EC 201 Exam 2

Suppose firms face increasing returns to scale throughout the range of possible firm sizes. Discuss the advantage and disadvantages, in terms of economic efficiency, of allowing a single firm to dominate the market.

Fewer resources will be used to produce the product if a single firm produces the good or service. Economic efficiency will be enhanced. However, the single firm will not produce an amount that is economically efficient because of its market power. Thus, the outcome will be less than economically efficient. The dilemma is how to take advantage of the economies of scale and at the same time end up with an economically efficient amount of output.

In your own words, explain why a firm should produce where marginal revenue is equal to marginal cost (or as close to equal as possible).

if marginal revenue is greater than marginal cost, then profits increase as quantity increases. If marginal revenue is less than marginal cost, then profits are decreasing as quantity increases. The point where marginal revenue is equal to marginal cost occurs when profits are maximized.

Economies of scale

long-run average total cost decreases as the quantity of output increases

Diseconomies of scale

long-run average total cost increases as the quantity of output increases

Constant returns to scale

long-run average total cost remains constant as the quantity of output increases.

Total Revenue

the # of goods sold X price at which it is sold

average cost

total cost divided by total output

average cost

total cost/total product

In the short run, how will a decrease in variable costs affect the output of a typical firm in a competitive market? A. An increase in output B. A decrease in output C. No change in output D. Cannot Tell

A. An increase in output

market supply

the sum of all of the individual firms' quantities supplied at each price

total cost

the sum of total fixed cost and total variable cost

An increase in technology will cause the total product function to ______________ and average costs to ______________. A. Increase; increase B. Not change; decrease C. Not change; not change D. Increase; not change E. Increase; increase

A. Increase; increase

If a monopoly faces a demand curve that is downward-sloping, then marginal revenue will be which of the following? A. must be less than price B. Must be equal to price C. Must be greater than price D. Is not related to the price

A. Must be less than price

Explain why an equality of marginal product per dollar spent on inputs minimizes costs per unit of output.

If the marginal products per additional dollar spent on all inputs are not equal, a firm can reduce inputs that have lower marginal products per dollar spent and take a portion of those dollars saved and spend them on other inputs. The firm will have reduced costs as a result.

short-run

a period in which at least one input or factory of production is fixed

technological change

a shift in the production function, usually in the direction of a greater quantity of output at each level of input. Technological change may be the result of creation of new products, redesign of old products, or the creation of new methods of manufacturing

Long-run

a time period long enough for a business to change all of its inputs (factors of production).

entry barriers

any impediment that makes entry into a market difficult or impossible for new firms

long-run market supply

the quantity supplied at each price, after firms are given time to vary all inputs and enter and exit the industry

total product

the total amount of output produced

average product

the total product/# of units of particular input

Variable costs

the costs (prices multiplied by amounts of inputs) of the inputs that can be changed. In the long-run, all inputs are variable. These costs vary as output changes

At 1,000 units of output, the fixed cost of production is $12,500 per week. Total cost of producing 1,000 units per week is $28,500 per week. The variable cost of producing 1,000 units of output per week is equal to _____. A. $16,00 B. $41,000 C. $16 D. $41,000,000

A. $16,000

short run

a time period in which at least one input cannot be changed

total fixed cost

the costs (prices multiplied by the amount of inputs) of the inputs that are fixed. Also the amount of cost when total product is zero. Total fixed costs are costs that do not vary as output changes

marginal product

the increase in output from using one more unit of an input while all other inputs are constant; change in total product/change in L

Tony's Gas Station and Robert's Gas Station are the only two gas stations in a small town of Westville. If Tony and Robert collude to earn more profits, which of the following would be true? A. Each limit the amount of gasoline available and raise prices B. Each limit the amount of gasoline available and lower prices C. Each increase the amount of gasoline available and raise prices D. Each increase the amount of gasoline available and lower prices

