Micro 3

Front 1

Firm's choice

Back 1

1. Technology

2. Costs

3. Prices

Front 2

Production function

Back 2

Q- Output (production firm creates for a given amt of inputs

Inputs:

K- capital (resources workers use)

L- labor (workers)

T- Land (location of production)

Front 3

Q=f(K, L, T)

Back 3

describes the relationship between inputs a firm uses and the output it creates

Short run assume K and T are fixed, only change L

Front 4

Marginal Product of labor

Back 4

change in output associated with hiring an additional worker

Front 5

Short run

Back 5

period of time in which some of the firms cost commitments have not ended

Front 6

Variable costs

Back 6

change with rate of output

cost of hiring variable input needed to produce a given amount of output

Front 7

fixed costs

Back 7

to not vary with output

Front 8

Marginal cost

Back 8

additional cost to firm to produce one additional unit

Front 9

Shifters

Inc. labor costs

Inc. Capital costs

Inc. Technology

Back 9

all curves shift up

ATC shifts up

All curves shift down

Front 10

Characteristics of a perfectly competitive market

Back 10

Many sellers

Similar product

Price takers (no market power)

Free entry and exit

Front 11

Accounting vs economic profit

Back 11

A: Total revenue-explicit costs

E: Accounting profit-implicit costs (next best alt. for investment)

Front 12

Marginal revenue

Back 12

Additional revenue one receives from selling 1 more unit

Front 13

Profit maximization rule

Back 13

P=MR=MC

When add. benefit of production is greater than the additional costs to produce that unit= inc. profit

Front 14

Shutdown point

Back 14

price falls below VC then business should shut down

Front 15

Sunk costs

Back 15

cannot be required (don't come into decision making process)

Front 16

Producer surplus

Back 16

Difference between what firm actually gets (P) and what they are willing to sell for (MC)

Front 17

Costs in the long run

Back 17

All inputs are variable

Firm has to consider 2 things

1. Technique: how does a firm combine its inputs (labor intensive, capital intensive, minimize costs of production)

2. Scale: how big should my operation be scale (influence cost of production)

Front 18

Technology

Back 18

All techniques available to firm

All combos of K and L can be used to produce a fixed amt of output

Front 19

Properties of Isoquant

Back 19

1. Downward sloping (if get rid of K must hire more L to keep Q fixed)

2. Higher Isoquant (more output)

3. Bowed in slope: marginal rate of technical substitution: how much capital a firm must give up for 1 add. unit of labor to keep output constant

Front 20

Iso cost

Back 20

All combos of K and L that give same TC

Front 21

Cost minimizing technique

Back 21

combo of K and L produce fixed amount of output at lowest cost

Front 22

MRTS

Back 22

MPL/W = MPK/r

Front 23

Choice of scale

Back 23

K and L are fixed so much choose how much to employ...vary at same proportion

Front 24

If output...

Doubles

More than doubles

Less than doubles

Back 24

Doubles: constant returns to scale, output increases by same proportion

MTD: Increasing returns to scale, output increases by more than proportion

LTD: Decreasing returns to scale, change management style (monitor workers)

Front 25

Efficient scale

Back 25

Minimum of LRATC curve MC=ATC

Most efficient point, shut down point

MC curve from this point up=LRSupply

Front 26

Virtues of market

Back 26

1. Efficiently allocates goods and services to best economic activity

2. Efficiently allocates production within industry

3. Allocates resources across industry optimally

Front 27

Supply and demand curves

Back 27

Supply ranks sellers based on productivity

Demand ranks buyers on who wants it the most

Front 28

Social Surplus

Back 28

CS+PS

Total value to society of transactions taking place

Front 29

Pareto effect

Back 29

no one can be better off without making someone worse off

Front 30

Properties of a monopoly

Back 30

Single seller of good or service

unique good no close substitutes

barriers to entry

Price makers (market power)

Front 31

Barriers to entry

Back 31

Restrictions that make it difficult for firms to enter market

Front 32

Natural barriers

Back 32

1. Control of resources

2. Problem raising capital

3. Economies of scale (natural monopoly, increase in scale QD Avg Costs decrease)

4. Governmental barriers (licensing, patents, copyrights)

Front 33

Social cost of monopoly

Back 33

Dead weight loss exists because mutually beneficial transactions don't take place so economic value is lost

Front 34

Rent seeking behavior

Back 34

attempt to gain monopoly power

Front 35

Solutions to a monopoly

Back 35

Remove barriers to entry

Restrict merges

Break up monopolist by promoting competition

Front 36

Natural monopoly

Back 36

Firm that must grow larger in order to cover costs (economies of scale)

Front 37

Marginal Cost Pricing

Back 37

MC=D or perfect competition

monopoly makes loss and shuts down

Front 38

Average cost pricing

Back 38

ATC=D no economic profit

No incentive to innovate (lower costs

Incentive to inflate costs

Front 39

Price discrimination

Back 39

sale of a product at different prices to different customers where difference in price is not related to costs

Must have market power

do it to increase profits