Midterm 3

Profit =

(P - ATC) x Q

Use the ___ curve to calculate the amount of profits at the optimal quantity

ATC

Use the ____ curve to determine if the firm should stay open when profits are negative

AVC

_____ ____ _____ are essential for monopolies.

Barriers to entry

MPL =

Change in quantity of output/ change in quantity

According to the ______ ______, even in the presence of externalities an economy can always reach an efficient solution provided that the transaction costs are sufficiently low.

Coase Theorem

____ _____argues that individuals have an incentive to find a way to make mutually beneficial deals that lead them to "internalize the externality"

Coase;s analysis

TC =

FC + VC

Use the ___ curve to get quantities supplied at each price

MC

____ is the change in quantity of output generated by one additional unit of labor

MPL

In order to find the profit maximizing quantity of output, you look for the point where the ___ curve crosses the __ curve

MR, MC

____ ____ is the fraction of the total industry output accounted for by that producers output.

Market Share

Profit is maximized at the Q where

Mr = MC

Choose the quantity of output where:

P = MC

____ _____ is when there are many buyers and sellers, each with a small market share.

Perfect Competiton

__________ the process of turning inputs into outputs

Production

If M__ > M__, producing more will add to profit

R,C

Average total cost =

TC / Q

The government policies used to prevent or eliminate monopolies are knows as _______ _________

antitrust policy

Increasing output has two opposing effects on _______

average total cost

MR is _______ the demand curve

below

How do you measure the marginal social _______ of pollution: its the highest willingness to pay for the right to emit that unit measured across all polluters

benefit

____ ____ _____ of a price taking firm is the market price at which it earns zero profit

break even price

If TR = TC, the firm ___ __

breaks even

Monopoly profit comes at _________ expense

consumers

A _________ gives the creator of a literary or artistic work sole rights to profit from that work

copyright

How do you measure the marginal social __________ of pollution: its the sum of the willingness to pay among all members of society to avoid that unit of pollution

cost

The vertical distance between ATC and AVC __________ as Q increases

decreases

There are _____ returns to scale when ____-run average total cost increases as output increases

decreasing, long

The ____ ___ effect: the larger the output, the more variable input required to produce additional units, which leads to _____ average variable cost.

diminishing returns, higher

Average fixed cost is ____ ward sloping because of the ______ ______

down, spreading effect

If entry causes the cost at original firms to fall (due to economies of scale in producing a scarce input) LRS is ______ sloping.

downward

_____ ______: rules that protect the environment by specifying actions by producers and consumers

environmental standards

__________ (________): the impact on third parties of a transaction between others.

externalities, spillovers

When a monopoly raises prices and lowers quantity, consumer surplus _______ and _____ ____ is created

falls, deadweight loss

Average fixed cost =

fc/q

In the short run, plant size is _____

fixed

A ______ _______ is a cost that does not depend on the quantity of output produced. Loosely, ______

fixed cost, overhead

A ______ _______ is an input whose quantity is fixed for a period and cannot be varied

fixed input

____ _____ __ _____: new producers can easily enter into an industry and existing producers can easily leave that industry

free entry and exit

To avoid deadweight loss, ____ ____attempts to prevent monopoly behavior

government policy

A ____ price attracts new entrants in the long run, raising industry output and lowering price.

higher

If entry has no effect on the costs of original firms, the LRS is ________

horizontal

The MPL is defined as the _______ in the quantity of output when you _______ the quantity of that input by one unit

increase, increase

Diminishing marginal product = ______ marginal cost

increasing

There are _____ returns to scale when ___-run average total cost declines as output increases.

increasing, long

If TR < TC, the firm ___ _ ____

incurs a lost

A fall in price _____ existing producers to exit in the long run, reducing industry output and raising price.

induces

A ____ ____ is the period in which all inputs can be varied

long run

The ___ ___ ___ ___ ___ ___shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output.