A. Each limit the amount of gasoline available and raise prices

As a firm increases output, long-run average costs typically _________. A. Rise, peak, then fall B. Fall, hit a minimum, then rise C. Increase gradually D. Remain constant

B. Fall, hit a minimum, then rise

Suppose a firm doubles its inputs (therefore doubling its total costs as well). If this firm is experiencing diseconomies of scale, then __________. A. Output will double B. Output will increase, but less than double C. Output will remain the same D. Output will decrease

B. Output will increase, but less than double

At the current level of output, MPL = 30 and MPK = 50. Also assume that in this industry, W = 5 and R = 10. Keeping output the same, how can this firm lower production costs? A. use more K and less L B. Use more L and less K C. The firm is already using the optimal cost-minimizing combination of inputs for this level of output

B. Use more L and less K

For a firm, the short-run is defined as being __________. A. a period of time less than one year B. A period of time less than one month C. A period of time in which at least one of the firm's inputs in unchangeable D. A period of time in which all the firm's inputs are variable

C. A period of time in which at least one of the firm's inputs is unchangeable

What is true about the long-run for a firm? A. At least one input cannot be changed B. The firm only uses one of either capital or labor, whichever one is cheapest C. All inputs can be changed D. No inputs can be changed

C. All inputs can be changed

With a monopoly, marginal cost is less than price. Does that mean too much or too little is produced by a monopoly for allocative efficiency? Why?

Given that marginal cost is less than price for a monopoly, the marginal utility / marginal cost ratio for the monopoly's product will be greater than the marginal utility / marginal cost ratio for the rest of the economy, assuming that the rest of the economy is closer to being competitive. Thus, if the rest of the economy produces less and those resources are moved to the monopolistic industry, there will be a net gain in satisfaction. The monopolist, in other words, is producing too little for allocative efficiency.

Marginal product of capital (MPK)

The change in total output that results from the firm hiring one more unit of capital

Does the law of diminishing marginal product hold in the long-run? Why or why not?

Yes, it still holds. We can still hold an input constant in the long-run, but we have the option to change them all. If we hold capital constant, we'll still see diminishing marginal returns to labor. But remember that in the long-run we can add more capital if we need to.

natural monopoly

a firm that can produce at a lower average cost per unit of output than a number of smaller firms producing a similar amount of total output

predatory pricing

a firm that lowers prices with the purpose of driving competitors out of a market, increasing its own market power and eventually reducing output and raising prices is engaging in this

average cost pricing

a price set by a regulator of a natural monopoly, equal to average cost at the corresponding quantity demanded

marginal cost pricing

a price, set by a regulator of a natural monopoly, equal to marginal cost at the corresponding quantity demanded

In the long-run, marginal cost will be ____________ average cost if the firm is experiencing economies of scale. A. Below B. Above C. Equal to D. None of the above. Marginal cost is a short-run concept

A. Below *Average cost is decreasing so marginal cost must be below, and it is both a short-run and long-run concept

An increase in the prices of an input will cause long-run average costs to __________. A. Increase B. Decrease C. Not change. The input is fixed. D. Either increase or decrease, depending upon whether variable inputs are substituted

A. Increase

If the quantity of an input is variable in the short run, its total cost will ______________ as output increases. A. Increase B. Decrease C. Stay the same D. Rise then fall

A. Increase

A single firm in a perfectly competitive market is a _________. A. price-taker B. Price-maker C. Quantity-taker D. Quality-maker

A. Price-taker

Will a change in fixed costs change average cost? A. Yes B. No

A. Yes A change in fixed costs changes average costs because average cost is total fixed cost plus total variable cost divided by amount of output. Thus, average cost will also change as fixed cost changes.

