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54 Cards in this Set

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  • Back
demand curve facing the firm
a curve that indicates for different prices, the qty of output that customers will purchase from a particular firm
marginal revenue
the change in total revenue from producing one more unit of output MR=^TR/^Q
an increase in out put will always raise profit as long as...
marginal revenue is greater than marginal cost
to find the profit maximizing output level the firm should...
increase cost output whenever MR>MC and decrease output when MR<MC
the marginal revenue for any change in output is equal to...
the slope of the total revenue curve along that interval
to see how to increase profit use...
marginal cost & revenue
marginal approach to profit
a firm maximizes it's profit by taking any action that adds more to it's revenue than to it's costs
TVC "aka"
operating costs
shut down rule
SHORT RUN if the TR>TC it's ok if not shut down
perfect competition
a market structure in which there are many buyers and sellers the product is standardized and sellers can easily enter or exit the market
price taker
any firm that treats the price of it's product as given and beyond it's control
shut down price
the price at which a firm is indifferent between producing and shutting down
in a competitive market, positive economic profit...
continues to attract new entrants until economic profit is reduced to zero
zero economic profit means
some accounting profit or normal profit
in the long run, every competitive firm will earn...
normal profit
in the LONG RUN EQUILIBRIUM, every COMPETITIVE FIRM will select it's plant size and output level so that it operates at...
the minimum point of it's LRATC curve

P=MC=minimum ATC=minimum LRATC
long run supply curve
a curve indicating the quantity of output that all sellers in a market will produce at different prices after all long run adjustments have taken place
increasing cost industry
an industry in which the long run supply curve slopes upward because each firm's ATC curve shifts upward as industry output increases
constant cost industry
an industry in which the long run supply curve is horizonal because each firm's ATC curve is unaffected by changes in the industry output
the short run supply curve is
the part of the MC curve that lies above the average variable cost curve
total profit is
profit per unit (P-ATC) * the profit maximizing qty
3 barriers to a monopoly
1. economies of scale
2. legal
3. network externalities
patent
a temporary grant of monopoly rights over a new product or scientific discovery
government franchise
a gov't granted right to be the sole seller of a product or svc.
network externalities
a situation in which the value of a good or svc to each user increases as more ppl use it
a monopoly has no
supply curve. always chooses the profit maximizing price
rent seeking activity
any costly action a firm undertakes to establish or maintain it's monopoly status (part of costs and can sink normal profit to 0)
single price monopoly
a monopoly firm that is limited to charging the same price for each unit of output sold
price discrimination
charging different prices to different customers for reasons other than differences in cost
perfect price discrimination
charging each customer the most he or she would be willing to pay for each unit purchased
monopolistic competition
a market structure in which there are many firms selling products that are differentiated & in which there is easy entry & exit
In the long run, a firm earns zero economic profit when...
it's demand curve touches, but does not cross it's ATC curve
In the long run, a monopolistic competitor always produces...
on the downward sloping portion of it's ATC curve and therefore never produces at Min avg cost
In the long run, a mon. comp. will operate with...
excess capacity- it will produce too little output to achieve min cost per unit
oligopoly
a market structure in which a small # of firms are strategically interdenendent
mutual oligopoly
a market that tends naturally toward oligopoly because the minimum efficient scale of the typical firm is a large fraction of the mkt
game theory
an approach to modeling the strategic interaction of oligopolistic in terms of moves and counter moves
Nash equilibrium
a situation in which every player of a game takes the best action for themselves, given the actions taken by all other players
duopoly
an oligopoly mkt w/ only 2 sellers
explicit collusion
cooperation involving direct communication between competing firms about setting prices
cartel
a group of firms that selects a common price that maximizes total industry profits (price fixing agreements)
tacit collusiont
any form of oligopolistic cooperation that does not involve an explicit agreement
price leadership
a form of tacit collusion in which one firm sets a price that the other firms copy
product markets
markets in which firms sell goods and svcs to households or other firms
factor markets
markets in which resources-labor, capital, land and natural resources and entrepreneurship are sold to firms
perfectly competitve labor market
market with many indistinguishable sellers of labor and many buyers w/ easy entry & exit of workers
derived demand
the demand for a resource that arises from, and varies with, the demand for the product it helps to produce
marginal revenue product (MPR)
the change in the firm's total revenue divided by the change in it's employment of a resource
MRP =^TR/^Qty of resouce
marginal factor cost (MFC)
the change in the firm's total cost divided by the change in it's employment of a resource
MFC=^TC/^Qty of resource
The profit maximizing qty of any resource is...
MRP=MRC
In perfect com. mke w/ horizontal demand MRP=
P*MPL
wage taker
a firm that takes the market wage rate as a given when making employment decisions
to maximize profit the firm should hire the # of workers such that (perfectly competitive)
MRP=W
market labor demand curve
curve indicating