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48 Cards in this Set

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The amount a firm recieves for the sale of it's products
total revenue (TR)
the market value of the inputs a firm uses in production
total cost (TC)
Profit=
TR-TC
the increase in the quantity of output obtained from one additional unit of that input
marginal product (MP)
the _____ _____ is upward sloping, meaning ________.
production function; meaning that output increases as input increases.
the output increases at a decreasing rate. or in other words, the marginal product (MP) of input decreases as output increases.
diminishing marginal product
graphs the quantity produced on the horizontal axis & total cost on the vertitcal axis
total cost curve
costs that do not vary with the quantity of output produced, such as the cost to build a factory
fixed costs
costs that change as the firm alters the quantity of output produced, such as labor cost.
variable costs
total cost (TS)=
fixed cost + variable cost
marginal cost (MC)=
CHANGE in TC/CHANGE in Q
rising MC curve reflects..
diminishing marginal product
the average total cost (ATC) curve has a __ shape.
U
ATC=TC/Q=
(FC+VC)/Q=AFC+AVC
the ATC curve first declines because
the falling AFC curve dominates the AVC
later, ATC rises because
the rising AVC dominates the AFC
whenever MC is less that ATC,
ATC is falling
whenever MC is greater than ATC,
ATC is rising
MC curve crosses the ATC curve
at it's minimum
the long-run ATC curve is much _____ U-shape than the short-run ATC
flatter
all the short-run curves lie ___ or ___ the long-run curve. why?
on or above; because firms have more flexibility in long-run
when long-run ATC declines, as output increases, there is said to be
economics of scales
when long-run ATC rises as output increases, there is said to be
diseconomics of scales
when long-run ATC does not change as output increases, there is said to be
constant returns to scale
average revenue (AR)
TR/Q
marginal revenue (MR)
CHANGE in TR/CHANGE in Q=P (only in competitive relationships)
at Q*MR=
MC (holds true for all firms including those in a non-competitive market)
at Q*MR=MC=
P (only for competitive market firms)
rational decision makers think
at margin.
the supply curve of a competitive firm is givem by
a portion of its MC curve
in short run, a firm shuts down if
TR<VC, or P<AVC. as a result, the short-run supply curve for an individual firm is the MC curve above the AVC.
in long run, a firm exists if
TR<TC, or a firm exits when P<ATC.
at the long-run equilibrium, the number of firms
will not change
long-run equilibrium is only possible if.. P=
MC=ATC
if we assume all the firms in the market are the same & have the same cost curve, then the long-run supply curve of a competitive market is
a horizontal line passing the lowest point of the ATC curve
a firm that is the sole seller of a product without close substitutes
monopoly
monopoly arises for 3 reasons:
1. a key resource is owned by a single firm
2. gov. gives single firm the exclusive right
3. natural monopoly: the cost of prod. makes a single producer more efficient than a large number of producers
a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
natural monopoly
for all firms, average revenue equals
the price of the good.
for competitive firms, marginal revenue equals
the price of the good
if MR is greater than MC, the firm should
increase it's output
if MC is greater than MR, the firm should
decrease it's output
at the profit maximizing level of output, MC & MR are
exactly equal
a firm should shut down if
P<AVC
a cost that has already been committed & can't be recovered
sunk cost
a firm should exit the market if
P<ATC
a firm should enter the market if
P>ATC
the process of entry & exit only ends when
price & ATC are driven to equality