Will a change in fixed costs change total fixed cost? A. Yes B. No

A. Yes Fixed cot is part of total fixed cost; thus, the latter will change when fixed cost changes

Marginal revenue is only positive when demand is _______. A. elastic B. Inelastic C. Neither elastic or inelastic

A. elastic

A profit-maximizing monopolist produces where marginal cost is equal to ________. A. price B. Marginal Revenue C. 0 D. The minimum

B. Marginal Revenue

In the short run, an increase in wages (the price of the variable input) will cause average cost to ______________ and marginal cost to ______________. A. increase; decrease B. Note change; not change C. Increase; increase D. Decrease; decrease E. Decrease; increase

C. Increase; increase

What is a reason that monopolies exist? A. A firm owns a resource that no one else has B. A firm is given legal protection that prevents another firm from entering C. A firm naturally drives out competitors through lower prices D. All of the above are reasons

D. All of the above are reasons

The slope of a firm's production function will ______ as the amount of a variable input used increases if the input experiences diminishing marginal productivity. A. Not change B. Be indeterminate depending on the amount of the variable input used C. Increase D. Decrease

D. Decrease

Compared to a perfectly competitive market, a natural monopolist will have a.) ______________ (higher / lower / either higher or lower) average costs and may charge a b.)______________ (higher / lower / either higher or lower) price.

Lower; Either higher or lower

The addition of a single firm in a competitive market will cause the market ______________ to ______________. A. Demand; increase B. Demand; decrease C. Supply; increase D. Supply; decrease E. Supply and demand; not change

C. Supply; increase

In perfect competition, the demand curve for an individual's firm product is _________. A. Downward sloping B. Relatively Elastic C. Perfectly Inelastic D. Perfectly Elastic

D. Perfectly Elastic

concentration ratio

a 4 firm concentration ratio is the percentage of industry sales sold by the 4 largest firms in the industry. Other similar measures, that indicate the degree of market power and competitiveness, are often used

Price-taker

a firm "takes the price that is given it by the market supply and demand conditions. The firm can do nothing to change the price

firm supply

a firm's quantity supplied at each price leel

production function

a function showing the maximum output for each specific combination of inputs, given technology

Suppose that a factory is producing two automobiles per hour. The total fixed cost is $20,000. The total variable cost is $10,000. The average cost is ______________.

15000 Average cost is the total fixed plus the total variable cost divided by the number produced. Thus, average cost equals $15,000

Given the previous two questions, suppose that we now increase production by one automobile per hour. If the cost of that additional automobile is $18,000, what is the new average?

16000 The average cost would be total cost ($15,000 + $15,000 + $18,000) divided by the number of automobiles produced (3). Average cost is $16,000. The lesson to remember is that if marginal cost is greater than the average cost, the average cost will increase.

In the long run, a monopolist facing the same cost curves as a perfectly competitive firm will charge a ______________ price than the competitive market and produce a ______________ output. A. Lower; higher B. Lower; lower C. Higher; higher D. Higher; lower

D. Higher; lower

Marginal cost

the change in total costs that results from increasing total product by one unit

law of diminishing marginal return

the marginal product of an input will eventually decrease as more of that input is used. The law of diminishing marginal returns assumes all other inputs remain constant

Assume that competitive firms and a competitive market are in long-run equilibrium. In the short run, what will be the effects of an increase in fixed costs on the output of a typical firm in a competitive market? A. An increase in output B. A decrease in output C. No change in output D. Cannot tell

C. No change in output

perfectly competitive markets

a market with many buyers and sellers, with each seller offering the same good/service. Consumers and producers are aware of quality of inputs and goods and prices. Firms can easily enter and exit the industry.

long run

a time period long enough that all inputs can be changed

total revenue

the amount a firm receives for its product at each level of output

accounting profit

total revenue - explicit costs if it could be earned elsewhere it's not counted as a cost

average revenue

total revenue/quantity sold

A long-run average cost curve that rises through all levels of possible outputs represents which effect? A. The law of diminishing marginal retunrs B. Economies of scale C. Diseconomies of scale D. None of the above.

