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Definition
| name given to the transformation of factors into goods and service |
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| Ultimately people, not firms, are responsible for supply |
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| is an economic institution that transforms factors of production into good and services |
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Definition
1)organizes factors of production and/or
2)produces goods and/or
3)sells produced goods to individuals, businesses or government |
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Definition
| As cost structures change because of technological advances such as the Internet, and increasing number of firms concentrate on organization rather than production activities |
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Definition
| explicit revenue less explicit cost |
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| Economists include in revenue and costs both explicit and implicit costs and revenues. |
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Definition
| include opportunity costs |
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Definition
| explicit payments to the factors of production plus the opportunity cost of the factors provided by the owners of the firm |
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Definition
| include the increase in value of assets |
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| is the amount a firm receives for selling its product or service plus any increase in the value of the assets owned by the firm. |
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| firm chooses among all possible production techniques. Has more flexibility with changing inputs |
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Definition
| the firm is constrained in regard to what production decisions it can make. Has less flexiblity |
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Definition
| In long run all inputs are variable-In short run some inputs are fixed. |
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Definition
| a table showing the output resulting from various combinations of factors of productions or inputs |
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Definition
| the additional output resulting from various combination of factors of production or inputs |
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Term
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Definition
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Term
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Definition
| relationship between the inputs(factors of productions) and outputs |
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Term
| Diminishing marginal productivity |
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Definition
| initially this production function exhibits increasing marginal productivity and then eventually decreasing. |
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Term
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Definition
| increasing marginal productivity(decreasing marginal productivity) |
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Term
| law of diminishing marginal productivity |
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Definition
| as more and more of a variable input is added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall...sometimes called flowerpot law. |
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Term
| Firms operate on production curve |
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Definition
| DMP, falling average product |
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Term
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Definition
| costs that are spent and cannot be changed in the period of time under consideration. Sunk Costs |
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Term
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Definition
| costs that change as output changes. output increases, variable costs increase |
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Definition
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Definition
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Definition
| Total Cost divided by the quantity produced(TC/Q) or (AVC+AFC) |
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Term
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Definition
| fixed costs divided by quantity produced(FC/Q) |
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Term
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Definition
| variable cost divided by quantity produced(VC/Q) |
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Term
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Definition
| is the increase(decrease) in total cost from increasing(Decreasing) the level of output by one unit. (Delta Cost/Delta Output) |
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Definition
| increases total cost and increases variable cost |
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Term
| Average and marginal cost curves |
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Definition
| The marginal cost curve goes through the minimum point of the average total cost curve and average variable cost curve; each of these curves is U-shaped. the average fixed cost curve slopes down continuously |
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Term
| Downward sloping shape of AFC curve |
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Definition
| FC(stay same)/Q(increases)=AFC(decrease) |
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Term
Marginal productivity falls
Average productivity falls
Productivity falls |
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Definition
Marginal costs rise
Average costs rise
costs rise |
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Term
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Definition
| production is rising, costs are initially falling |
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Term
| If you increase output enormously what two cost curves would almost meet? |
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Definition
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Term
| Marginal cost curves always intersect the ATC curve at the minimum of ATC curve because.. |
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Definition
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Term
| When Marginal Cost=Average variable cost |
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Definition
| Average product = Marginal product |
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Term
| MC>ATC, AVC
MC=ATC, AVC
MC |
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Definition
ATC, AVC is rising
ATC, AVC is at its low point
ATC, AVC is falling |
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Term
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Definition
| in production means that as few inputs as possible are used to produce a given output |
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Term
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Definition
| method that produces a given level of output at the lowest possible cost |
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Definition
| when long-run average total costs decrease as output increases... cost per unity of a small production run is higher than cost per unit of a large production run. |
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Term
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Definition
| cost of an indivisible input for which a certain minimum amount of production must be undertaken before the input become economically feasibel to use |
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Definition
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Term
| minimum efficient level of production |
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Definition
| is the amount of production that spreads setup costs out sufficiently for a firm to undertake production profitably. At what point it makes sense to produce |
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Term
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Definition
| when long-run average total costs increase as output increases. Start usually as firms get large. |
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Term
| Production relationships have social dimensions |
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Definition
1)As the size of the firm increases, monitoring costs generally increase.