long run average total cost curve

Natural monopolies bring _______ costs

lower

The ____ ____ is the change in total cost generated by one additional unit of product

marginal cost

The _____ _______ of an input is the additional quantity of output that is produced by using one more unit of that input

marginal product

_______ __________ is the change in output resulting from a one-unit increase in the amount of labor input (Q/L)

marginal product

Always produce the largest quantity for which _____ _____ exceeds _____ ____

marginal revenue, marginal cost

The ___ ____ ____ of pollution is the additional gain to society as a whole from an additional unit of pollution

marginal social benefit

The ___ ___ ___ of pollution is the additional cost imposed on society as a whole by an additional unit of pollution

marginal social cost

______ ______: free market equilibrium that is not providing the socially optimal amount of a good

market failure

_____ ______: the ability of a firm to raise prices

market power

_____ ________ is the horizontal sum of MC curves above the shut down price

market supply

A _____ _____ exists when increasing returns to scale provide a large cost advantage to a single firm

natural monopoly

Barriers of entry can be: control of ______ _____ or inputs _________ returns to scale ___________ superiority _______ _____ barriers, including patents and copyrights.

natural resources, increasing, technological, government made

_______ ________: the value of a good or service to an individual increasing as more others use the same good or service.

network externality

_____ ____ _____: profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost

optimal output rule

A ____ gives an inventor a temporary monopoly in the use or sale of an invention

patent

The relationship between inputs and output is _________ but not _______-

positive, constant

_________ _______: they charge different prices to different consumers for the same good

price discrimination

A ____ ___: To sell the last unit, the monopolist must cut the market price on all units sold. This ______ total revenue

price effect, decrease

_______ ______: a price ceiling imposed on a monopolist does not create shortages if it is not set too low.

price regulation

Both sellers and buyers and ____ _____; their actions have no effect on price.

price takers

Since each firm is a price taker, each firms TOTAL REVENUE will equal:

price x quantity sold

A ____ _____ is the relationship between the quantity of inputs a firm uses and the quantity of output it produces.

production function

Marginal product of labor changes along the _______ ________

production function

The cost structure of a firm depends on the nature of the ______ _______

production process

If producing another unit adds more to revenue than cost, ____ will increase.

profit

If TR > TC, the firm is _______

profitable

If P > break even (min ATC), firms are _________; this profit _______ new entrants.

profitable, attracts

_______ ______ _______: Publicly owned companies are often poorly run

public government ownership

A ___ _____: one more unit is sold, increasing total revenue by the price at which the unit is sold

quantity effect

Sometimes, the best way to control an externality is to _____ production

reduce

If entry causes the cost at original firms to _____ (due to using a large share of a scarce input) the LRS is _____-sloping but flatter than SRS

rise, upward

Marginal product initially _______ as more workers are hired, then is _________

rises, declines

Fixed costs must be paid whether or not the firm produces in the ___ __

short run

The ______ ______ is the period in which at least one input is fixed.

short run

____ ____ ____: minimum average variable cost

shut down price

The ___ ____ ___ of pollution is the quantity society would choose if all costs and benefits were fully accounted for

socially optimal quantity

The ____ ____ is the larger the output, the more output over which fixed cost is spread. This leads to ____ average fixed cost.

spreading effect, lower

____ ________ aka ______: consumers regard different sellers products as equivalent.

standardized product, commodity

The total cost curve becomes _______ as more output is produced, a result of ____ ___

steeper, diminishing returns

Monopolists don't have _____ _____

supply curves

The ____ ____ of producing a given quantity of output is the sum of the fixed cost and the variable cost of producing that quantity of output

total cost

The ____ ____ ____ shows how the quantity of output depends on the quantity of the variable input for a given quantity of the fixed input.

total product curve

Profit:

total revenue - total cost

Marginal cost is ___ward sloping because of __________ _______

up, diminishing returns

All inputs are _______ in the long run

variable

A _____ _____ is a cost that depends on the quantity of output produced. Loosely, _____ ______

variable cost, operating costs.

A _______ _________ is an input whose quantity the firm can vary at any time.

variable input

Firms will choose to produce (even at a loss) if they can cover their _____ costs and SOME of their _____ costs

variable, fixed

average variable cost

vc/q

Different prices in different countries reflect _________ to pay

willingness