C. Diseconomies of Scale *Diseconomies of scale means that if all inputs are doubled, output will be less than doubled. Thus, the cost will increase as the scale of the firm increases.

Consider two students, each earning 1300 on the quantitative and verbal portions of the SAT. The average SAT score for our group of two is 1300, of course. (1300 + 1300)/2. Suppose we add one more student to the group and calculate the new average. What will the new average be if the third student has an SAT that is equal to 1300?

1300 (1300+1300+1300)/3

If the cost of that additional automobile is $12,000, what is the new average?

14000 The average cost would be total cost ($15,000 + $15,000 + $12,000) divided by the number of automobiles produced (3). Average cost is $14,000. The lesson to remember is that if marginal cost is less than the average cost, the average cost will decrease.

Explain, in your own words, why marginal revenue for a monopolist declines as output increases.

A monopolist faces the market demand curve. It is the market. However, the law of demand tells us that to increase sales by one, the price must decrease. Thus, if the monopolist is to sell one more unit, it will gain the revenue from the additional unit, but lose revenues on all units sold up to the last one. If the monopolist continues to expand output, marginal revenue will decline. The additional revenue from selling one more unit will be less, and the reduction in price will be on larger numbers of units sold.

The marginal product of an automobile assembly line worker is currently one automobile per month. The wage and benefits of that typical worker is currently $4,000 per month. A new robot will cost $20,000 per month and its marginal product is four automobiles per month. If the automobile company wants to continue producing its current level of output, which of the following should it do? A. Hire more labor and buy fewer robots B. Hire less labor and buy more robots C. Hire more labor and more robots D. Change neither the current levels of labor or robots

A. Hire more labor and buy fewer robots

What do you think would happen in a commercial neighborhood near your home if a restaurant in that neighborhood were making a great deal of profit (select all that apply)? A. In-and-Out burger will open a new franchise B. Domino's Pizza will move to this neighborhood from a rundown area of the town C. Chipotle will open a new store next door D. The restaurant will close down

A. In-and-Out burger will open a new franchise B. Domino's Pizza will move to this neighborhood from a rundown area of the town C. Chipotle will open a new store next door

A profit-maximizing monopoly will produce where which of the following is true? A. Marginal revenue is less than the price B. Marginal revenue is equal to the marginal cost C. Marginal revenue is positive

All of the Above

Is it possible for marginal cost to be falling and average cost to be rising?

As long as marginal cost is greater than average cost, average cost will be rising. But if you draw a graph with both marginal cost and average cost (such as in Figure 7.12) you will see that for every point that average cost is rising, not only is marginal cost greater than average cost but it is also rising. What would have to happen for marginal cost to decrease after it has already started to increase is that at some level of production, a new opportunity for increases in marginal productivity would have to appear. With a fixed amount of capital, this is highly unlikely (and well beyond any theory we have developed here). Therefore, we would not expect to witness decreasing marginal cost and increasing average cost at any level of output. (Note: it is possible to see increasing marginal cost and decreasing average cost. Look at the levels of output just before minimum average cost.)

Marcus has four employees. The four employees produce 55 floral arrangements in a day. Marcus hires a fifth employee. The five employees produce 60 floral arrangements in a day. The fifth employee's marginal product is __________. A. 60 floral arrangements in a day B. 5 floral arrangements in a day C. 11 3/4 floral arrangements in a day D. 12 floral arrangements in a day

B. 5 floral arrangements in a day

What does diminishing marginal productivity mean? A. As you increase the amount of a variable input, its average product eventually gets smaller B. As you increase the amount of a variable input, its marginal product eventually gets smaller. C. As you increase the amount of a fixed input, its marginal product eventually gets smaller D. As you increase the amount of variable input, total output eventually declines

B. As you increase the amount of a variable input, its marginal product eventually gets smaller.

What are two of the reasons that average cost tends to have a "bowl" shape? A. Fixed costs tend to dominate high levels of output and variable costs tend to dominate low levels of output B. Fixed costs tend to dominate low levels of output and variable costs tend to dominate high levels of output C. Fixed costs and variable costs tend to dominate low levels of output D. Fixed costs and variable costs tend to dominate high levels of output

B. Fixed costs tend to dominate low levels of output and variable costs tend to dominate high levels of output

Will a change in fixed costs change marginal cost? A. Yes B. No

B. No A change in fixed costs will only change total costs and average costs. Marginal cost is affected only by changes in variable costs.

