Econ Exam 3
diseconomies of scale
a condition in which the long-run average total cost of production increases as production increases
constant returns to scale
a condition in which the long-run average total cost of production remains constant as production increases
price discrimination in context
Bc of Price Discrimination, odds are that the last time you flew on an airplane, the person in the seat right next to you paid a different price for her seat than you did for yours
productive efficiency
Producing output at the lowest possible average total cost of production; using the fewest resources possible to produce a good or service
long-run average total cost curve (LRATC)
a curve showing the lowest average total cost possible for any given level of output when all inputs of production are variable
the shape of the long-run average total cost curve can differ for different types of firms, depending on:
how much production it takes to reach the minimum long-run average total cost
a pure monopoly is a price BLANK engaging in non price competition
maker
economic costs
the cost associated with the use of resources; the sum of explicit and implicit costs
average revenue
Revenue per unit sold, equal to total revenue divided by the quantity of output produced and sold
increasing marginal returns
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
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
economies of scale
a condition in which the long-run average total cost of production decreases as production increases
short-run average total cost curve (ATC)
a curve showing the average total cost for different levels of output when at least one input of production is fixed, typically plant capacity
monopoly
a market structure characterized by a single seller, producing a good or service for which there are no close substitutes, in a market with barriers to enter. A monopoly is a price maker
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. These sellers are price takers, can sell as much output as they choose to produce at the market price, and have the ability to easy enter or exit the industry.
long-run
a period of time in which all inputs or production are variable
short run
a point of time in which at least one input of production is fixed
short-run supply curve
a supply curve that represents the short-run relationship between price and quantity supplied. For a perfectly competitive firm, the portion of the marginal cost curve that is at or above the minimum point of the average variable cost curve.
explicit costs are also known as
accounting costs
total product
amount of output produced with a given amount of resources
barriers to entry
any impediments that prevent firms from entering a market or industry
short run
at least one input of production is fixed
average product
average amount of output produced per unit of a resource employed; total product divided by the number of units of a resource employed
declines as output increases Distance between AVC and ATC get smaller as output is produced, this is called:
average fixed cost
Marginal cost
can only equal the average cost when when the marginal cost is rising will cause the average cost to rise only if the marginal cost is rising
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 with the amount of output produced
Zero BLANK profit is the revenue needed for a company to break even and meet operating costs without a loss
economic
when the marginal product increases, the marginal cost of production:
falls
price takers
firms that take or accept the market price and have no ability to influence that price.
total cost
fixed costs + variable costs (of production)
long-run equilibrium
market condition in which firms do not face incentives to exit or enter the market and firms earn a normal profit. Generally, it occurs when the market price is equal to the minimum average total cost faced by firms.
explicit costs
monetary payments made by individuals, firms, and governments for the use of land, labor, capital and entrepreneurial ability owned by others. Also known as "accounting costs"
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
Economics of scale can result from:
productivity gains from more specialized labor lower costs of inputs as firms purchase larger quantities
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 1 more unit of a variable resources (i.e., labor or capital)
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
marginal revenue
the change in a firms total revenue that results from a 1-unit change in output produced and sold
normal profit
the level of profit that occurs when total revenue is equal to total cost. This level indicates that a 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. Normal profit is also known as zero economic profit.
loss
the level of profit that occurs when total revenue is less than total cost
minimum efficiency scale
the lowest level of output at which the long-run average total cost is minimized
implicit costs
the opportunity cost of using owned resources; cost for which no monetary payment is explicitly made
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. Numerically, this point occurs when marginal revenue equals marginal cost at the minimum average variable cost. Graphically, this point occurs where the price, or marginal revenue curve, intersects the marginal cost curve at the minimum point of the average variable cost curve (AVC).
total product
the total amount of output produced with a given amount of resources
deadweight loss
the value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium
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 cot per unit
economic profit
total revenue - economic costs, which include both explicit and implicit costs of production
accounting profit
total revenue - explicit cost of production
average variable cost
total variable cost divided by the amount of output produced; variable cost per unit