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18 Cards in this Set
- Front
- Back
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economic profit
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profit=TR-TC: takes into account entrepreneurs minimum to keep them happy.
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normal profit
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any revenue above costs.
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allocative efficiency
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allocating scarce resources among competing uses
P=MC, P=MWP. situations become allocativeley inefficient when exogenous factors affect prices efficient- changes in input prices, lump sum tax) inefficient: unit tax, price floor, ceiling. |
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economic rent
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payment to scarce factor of production that cannot be competed away.
rent reflects opportunity costs. |
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unit tax
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MC, AC shift up by consistent distance:
SR: firms are only partially able to adjust to new costs, tax is split between consumers and producers. LR: firms exit, entire price of tax is passed onto consumers. |
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lump sump tax:
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SR: AC increases, but MC does not change. Firms operate at a loss
LR: Firms exit, supply decreases until new equilibrium is established. |
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resource savings:
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amount less spent due to a decrease in quantity
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total value lost:
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value of a good due a tax (area under demand curve from 2 quantities (what consumers valued the good at)
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deadweight loss
welfare loss |
divergence from marginal cost pricing
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assumptions of competitive markets
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identical firms
non-rival pricing. |
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consumer surplus
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difference between what a consumers is willing to pay minus the price actually paid
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producer surplus
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sum over all units produced by a firm of differences between the market price of a good and the marginal cost of production
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how to get marginal cost function
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derivative of TC function
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causal demand curve
inverse demand curve MR curve |
Q=2000-100P
P=20-.01Q twice the slope of the inverse demand function |
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monopoly: point of allocative efficiency
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where P=MC: triangle formed by monopoly price is the deadweight loss.
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lerner index
what effects the other |
(P-MC)/P=-1/Ed
Lerner index is an outcome |
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deadweight loss only occurs when
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change in price are not characteristic of the use of a good
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marginal decision maker vs average decision maker
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Marginal: profit maximization: is a move forward's revenue greater than the cost of that move. asses the outcome of additional moves
P=MC average: achieve the quantity of the firm and break even (quantity) P=AC |