Will a change in fixed costs change total variable cost? A. Yes B. No

B. No Changes in fixed costs fo not change total variable costs. A change i the cost of variable inputs will change total variable costs

Why do barriers to entry allow a monopolist to make positive economic profits? A. It causes the monopoly to have lower costs B. Otherwise, firms would enter the market, resulting in a decrease in price and profits C. It allows the monopoly to be price-takers D. It does not need a barrier to entry because of the market demand

B. Otherwise, firms would enter the market, resulting in a decrease in price and profits

In the long-run, what will diminishing marginal returns be? A. Relevant if all inputs are changed B. Relevant if one input is changed while the other input is held constant or reduced C. Not be relevant, because all inputs can be changed D. Apply of all resources are increased in portion to one another

B. Relevant if one input is changed while the other input is held constant or reduced

Suppose a firm doubles its inputs in the long-run, and as a result, output doubles. Which of the following is true? A. this firm is experiencing economies of scale B. This firm is experiencing constant returns to scale C. This firm is not using the lowest cost combination of capital and labor D. This firm is growing too fast and reducing profits

B. This firm is experiencing constant returns to scale

Compare the levels of economic profits in a long-run equilibrium for a perfectly competitive firm, a monopoly, a monopolistically competitive firm, and an oligopoly. Economic profits will most likely be: A. Zero in perfect competition and positive in monopoly, monopolistic competition and oligopoly B. Zero in perfect competition and monopolistic competition, perhaps positive in a monopoly and perhaps positive in oligopoly C. Zero in perfect competition, monopolistic competition, and oligopoly and perhaps positive in monopoly D. Zero in all four market models E. Positive in all four market models

B. Zero in perfect competition and monopolistic competition, perhaps positive in a monopoly and perhaps positive in oligopoly

Alicia is currently spending $6,000 per week on total variable costs to produce 500 hats. To produce 505 hats per week she would have to spend $6,100 per week. The marginal cost per hat is ______ A. $6,100 B. $100 C. $20 D. $5

C. $20 ($6,100-$6,000)/(505-500)

The production of 12,000 candy bars per day requires 60 workers. The average product of each worker is ______________ candy bars per day. A. 12,000 B. 600 C. 200 D. 20

C. 200 12,000/60

A decrease in variable costs in the short run will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market. A. Not change; not change B. Increase; decrease C. Decrease; increase D. Not change; increase

C. Decrease; increase

A decrease in variable costs in the long run will cause the equilibrium price to ______________ and the equilibrium quantity in the market to ______________. A. Not change; not change B. Increase; decrease C. Decrease; increase by more than in the short run D. Decrease; increase less than in the short run

C. Decrease; increase by more than in the short run

Which of the following is a characteristic of perfect competition? A. Differentiated products B. A small number of firms competing C. Easy entry for firms D. None of the above

C. Easy entry for firms

A natural monopolist will face which of the following? A. The same costs a competitive industry faces B. Ownership of all of the sources of a natural resource C. Economies of Scale D. Prices that are higher than average costs, while other monopolists will have average costs that are higher than prices

C. Economies of Scale because: A natural monopolist will be able to produce more than competitive firms and force those firms out of business. The competitive firms will not be able to compete with the single large firm. It is "natural" because the situation will naturally (based on cost functions) result in a single firm operating in the market.

