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Exam 4
production graphs
29
Economics
Undergraduate 2
12/16/2008

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Term
What is the shape of a marginal cost curve?
Definition
"U"
Term
On the marginal cost curve when is the firm being most efficient?
Definition
At the minimum
Term
If the marginal is greater than the average is the average increasing or decreasing?
Definition
Increasing
Term
What is the marginal cost equation?
Definition
change in total cost/change in quantity.
Term
When do ecnomies of scale occur?
Definition
When average cost falls as output rises
Term
Why might a firm experience economies of scale?
Definition
Specialization, Dimensional Factor,
Improved equiptment
Term
What is the Dimensional Factor?
Definition
Whe a company can buy more raw materials in bulk because output is greater
Term
Why might a firm experience diseconomies of scale?
Definition
Management functions: The bigger the firm the more bureaucracy in a business there will be
Term
When do diseconomies of scale occur?
Definition
When average cost rises as output rises
Term
What is the minimum effiecient scale?
Definition
the lowest rate of output per unit time at which long run average costs for a particular firm are at a minimum
Term
What is to be expected when a minimum efficient scale is large relative to the industry?
Definition
a more concentrated industry ie fewer firms
Term
Constant returns to scale
Definition
when the average cost of production is constant.
Term
What type of demand curve do firms in a perfectly competitive market face?
Definition
perfectly elastic: If they increase their price above market they will sell no product
Term
What is the profit max rule in perfect competition?
Definition
Marginal rev = marg cost
Term
How do u find total cost on a graph?
Definition
Where the ATC curve crosses the point where your quantity mazimizes profits
Term
What is the ATC equation?
Definition
total cost/total quantity
Term
Shut down price
Definition
when the price is below the minimum average variable cost
Term
What would price be if you were a social planner trying to plan a perfectly competitive market?
Definition
Price would equal marg cost and price would also equal minimum average cost
Term
When does price equal minimum average cost?
Definition
the long run
Term
barriers to entry
Definition
licenses, franchises, patents, tariffs, gov regs
Term
Natural Monopoly
Definition
a market in which the economies of scale in production are so large that only a single large firm can earn profit
Term
On the graph of a monopoly when is there zero economic profit?
Definition
When average total cost= price
Term
On the graph when is there neg economic profit?
Definition
When average total cost is greater than price
Term
On the production graph when is there negative economic profit?
Definition
If average total cost is greater than price
Term
What are the necessary conditions for price discrimination?
Definition
market power, diff consumer groups that are easily separated, preventable resale
Term
In perfect competition what is the relationship between the supply curve and the marginal cost curve?
Definition
The are =
Term
What is the key diff between perfect competion and monopolistic competition?
Definition
each firm has differentiated products so each firm hhas some market power
Term
Oligopoly
Definition
a market served by a few firms
Term
strategic dependence
Definition
each firm's decision may be strategically counterd by ther firms
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