Macroeconomics Ch. 13-15

Front 1

According to the Law of Supply:

Back 1

- 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.

Front 2

Goal of a firm

Back 2

The economic goal of the firm is to maximize profits.

Front 3

Total Revenue

Back 3

the amount a firm recieves for the sale of its output.

Front 4

total cost

Back 4

the market value of the inputs a firm uses in production

Front 5

profit

Back 5

the firm's total revenue minus its total profit

Front 6

what is the cost of something?

Back 6

what you give up to get it

Front 7

what must the costs of producing an item include?

Back 7

all of the opportunity costs of inputs used in production

Front 8

explicit costs

Back 8

input costs that require a direct outlay of money by the firm

Front 9

implicit costs

Back 9

input costs that do not require an outlay of money by the firm

Front 10

what is the major way in whic accountants and economists differ in analyzing the performance of companies?

Back 10

accountants focus only on explicit costs, while economists examine both explicit and implicit costs

Front 11

how do economists measure profit?

Back 11

they measure it as total revenue minus total cost, including both explicit and implicit costs.

Front 12

how do accountants measure profit?

Back 12

they measure it as the firm's total revenue minus only the firm's explicit costs.

Front 13

what is the production function?

Back 13

it shows the relationship between quantity of inputs used to mkae a good and the quantity of output of that good.

Front 14

what is the short run?

Back 14

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.

Front 15

what is the long run?

Back 15

a period of time in which the quantities of all inputs can be varied.

Front 16

what is the marginal product?

Back 16

the increase in output that arises from an additional unit of that input.

Front 17

what is the equation of marginal product of labor?

Back 17

marginal product of labor = (change in output)/(change in labor)

Front 18

what is diminishing marginal product?

Back 18

the property whereby the marginal product of an input declines as the quantity of the input increases.

Front 19

as the amount of labor used increases, what falls?

Back 19

the marginal product

Front 20

what are fixed costs?

Back 20

costs that do not vary with the quantity of output produced.

Front 21

what are variable costs?

Back 21

costs that do vary with the quantity of output produced

Front 22

what is the average total cost?

Back 22

(total cost) / (quantity of output)

Front 23

what is the average fixed cost?

Back 23

(fixed costs) / (quantity of output)

Front 24

what is the average variable cost?

Back 24

(variable cost) / (quantity of output)

Front 25

what is the marginal cost?

Back 25

the increase in total cost that arises from an extra unit of production.

Front 26

what is a competitive market?

Back 26

a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker

Front 27

what are the characteristics of a perfectly competitve market?

Back 27

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

Front 28

what must buyers and sellers accept?

Back 28

the price determined by the market

Front 29

total revenue equals

Back 29

(selling price) x (quantity sold)

Front 30

how can firms in perfect competition change their level of total revenue?

Back 30

by varying their level of output because they have no ability to change the price

Front 31

what is marginal revenue?

Back 31

the change in total revenue from an additional unit sold

Front 32

average revenue is always equal to...

Back 32

price

Front 33

marginal revenue is equal to...

Back 33

price only for firms who operate in perfectly competitve firms

Front 34

what does average revenue tell us?

Back 34

how much revenue a firm recieves for the typical unit sold

Front 35

the marginal cost curve is ___ sloping

Back 35

upward

Front 36

the average total cost curve is ___ shaped

Back 36

U

Front 37

the marginal total cost curve crosses the average total cost curve where?

Back 37

at the minimum of average total cost

Front 38

marginal and average revenue can be shown how at the market price?

Back 38

by a horizontal line

Front 39

what is a shutdown?

Back 39

it refers to a short-run decision not to produce anything during a specific period of time because of current market conditions

Front 40

what is an exit?

Back 40

a long-run decision to leave the market

Front 41

when should a firm shut down?

Back 41

when the revenue it gets from producing is less than the variable cost of production

Front 42

when should a firm exit?

Back 42

when the revenue it would get from producing is less than its total cost

Front 43

what is a competitive firm's long-run supply curve?

Back 43

the portion of its marginal-cost curve tha tlies above average total cost

Front 44

what is short-run supply curve?

Back 44

the portion of its marginal cost curve that lies above average variable cost

Front 45

what is the long-run supply curve?

Back 45

the marginal cost curve above the minimum point of its average total cost curve

Front 46

a competitive firm is a price ____

Back 46

taker

Front 47

a monoploy firm is a price ___

Back 47

maker

Front 48

a firm is considered a monopoly if

Back 48

1) it is the sole seller of its product
2) its product does not have close substitutes

Front 49

what is the fundamental cause of monopoly?

Back 49

barriers to entry

Front 50

what are the three causes of barriers to entry?

Back 50

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

Front 51

what are two examples of how a government creates a monopoly to serve the public interest?

Back 51

patent and copyright laws

Front 52

what is a natural monopoly?

Back 52

when a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms

Front 53

4 characteristics of a monopoly

Back 53

1) is the sole producer
2) faces a downward-sloping demand curve
3) is a price maker
4) reduces price to increase sales

Front 54

4 characteristics of a competitive firm

Back 54

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

Front 55

what is the key differnce between a competitive firm and a monopoly?

Back 55

the monopoly's ability to control price

Front 56

a competitive firm faces a perfectly ___ demand at the market price.

Back 56

elastic

Front 57

a monopolists' marginal revenue is always ___ ___ the price of its good. the demand curve is ___ sloping

Back 57

less than; downward

Front 58

what is the output effect?

Back 58

when the monopolist sells one more unit, his total revenue (P x Q) will rise because his Q is getting larger

Front 59

what is the Price effect?

Back 59

when the monopolist sells one more unit, he must lower price. this means his total revenue will fall because P is getting smaller.