In the long run, a monopolistically competitive firm will produce where price _________. A. equals marginal cost and is greater than average cost B. Equals marginal and average cost C. Equals average cost and is greater than the marginal cost D. Is greater than marginal and average cost

C. Equals average cost and is greater than the marginal cost

Why can't a single firm in a perfectly competitive industry influence the market price? A. Its costs are too high B. It is not allowed to advertise C. Its production level is too small to affect the marker D. It is a price maker

C. Its production level is too small to affect the market

What is the main source of diseconomies of scale? A. physical capital breaking more often with large output levels B. Specialization of capital and labor C. Limited ability to manage and coordinate larger amounts of inputs D. Workers getting fatigued

C. Limited ability to manage and coordinate larger amounts of inputs

Economies of scale happen when increases in output result in _________. A. increasing average costs B. Constant average costs C. Lower average costs D. Lower total costs

C. Lower average costs

The Coca-Cola Company is the only producer of Coca-Cola. Is it considered a monopoly? A. Yes, it is the only firm with the recipe for a real Coca-Cola B. Yes, because Coca-Cola has no close substitutes C.No, because Coca-Cola has many close substitutes

C. No, because Coca-Cola has many close substitutes

Assume the following data. The marginal product of labor is 150 washed cars per day. The daily wage is $60. If the marginal product of machines that would wash cars is 200 per day and the rent for the machines is $80, what will the firm do? A. Rent more machines, because their marginal products are higher B. Hire more workers, because they cost less per day C. Not change the number of machines or workers D. Expand both the number of machines and workers

C. Not change the number of machines or workers

Currently, the marginal product of labor is 45 units per week. The average product of labor at the current level of output is 32 units per week. If the employer hires one more worker, the marginal product of labor will be 47 units per week. The average product of labor will ______________. A. Equal the marginal product of labor B. Fall C. Rise D. Stay the Same

C. Rise

Suppose an additional worker can handle an additional 10 orders per hour. That will cost $15 per hour. An additional telephone answering machine will handle an additional 20 calls per hour at a cost of $10 per hour. Which of the following is correct? A. the firm should increase labor and decrease capital, because labor costs more per hour B. The firm should increase capital and decrease labor, because labor produces less per hour C. The firm should increase capital and decrease labor, because labor produces less per dollar spent D. The firm should increase labor and decrease capital, because labor produces less per dollar spent

C. The firm should increase capital and decrease labor, because labor produces less per dollar spent

A production function can best be described as which of the following? A. A graphical depiction of what can and cannot be produced with a given amount of inputs B. The quantity of inputs required to produce each unit of output in a given amount of time C. The relationship between the quantity of outputs produced in a given amount of time D. The quantity of outputs created by a given quantity of inputs in a given amount of time

C. The relationship between the quantity of outputs produced in a given amount of time

Marginal cost is the slope of _______. A. The average cost curve B. The average product curve C. The total cost curve D. The marginal product curve

C. The total cost curve The slope of the total cost curve is the change in total cost divided by the change in total product and thus is equal to the increase in total cost caused by an increase of one unit of output. That is the definition of marginal cost.

In the long run, the monopolist ______________ (will/will not) produce a quantity where average cost is at a minimum, whereas the perfectly competitive firm ______________ (will/will not) produce that quantity A. Will; will B. Will; will not C. Will not; will D. Will not; will not

C. Will not; will

At 1,000 units of output the fixed cost of production is $12,500 per week. Total cost of producing 1,000 units per week is $28,500 per week. If labor is the only variable input and the weekly wage is $1,600, how much labor is being used produce 1,000 units of output? A. 5.0 B. 17.8 C. 16.0 D. 10.0

D. 10.0

The law of diminishing marginal returns is the cause of ______________ marginal product and ______________ marginal cost A. Increasing; increasing B. Increasing; decreasing C. Decreasing; decreasing D. Decreasing; increasing

D. Decreasing; Increasing The law of diminishing marginal returns states that if every other input is held constant, increases in the variable input will eventually result in smaller increases in output. Thus, marginal product eventually decreases. A decreasing marginal product means that a given change in input produces smaller additions to output. Thus, the cost of those additional units of output, the marginal cost, must increase.

