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37 Cards in this Set
- Front
- Back
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TC
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Explicit Cost and implicit cost
VC+FC |
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Explicit cost
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Actual Monetary expenditures
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Implicit Cost
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What would have been earned on next best alternative
Value of time in operation of firm |
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Accounting Profit
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TR-EC
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Economic Profit
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TR-TC or TR-(EC+IC)
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Reasons to Operate when you have a loss
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Value
Future Expectations |
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When are you in the best investment
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EP>0
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When are there no better investments but one at least as good
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EP=0
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When is there a better investment
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EP<0
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Opportunity Cost
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What you could earn from best alternative
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Variable Costs
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Costs that vary with output
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Fixed Costs
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Independent of Q fixed in short range, vary in long range
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Margincal Cost
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How much will it cost to make one additional unit
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Total Cost in relation ot marginal cost
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1) at first increase in marginal returns leads to MC to decrease so total cost less steep
2) Marginal returns decrease so MC increase so total cost more steep |
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LRACC
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planning curve- indicates the lowest cost of production at each rate of output when the size of a firm varies
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SRACT
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Is tangent to the LRACT at most productive point
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Economies of scale
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forces that reduce a firms average cost as the scale of operations increases in the long run
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Sources of Economies of Scale
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Increase in size alows for increased specialization of machines and labor
Production technology can be introduced |
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Diseconomies of scale
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Forces that increase average cost as scale of operations increase in long range
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Sources of diseconomies of scale
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increase in variety of workforce means increase in coordination
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When are firms price takers
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When they are in perfect competition
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What is the difference between 0 accounting profit and 0 economic profit
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0 accounting profit-going out of business
0 economic profit doing ok |
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What is a price searcher market
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large relative to the market and/or quality differences in output
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What are types of price searcher markets
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1 large firm w/o quality difference
2 small but output differences 3 big firms with quality differences |
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What is an example of each type of price searcher
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1. large w/o quality diff- cement
2. small but output diff. - watches 3. big with quality diff. cars |
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Open Market
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Market without barriers to entry or exit
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Closed Market
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Some barriers to entry or exit
2 types Government imposed Natural size to be comp. limits |
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Big implication of Profit and Loss
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Don't want to see a firm constantly making p>0 or loss<0. Market is self correcting and in an open market p and l will tend to zero
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positive profit
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bigger rate of return than market
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Monopolistic Competition
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Large number of firms
output of similar quality barriers if any are minor |
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non-price competition
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maintain increase in quantity without increase in price
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ologopoly
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a few large firms
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Collusion
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Any attempt to reduce competition
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Price Fixing
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Demand for one firm is elastic, but the demand together is inelastic
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When can price fixing happen
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Oligopoly
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Cartel
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Firms act as a monopoly to set price to maximize total industry profit
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Factors that disband cartels
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1 disagreement over allocated quotas of production
2 at increased cartel price, new firms will enter 3 small firms not in cartel may grow 4 there is incentive to be the first to lower price 5 second law of demand- D becomes more elastic over time |
