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43 Cards in this Set
- Front
- Back
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the production function
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TP = f(^L,K)
TOTAL PRODUCT = FUNCTION OF THE CHANGE IN LABOR AND CONSTANT CAPITOL valid in the short run ONLY. |
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capitol
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the tools, equipment, supplies, money you use
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labor
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the number of worker units you have
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total product is the same as
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quantity supply
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the law of diminishing returns
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PWST as succesive units of a variable factor of production (labor) are added to a fixed factor of production (capitol), beyond some point, output will increase at a decreasing rate
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point of diminishing returns
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the point at which output begins increasing at a decreasing rate.
the end of stage I Always stated in terms of marginal product |
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Stage I of production curve
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Increasing returns, rising marginal product
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stage II of production curve
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decreasing returns, falling marginal product
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stage III of production curve
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negative returns, negative marginal product
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cost
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the value of a used up resource
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shut-down case
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when labor, Qs, and TVC equal zero
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AFC
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TFC/Qs
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AVC
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TVC/Qs
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ATC
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TC/Qs
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MC
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^TC/^Qs
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if MC>AC
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AC will increase
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if MC<AC
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AC will decrease
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if MC=AC
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AC remains constant
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fixed cost
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costs which DO NOT change as a function of output
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variable cost
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costs which DO change as a function of output
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inverse relationship of productivity and cost
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1/MP=MC
1/AP=AVC 1/TP=ATC |
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the long-run
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the period of time when all factors of production may change
long-run curve, envelope curve, planning curve |
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economy of scale
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any factor which lowers long-run cost
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diseconomy of scale
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any factor which raises long-run cost
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pure competition
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1. assume 50+ firms
2. impossible for consumers to identify one firm's product from another 3. no barriers to entry 4. no price control by firms 5. perfect knowledge regarding price and quantity |
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marginal rule
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PWST profits are maximized, or losses are minimized, when marginal revenue equals marginal cost
WORKS FOR ANY MARKET STRUCTURE |
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if...MR>MC
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then...Qs will go up (firm expands)
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if...MR<MC
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then...Qs will go down (firm contracts)
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if...MR=MC
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then Qs remains constant
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short run supply curve
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the portion of a firm's MC curve above the AVC curve
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productive efficiency
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P=minimum ATC
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allocative efficiency
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P=MC
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pure monopoly
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1. one firm
2. single product w/ no close substitutes 3. impossibly high barriers to entry 4. total price control subject to demand curve 5. firm controls both P, Qs |
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natural monopoly
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a situation where the ATC falls until you reach very high output levels (80%+)
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outcomes of natural monopoly
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1. price is way too high
2. Qs is way too low 3. high economic profits (pi) 4. lousy customer service |
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price discrimination
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charging different customers different prices for the same good or service
can occur in any market structure except pure competition |
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components of price discrimination
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1. two or more groups
2. segmented market 3. different Ed for each group |
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arbitrage
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the process of taking advantage of a price difference by buying/trading a good or service simultaneously
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the law of one price
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PWST the same good should sell for the same price in the same market at the same time
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Oligopoly
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1. price setters, not takers
2. barriers to entry are high 3. very few firms (2-8) 4. products may be homogeneous or heterogeneous 5. mutual interdependence |
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oligopoly pricing rules
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never match a price hike. always match a price cut
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cartel
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an organization of firms formed for the purpose of increasing price and reducing quantity.
illegal in US. routine elsewhere. |
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Monopolistic competition
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1. many firms (9-49)
2. product differentiation * 3 relatively low barriers to entry 4 some degree of price control 5. if differentiation succeeds, then the monopoly cost model applies |