Assume an additional waiter can increase the number of customers served in a restaurant by 100 customers per day. The waiter will cost the restaurant $50 per day. On the other hand, a new microwave oven will speed the cooking process and allow each customer to be served more quickly. The oven will allow 200 more customers to be served with no additional labor. The oven can be rented for $75 per day. What should the restaurant do? A. Hire another waiter, because the waiter is cheaper B. Rent a microwave because the expansion in output is greater than the increase resulting from a new waiter C. Hire another waiter, because the increase in output per dollar spent is greater than the increase per dollar spent from renting a microwave D. Rent a microwave, because the increase in output per dollar spent is greater than the increase in output per dollar spent from hiring another worker

D. Rent a microwave, because the increase in output per dollar spent is greater than the increase in output per dollar spent from hiring another worker

Assume that wages are $20 per hour; at the current number of hours of labor employed, the marginal product of an hour of labor is 10 units of output. Labor is the only variable input. What will happen to marginal cost if you hire one more hour of labor and the marginal product of the next hour of labor employed increases to 15 units of output?

If an hour of labor produces 10 more units of output in an hour and that hour of labor costs $20, the marginal cost is (1 hour x $20) / 10 units of output. That is equal to a marginal cost of $2 per unit. If the next hour of labor's marginal product increases to 15 units per hour, the marginal cost will fall to $1.33 per unit. (1 hour x $20) / 15 units of output = $1.33 per additional unit of output.

If the marginal product of a machine is twice the marginal product of an additional worker and the cost of the machine is one-half the cost of that worker, what should a firm do about its current use of capital and labor? Explain why.

The marginal product per dollar spent on machines is greater than the marginal product per dollar spent on labor. Thus, the firm should reduce the labor and expand the amount of capital. A reduction of one worker will allow the firm to rent two machines. Because the marginal product of a machine is twice that of a worker, output (for the same cost) will increase by four times the output lost by reducing workers.

If a fixed cost does not change as output changes, why do you still have to pay it if you produce zero output?

There are some inputs that you must commit to just to get into the market. For example, you may need factory space. You will have to sign a lease or a loan agreement to get access to the space. The owner of the space or the bank that lends you the money does not care how much you produce. They must get paid every month no matter what. You may have to pay out of your own resources if you produce nothing.

Cartel

a group of producers agreeing to act in concert with one another

economic profits

accounting profits - normal profits

Total costs

all costs of producing a specific amount of output

oligopoly

an industry with few producers, high entry barriers, and each one has market power. They compete on either price or quantity and may charge the same or different prices

monopolistic competition

an industry with many competitors, all producing slightly different products

Marginal analysis

comparing the additional benefits resulting from a decision with the marginal costs

total variable costs

for a given level of output, the costs (prices multiplied by the amount of inputs) of the inputs that can be changed. These costs vary as output changes

antitrust law

legislation that restricts deliberate formation of monopolies and prevents firms from engaging in anticompetitive practices

average variable cost

total variable costs divided by total output. Same as average total cost or average cost in the long-run, when all costs are variable.

payoff matrix

usually a 2 by 2 table with 2 actors/players. Each player will have a set of actions that will result in different payoffs. Each player's payoff is dependent on both player's course of action

factors of production

resources used to produce goods and services, often divided into 3 categories: labor, all of the physical and mental inputs of people; capital, the machines, tools, buildings, and inventories; the machines, tools, buildings, and inventories; the land; the actual land used; including raw materials from the land

marginal cost

the change in total costs that results from increasing total product by one unit; change in TC/change in Q

Marginal product of labor (MPL)

the change in total output that results from the firm hiring one more unit of labor

marginal revenue

the change in total revenue resulting from the sale of one more unit