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
