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59 Cards in this Set

  • Front
  • Back
According to the Law of Supply:
- Firms are willing to produce and sell a greater quantity of a good when the price of the good is high
- This results in a supply curve that slopes upward.
Goal of a firm
The economic goal of the firm is to maximize profits.
Total Revenue
the amount a firm recieves for the sale of its output.
total cost
the market value of the inputs a firm uses in production
profit
the firm's total revenue minus its total profit
what is the cost of something?
what you give up to get it
what must the costs of producing an item include?
all of the opportunity costs of inputs used in production
explicit costs
input costs that require a direct outlay of money by the firm
implicit costs
input costs that do not require an outlay of money by the firm
what is the major way in whic accountants and economists differ in analyzing the performance of companies?
accountants focus only on explicit costs, while economists examine both explicit and implicit costs
how do economists measure profit?
they measure it as total revenue minus total cost, including both explicit and implicit costs.
how do accountants measure profit?
they measure it as the firm's total revenue minus only the firm's explicit costs.
what is the production function?
it shows the relationship between quantity of inputs used to mkae a good and the quantity of output of that good.
what is the short run?
a period of time in which the quantity of at least one input is fixed and the quantities of the other inputs can be varied.
what is the long run?
a period of time in which the quantities of all inputs can be varied.
what is the marginal product?
the increase in output that arises from an additional unit of that input.
what is the equation of marginal product of labor?
marginal product of labor = (change in output)/(change in labor)
what is diminishing marginal product?
the property whereby the marginal product of an input declines as the quantity of the input increases.
as the amount of labor used increases, what falls?
the marginal product
what are fixed costs?
costs that do not vary with the quantity of output produced.
what are variable costs?
costs that do vary with the quantity of output produced
what is the average total cost?
(total cost) / (quantity of output)
what is the average fixed cost?
(fixed costs) / (quantity of output)
what is the average variable cost?
(variable cost) / (quantity of output)
what is the marginal cost?
the increase in total cost that arises from an extra unit of production.
what is a competitive market?
a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker
what are the characteristics of a perfectly competitve market?
1) there are many buyers and sellers in the market
2) the goods offered by the various sellers are largely the same
3) firms can freely enter or exit the market
what must buyers and sellers accept?
the price determined by the market
total revenue equals
(selling price) x (quantity sold)
how can firms in perfect competition change their level of total revenue?
by varying their level of output because they have no ability to change the price
what is marginal revenue?
the change in total revenue from an additional unit sold
average revenue is always equal to...
price
marginal revenue is equal to...
price only for firms who operate in perfectly competitve firms
what does average revenue tell us?
how much revenue a firm recieves for the typical unit sold
the marginal cost curve is ___ sloping
upward
the average total cost curve is ___ shaped
U
the marginal total cost curve crosses the average total cost curve where?
at the minimum of average total cost
marginal and average revenue can be shown how at the market price?
by a horizontal line
what is a shutdown?
it refers to a short-run decision not to produce anything during a specific period of time because of current market conditions
what is an exit?
a long-run decision to leave the market
when should a firm shut down?
when the revenue it gets from producing is less than the variable cost of production
when should a firm exit?
when the revenue it would get from producing is less than its total cost
what is a competitive firm's long-run supply curve?
the portion of its marginal-cost curve tha tlies above average total cost
what is short-run supply curve?
the portion of its marginal cost curve that lies above average variable cost
what is the long-run supply curve?
the marginal cost curve above the minimum point of its average total cost curve
a competitive firm is a price ____
taker
a monoploy firm is a price ___
maker
a firm is considered a monopoly if
1) it is the sole seller of its product
2) its product does not have close substitutes
what is the fundamental cause of monopoly?
barriers to entry
what are the three causes of barriers to entry?
1) ownership of a key resource
2) the government gives a single firm the exclusive right to produce some good
3) costs of production make a single producermore efficient than a large number of producers
what are two examples of how a government creates a monopoly to serve the public interest?
patent and copyright laws
what is a natural monopoly?
when a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
4 characteristics of a monopoly
1) is the sole producer
2) faces a downward-sloping demand curve
3) is a price maker
4) reduces price to increase sales
4 characteristics of a competitive firm
1) is one of many producers
2) faces a horizontal demand curve
3) is a price taker
4) sells as much or as little at the same price
what is the key differnce between a competitive firm and a monopoly?
the monopoly's ability to control price
a competitive firm faces a perfectly ___ demand at the market price.
elastic
a monopolists' marginal revenue is always ___ ___ the price of its good. the demand curve is ___ sloping
less than; downward
what is the output effect?
when the monopolist sells one more unit, his total revenue (P x Q) will rise because his Q is getting larger
what is the Price effect?
when the monopolist sells one more unit, he must lower price. this means his total revenue will fall because P is getting smaller.