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Midterm 2
chapter 6- chapter 9
50
Economics
Undergraduate 1
10/16/2012

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Term
production function
Definition
relationship between a producer's inputs and output
Term
fixed input in the short run
Definition
cannot be varried
Term
fixed input in the long run
Definition
can be varied
Term
variable input
Definition
can be varied in short run or long run
Term
total product curve
Definition
shows how the quantity of output changes in relation to variable input with a given fixed input
Term
marginal product
Definition
the increase of output generated by one more unit of input
Term
diminishing returns to an input
Definition
marginal product declines as more input is used
Term
total cost curve
Definition
shows total cost, is equal to the fixed cost + variable cost
Term
marginal cost
Definition
the increase in total cost due to producing one more unit of output
Term
average total cost
Definition
total cost divided by the quantity produced
Term
average total cost curves
Definition
u shaped, average fixed cost plus average variable cost (diminishing returns, spreading effect)
Term
minimum-cost output
Definition
the lowest point on the atc curve, marginal cost curve crosses here
Term
long-run average total cost curve
Definition
shows the relationship between output and the average total cost when fixed cost changes
Term
increasing returns to scale
Definition
output increases and so do returns as long as lratc declines, helps form natural monopolies
Term
decreasing returns to scale
Definition
output increases but returns decrease, lratc is increasing
Term
network externalities
Definition
cause of increasing returns to scale, oligopolies and cartels
Term
perfectly competitive market
Definition
producers and consumers are price takers, can't influence the price, small market shares, free entry and exit, standardized (undiversified) product
Term
price-taking...
Definition
means they buy and sell at the market price and have no control over it
Term
market share
Definition
producers share of the market
Term
standardized product/ comodity
Definition
products that consumers view as equal (substitutes)
Term
free entry and exit
Definition
anyone can join with little or no significant cost
Term
marginal benefit
Definition
the additional benefit received from producing one more unit of product
Term
principle of marginal analysis
Definition
the optimal point of production is when marginal benefit is equal to marginal cost
Term
optimal output rule
Definition
produce the quantity at which marginal revenue equals marginal cost (price-taking firms, mr=price)
Term
marginal revenue curve
Definition
a horizontal line at the market price. chooses output according to the price-taking firms optimal output rule.
Term
Optimal output rule
Definition
produce at the quantity at which price equals marginal cost. (does not mean it's profitable)
Term
economic profit
Definition
involves explicit and implicit costs
Term
accounting profit
Definition
involves only explicit costs
Term
implicit costs
Definition
opportunity cost
Term
explicit costs
Definition
actual outlay and exchange of cash
Term
break-even price
Definition
market price equals average total cost
Term
shut-down price
Definition
market price is lower that average variable cost
Term
sunk costs
Definition
fixed costs that have already been incurred and cannot be undone
Term
monopolist
Definition
sole provider of good
Term
monopoly
Definition
market in which there is one sole provider of a good
Term
market power
Definition
the ability to raise prices by reducing output
Term
barrier to entry
Definition
reason other firms can't produce the same product (patents, copyrights, control of natural resources)
Term
natural monopoly
Definition
develops due to increasing returns to scale
Term
public ownership
Definition
good is supplied by the government
Term
price regulation
Definition
price ceilings and floors
Term
oligopolies
Definition
only a few sellers of a product
Term
duopoly
Definition
only two sellers
Term
duopolist
Definition
one of two sellers of a product
Term
imperfect competition
Definition
firms compete but also have market power
Term
cartel
Definition
setting output levels for each firm in order to increase price and revenue
Term
collusion
Definition
when firms form cartels and practice price fixing
Term
antitrust policy
Definition
government policies designed to prevent collusion
Term
monopolistic competition
Definition
a market structure in which there are many competing producers with different products (free entry and exit in long run)
Term
price war
Definition
caused when collusion breaks down
Term
product differentiation
Definition
products are different-classified by: style/type, location, quality
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