2)As the size of the firm increases, team spirit or morale generally decreases. |
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Term
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Definition
| the costs incurred by the organizer of production in seeing to it that the employees do what they're supposed to do, i.e managers, can increase significantly as output increase, major contributor to diseconomies of scale |
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Definition
| The feelings of friendship and being part o fa team that bring out people's best efforts |
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| Constant returns to scale |
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Definition
| where long-run average total costs do not change with an increase in output |
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Term
| Short run average total cost curve a u shaped curve |
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Definition
| DMP, initial increase and eventual decrease |
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Term
| Long run average total cost curve a u shaped curve |
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Definition
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Term
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Definition
| is the relationship between long-run and short-run average total costs. Constraints always raise costs( or at least won't lower them) |
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Term
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Definition
| is an individual who sees an opportunity to sell an item at a price higher than the average cost of producing it. ie. make a profit. |
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Term
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Definition
| when the costs of producing products are interdependent so that its less costly for a firm to produce one good when its already producing another. Worth it to produce another product, i.e. snack machines, |
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Term
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Definition
| as we do something, we learn what works and what doesn't, and over time we become more proficient at it. |
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Term
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Definition
| is an increase in the range of production techniques that leads to more efficient ways of producing goods as well as the production of new and better goods. drives costs down and can overwhelm diseconomies of scale, causing prices to fall more and more |
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Term
| technological change and learning by doing |
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Definition
| inticately related, learning and making technological changes |
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Term
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Definition
| a measure of the decline in value of an asset that occurs over time. |
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Definition
| involves one firm trying to figure out how to take away market share from another firm |
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Term
| perfectly competitive market structure |
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Definition
| the invisible hand operates unimpeded. a market in which economic forces operate unimpeded. |
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Term
| restrictions of perfectly competitive markets |
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Definition
1)Both buyers and seller are price takers
2)The number of firms is large
3)There are no barriers of entry
4)Firms' products are identical
5)There is complete information.
6)Selling firms are profit-maximizing entrepreneurial firms. |
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Term
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Definition
| a firm or individual who takes the price determined by market supply and demand as given. In perfectly competitive market supply and demand determine price and firms and consumers take price as given. |
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Term
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Definition
| social, political, or economic impediments that prevent firms from entering a market. Perfect competition can have no barriers to entry |
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| the number of firms is large |
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Definition
| what one firm does has no influence on what other firms do. |
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| Firms' products are identical |
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Definition
| Output is indistinguishable from any other firm's output. |
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Term
| There is complete information |
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Definition
| No firm or consumer has a competitive advantage over another |
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Term
| selling firms are profit maximizing entrepreneurial firms. |
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Definition
| for perfect competition they must seek maximum profit and only profit. |
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Term
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Definition
| a schedule of quantities of goods that will be offered to the market at various prices...supplier is price taker |
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Term
| number of Firms are large |
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Definition
| So that they don't work together to get a higher price |
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Term
| Price in Perfectly competitive markets |
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Definition
| Each firm is so small that its actions does not affect the price it can get for said product |
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Term
| individual demand curve for perfectly competitive markets |
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Definition
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Term
| market demand curve for perfectly competitive markets |
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Definition
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Term
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Definition
| the change in total revenue associated with a change in quantity |
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Term
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Definition
| the change in total cost associated with a change in quantity |
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| Market Price in Perfectly competitive market |
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Definition
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Term
| Perfectly competitive demand curve |
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Definition
| equals marginal revenue curve |
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Term
| profit maximizing condition |
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Definition
| of a competitive firm MC=MR=P |
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Term
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Definition
| is a firms supply curve. MC curve tell the competitive firm how much it should produce at a given price |
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Term
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Definition
| maximized where the vertical distance between total revenue and total costs is greatest. |
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Term
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Definition
| that point below which the firm will be better off if it temporarily shuts down than it will if it stays in business. If p>minimum of AVC then firm with continue to produce. If P |
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Term
