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45 Cards in this Set

  • Front
  • Back
implicit costs
not paid in money but represent oppotunity costs
those paid in money, eg.. wages
normal profit
the amount you need to susttain to maintain entrepreneurial ability
rental rate of capital
best forgone alternative of capital
the revenue a firm can get by renting its capital out to someone else
profit greater than 0
signal for firms to enter
profit = 0
no one leaves and no one enters, by accounting terms they are making $
where budgeted profit=actual profit
firms exit
marginal cost
change in TC/change in Q
Marginal product of labor
delta Q/delta L
-when at highest, MC Labor is at lowest
Marginal curve
tell you how expensive the last unit of a good costs
average cost of all the variable units, if the units are all high then they are going to be above the MC curve
Perfect competition
-has many buyers and sellers ,
-firms sell an idnetical product
-no restictions on entry-established firms have no advantage over new firms
-sellers and buter are well informed anout prices
economic efficiency
when a firm produces a given output at least cost
profit increases as you produce more
if you produce more the ectra cost you incur to make more decreases profit-produce less not more
producing more leads to no change in profit, stop producing if marginal cost is high
profit is positive
profit is 0
profit is negative

Law of diminishing returns
as a firm uses more od a carialbe input, with a given quantitiy of fixed inputs, the marginal product of the variable input eventaully decreases
as more firms enter.,,
supply increases, but the amount of quantity supplied by the existing firms goes down because the demand isn't as high and price eventually goes down
a firm has a monopoly if
they can produce something for which there are no close substitutes
-there are barriers to entry
the firm who owns this markey is the industry
-not price takesr
a monopolist would never prduce at a point where,
the demand curve is inelastic and MR-MC
a firm will price dicriminate if
it can identify and serpate different buyer types
it can produce a product that cannot be resold
what happens when a monopolist perfectly price discriminates?
there is no DWL and there is no CS.
what happens when a monopolist does price disrimnate
there is DWL because some consumers are willing to buy more but they are not willing to pay the price which the monopolist is changing
a cost or enefit that arises from production and falls on someone other than the producer
production externality
the producer
consumption externality
the consumer
negative externality
impose external costs, a cost on someone other than the producer and the consumer
positive externalityy
impose a benefit
positive production externality
benefit from production falls on someone other than the producer.
Ex getting the trader joe store would get rid of the swewage in the city of granger
begative prodcution externality
pollution, if a person creates a product that polites, the pollution can be viewed as a cost to the communit
negative consumption exxternality
second hand smoke
positive consumption externatliry
knowledge: if yo learn, everyone around yo benefits, Going to church
marginal private cost
the cost the firms mays to produce one more unit
marginal social cost
the sum of marhinal ecternal and marginal profits
how to decrease DWL in a perfectly competitive market that has externalities
get the MPc curve to moce onto the Marginal social cost curve, by making it easy for the houses to sue the factory, The factory thinks about producing more, but they realize that the costs from being sued will be greater then their profits-let the factory own the houses, they may want to rent tthem out, etc
2. Impose a tax in the industry to get the original price at MPC to move to MSC, The tax rate becomes the marginal external cost.
Pigovian tax
the tax created to reduce MSC.
ATC is U shaped because
of the spreading of total fixed cost over a larger output
eventually diminishing returns
economies of scale
features of a firms techology that leads to long run aberage costs falling as output increases
-when present, LRAC slopes down
Diseconomies of scale
features of a firms technology that leas to rising long run average cost as the output increases, when present, the Long run AC increases,
Constant returnds to scale
features of a firms technolohy that leas to constantlong run aberage cost asoutput decreases
-when present LR AC is horixontal
economic efficiecy
when a firm uses more goods whicj cost less and less goods which cost more