output when at least one input of production ix fixed, typically plant capacity

Oligopoly

A market structure characterized by a few large producers, of either standardized or differentiated products. -Extensive entry barriers -Price makers and behave strategically -Advertise their products -Cellphone carriers

Monopolistic competition

A market structure characterized by a relatively large number of sellers producing a differentiated product -They have control over the price they charge -Easy entry and exit -Fast food

Monopoly

A market structure characterized by a single seller, producing a good or service for which there are no close substitutes. -Relatively blocked entry -Price maker -Person who invents time travel

Perfect competition

A market structure characterized by the interaction of large numbers of buyers and sellers, in which the sellers produce a standardized, or homogeneous, product. -Farmers market -Price takers

Regulated normal profit price

A regulated price that is equal to the average total cost of production -Where AVC intersects demand

Regulated competitive price

A regulated price that is equal to the marginal cost of production -MC intersects D

Mutual interdependence

A situation in which a change in the strategy followed by one producer will likely affect the sales, profits, and behavior of another producer

Short-run supply curve

A supply curve that represents the short-run relationship between price and quantity supplied -For PC, portion of the MC that is at or above the minimum point of AVC

Barriers to entry

Any impediments that prevent firms from entering a market or industry

Variable costs

Costs that change with the amount of output produced, increasing as production increases and decreasing as production decreases

Fixed costs

Costs that do not change the amount of output produced

Natural monopoly

Economies of scale are so extensive that the market is better served by a single firm

Federal Trade Commission Act (1914)

Established the Federal Trade Commission to monitor business practices, false advertising, and dishonest labeling

Price takers

Firms that take or accept the market price and have no ability to influence that price

Clayton Act (1914)

Forbids certain actions that are likely to lessen competition, although no actual harm has yet occurred

Sherman Act (1890)

Makes monopolizing a market, cartels, and other collusive arrangements illegal

Explicit costs

Monetary payments made by individuals, firms, and governments Ex: Employees' wages, electricity, capital, and ingredients purchased

Profit per unit formula

Price-average total cost

Productive efficiency

Producing output at the lowest possible average total cost of production; using the fewest resources possible to produce a good or service

Allocative efficiency

Producing the goods and services that are most wanted by consumers in such a way that their marginal benefit equals their marginal cost

Monopoly Power

The ability of a monopoly to influence prices by controlling the quantities that it produces in the market

Marginal product

The additional output produced as a result of utilizing one more unit of a variable resource

Average product

The average amount of output produced per unit of a resource employed; total product divided by the number of units of a resource employed

Economic Costs

The costs associated with the use of resources; the sum of explicit and implicit costs.

Normal profit (zero economic profit)

The level of profit that occurs when total revenue is equal to total cost -This indicates the firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or compete in a different industry

Economic profit

The level of profit that occurs when total revenue is greater than total cost

Loss

The level profit that occurs when total revenue is less than total cost

Implicit costs

The opportunity costs of using owned resources; costs for which no monetary payment is explicitly made Ex: your own time and use of other owned resources

Second-degree price discrimination

The practice of charging different prices per unit for different quantities, or blocks, of a good or service -Detergent company selling a large pack at a cheaper price per unit

First-degree price discrimination

The practice of charging each and every consumer the price that she is willing and able to pay for a good or service -Airplane seat

Third-degree price discrimination

The practice of dividing the market participants into groups based on their elasticities of demand in order to charge each group a different price for the same good or service -Theatre tickets: Adults, Children, Seniors

Price discrimination

The practice of selling the same good or service to different consumers at different prices

Shutdown point

The price below which a firm will choose not to operate in the short run -Price/MR intersect the marginal cost curve at the minimum point of the AVC curve

Unregulated monopoly price

The profit-maximizing price that will result from an unregulated monopolistic market

Product differentiation

The strategy of distinguishing one firm's product from the competing products of other firms

Game theory

The study of the strategic behavior of decision makers

Total cost

The sum of fixed and variable costs of production

Total product

The total amount of output produced with a given amount of resources

Excess capacity

The underutilization of resources that occurs when the quantity of output a firm chooses to produce is less than the quantity that minimizes average total cost

Deadweight loss

The value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium

Short run

Time period in which at least one input of production is fixed but other inputs can be changed

Average total cost

Total cost divided by the amount of output produced; total cost per unit

Average fixed cost

Total fixed cost divided by the amount of output produced; fixed cost per unit

Economic profit formula

Total revenue minus economic costs (explicit + implicit)

Accounting profit

Total revenue minus the explicit costs of production

Average variable cost

Total variable cost divided by the amount of output produced; variable cost per unit

Cartel

a group of companies that join together to control the production and price of a product

Collusion

an agreement among firms to divide the market, set prices, or limit production

Antitrust laws

laws aimed at eliminating collusion and promoting competition among firms

Price leadership

the strategy by which one or more dominant firms set the pricing practices that all competitors in an industry follow

Limit pricing

the strategy of reducing the price to deter entry