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Definition
| horizontal sum of all the firms marginal cost curves, taking account of any change sin input prices that might occur |
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Term
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Definition
| the amount the owners of business would have received in the next-best alternative |
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Term
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Definition
| is a market structure in which on firm makes up the entire market, no competitive pressure from other firms. Exist because of barriers to entry. Marginal revenue is not its price, takes into account that output decision can affect price |
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Term
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Definition
| monopolists, not consumers, benefit because there is no competition and they do whats in their self interest. Perfectly competitive cannot |
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Term
| marginal revenue not equal to price...why? |
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Definition
| increase in output lowers the price on all previous units, a monopolist's marginal revenue is always below its price. |
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Term
| monopolists marginal revenue curve |
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Definition
| downward sloping, starts at same point as demand, but has steeper slope. |
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Term
| monopolists profit maximizing output |
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Definition
| produce the quantity at which MC=MR. if less produce more, if more produce less. |
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Term
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Definition
| subtracting average total cost from average revenue(P) at that level of output and multiplying by the chosen output. |
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Term
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Definition
> ATC, make a profit
= ATC, not profit, normal return
< ATC, loss |
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Term
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Definition
| legal protection of a technical innovation that gives the person holding it sole right to use that innovation |
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Term
| reality for many monopolists |
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Definition
| their costs exceed their revenues, or what people are willing to pay, so they incur a loss |
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Term
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Definition
| from a monopoly is a triangle. area from MC=MR to market price. |
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Term
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Definition
| to charge different prices to different individuals or groups of individuals. |
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Term
| barriers to entry and monopoly |
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Definition
| If there were no barriers to entry, profit-maximizing firms would always compete away monopoly profits. |
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Term
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Definition
| an industry in which a single firm can produce at a lower cos than can two or more firms. |
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Term
| Benefits competition(essay) |
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Definition
i. Lower prices
ii. More choices
iii. Consumer sovereignty
iv. Unlike corporate giants, competitive firms have little effect on the legislative process |
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Term
| B)What are the drawback of competition(ESSay) |
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Definition
a. Supplier drawbacks
i. Cannot develop new products as well in the midst of competition
1. Do not have the time and the resources for research and development
ii. Low wages for workers and poor working conditions
1. Low employee morale
b. Consumer drawbacks
i. Simple products
ii. No complexity |
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Term
| C) Benefits of Concentration(Essay) |
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Definition
a. Supplier benefits
i. Consistent economic profit
ii. Deep pockets, many resources
iii. Stability
iv. Better working conditions for employees
v. Time and resources for research and innovation, better products
1. Better available technology
2. It should be noted that this needs to be continually exercised, as complacency will lead to being overtaken by others with more advanced technology
b. Consumer benefits
i. Complex products
ii. Can raise standard of living
iii. Products will not break down, high quality
iv. Better products a result of research and innovation |
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Term
| D) Drawback of Concentration(Essay) |
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Definition
a. There are virtually no drawbacks to the producer, only drawbacks to the consumer
i. Price gouging
1. Items are more expensive
ii. Lack of choice
iii. Monopoly
iv. Large firms can work to short-circuit public policy |
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Term
| F) Perfectly Competitive Firms and Price taking behavior(Essay) |
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Definition
a. Price taking behavior
i. A price taker takes price as determined by market supply and demand
ii. A price taker cannot determine price
b. Perfectly competitive buyers and sellers both exhibit price taking behavior
i. Nobody can determine price
ii. Cannot raise or lower price by a single penny, or else the supplier will be eliminated from the market
iii. There are an infinite number of firms with the same product and price that meet cost
1. In other words, homogenous goods
2. Cannot lower prices to cheat consumers
3. Cannot raise because no one will buy
iv. All involved are only affected by price, they have blinders on
v. Any price change is a price change for every competitor |
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Term
| D) Drawback of Concentration(Essay) |
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Definition
a. There are virtually no drawbacks to the producer, only drawbacks to the consumer
i. Price gouging
1. Items are more expensive
ii. Lack of choice
iii. Monopoly
iv. Large firms can work to short-circuit public policy |
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Term
| H) Monopolist's and Price taking |
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Definition
a. Monopolists exhibit price making behavior
i. Key characteristic of a monopolist- output decision affects price
ii. Have the ability to set prices
iii. Because the good is desired and they face no competition, they can charge at a higher premium |
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Term
| I) Graphically show positive cost of monopoly |
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Definition
a. Loss of consumer surplus
b. Deadweight loss
c. Opportunity cost of diverted resources |
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Term
| I) Graphically show positive cost of monopoly |
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Definition
a. Loss of consumer surplus
b. Deadweight loss
c. Opportunity cost of diverted resources |
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Term
| I) Graphically show positive cost of monopoly |
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Definition
a. Loss of consumer surplus
b. Deadweight loss
c. Opportunity cost of diverted resources |
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Term
| J. Normative argument against monopolies- they are unfair! |
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Definition
a. Monopolies are unjust
b. Consumers are hosed by the high prices that are set at the will of the monopolist |
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