# Shared Flashcard Set

Econ final
econ final
54
Economics
Undergraduate 2
12/08/2014

## Cards Return to Set Details

Term
 Accounting profit does what?
Definition
 ignores implicit costs
Term
 Economic profit does what?
Definition
 Considers implicit costs
Term
 Explicit costs are?
Definition
 Costs involving the running of a business - purchases, rent, etc
Term
 Implicit costs are?
Definition
 The opportunity cost of the best forgone opportunity. (Here, the owner has given up a job paying \$45,000, and an annual return of \$5,000 in interest (\$50,000 total implicit costs))
Term
 What is accounting profit? =
Definition
 Total revenue - explicit costs
Term
 What is profit? =
Definition
 [Total revenue (PxQ) - total cost ([AVC+AFC]xQ)]
Term
 What is economic profit? =
Definition
 Accounting profit - implicit costs OR total revenue - explicit costs - implicit costs
Term
 Variable costs increase as ___
Definition
 quantity produced increases
Term
 Fixed costs are costs that ___
Definition
 are included even if there is no output, they do not change with output
Term
 Diminishing marginal returns (to cost) can be seen in ___
Definition
 variable costs because of their increasingly steeper cost curve slope
Term
 In the LONG RUN all inputs are ___
Definition
 variable
Term
 Average fixed cost is =
Definition
 Fixed cost/quantity OR ATC - AVC
Term
 Average variable cost =
Definition
 Total Variable cost/quantity OR ATC - AFC
Term
 Marginal cost =
Definition
 change in total cost divided by change in quantity
Term
 Average (total) cost =
Definition
 Total cost/quantity OR AVC + AFC
Term
 Economies of scale is ___
Definition
 also known as increasing returns to scale, 50% increase in input means >50% increase in output
Term
 Diseconomies of scale is ___
Definition
 also known as decreasing returns to scale, a 50% increase in input means <50% increase in output
Term
 Marginal product of labor is ___
Definition
 the change in output that results from employing an added unit of labor.
Term
 Diminishing marginal returns (to labor) can be seen in ___
Definition
 production function graphs because of the opposite slope it produces, (opposite to variable costs slope)
Term
 In a graph, which is above the other? ATC or AVC?
Definition
 ATC (MC cutting through both at their lowest)
Term
 In the short run, perfectly (or purely) competitive firms will maximize their profit by producing ___
Definition
 The quantity where price = marginal cost AND the quantity where marginal revenue(MR)= marginal cost(MC)
Term
 If a market exceeds Average Cost, profit will be? (+/-)
Definition
 Positive
Term
 Sunk costs are ___
Definition
 costs that were incurred in the past and cannot be recovered. (Since the company is entering the fourth year of this project, the total sunk cost is calculated by adding up all costs in year one through year three.)
Term
 Total future costs are __
Definition
 expected costs in a set number of years(time) added up (since company is entering 4th year, it its 4th-6th year costs added up)
Term
 Shutdown price is when the ___ meets the ___ on a graph
Definition
 AVC meets the MC, (MR is below AVC at profit-maximizing point)
Term
 To earn positive economic profits, the price of the good must be above the price of where ___ meets ___ on a graph
Definition
 ATC meets MC
Term
 If a firm shuts down in the short run, the profit is [Revenue - cost] at __ quantity
Definition
 0 (zero)
Term
 If a firm continues to operate in the short run to minimize losses, it will be where [revenue - cost] will be at its ____
Definition
 Lowest
Term
 If a firm is trying to minimize losses in a struggling business it is better for them to operate in ____ and exit in ____
Definition
 the shortrun /// exit in the longrun
Term
 The long run supply curve on a graph is always more ____ than the short run supply curve on a graph
Definition
 flatter // more elastic // can be flat meaning it is a constant cost industry
Term
 Total cost =
Definition
 (AVC+AFC)xQ OR TVC + TFC
Term
 There is NO profit being made when price is at where ___ meets ___ on a graph
Definition
 MC meets ATC
Term
 For firms in perfectly (purely) competitive markets, long run economic profits are ___
Definition
 Zero (doesn't mean they aren't earning money), firms will exit if less than this and enter if higher than this
Term
 In the long run, profits are zero so this happens when price is equal to the minimum ___ (on a graph as well)
Definition
 ATC
Term
 Total revenue =
Definition
 price x quantity
Term
 Marginal revenue is ___
Definition
 is equal to the CHANGE in total revenue when the quantity sold increases by one
Term
 ***price is always higher than ___
Definition
 Marginal cost***
Term
 Firms will exit if ___ is less than ___
Definition
 Price // ATC
Term
 Firms will enter if ___ is greater than ___
Definition
 Price // ATC
Term
 Monopolists (looks for "only" in questions) will produce at __ meets __ but charge the ____ price possible
Definition
 MC meets MR // highest price
Term
 Example of barriers to entry ____ (3)
Definition
 Patents, Exclusive ownership of resource, Economies of scale (Being able to produce at a lower average cost than others)
Term
 In a perfectly (or purely) competitive firm, what price should they charge? =
Definition
 Total revenue / quanity (table) MR=MC and above ATC (graph)
Term
 Characteristics of Monopolies ___ (3)
Definition
 Price is higher than other market structures, Firms can earn positive economic profit in the longrun, and there are significant barriers to entry
Term
 Characteristic of perfect (pure) competitive market ___ (2)
Definition
 efficient quantity is produced, and firms have no market power
Term
 Price discrimination occurs when ___
Definition
 firms charge different consumers different prices for the same good. This is legal and happens frequently under the right circumstances
Term
 Perfect price discrimination occurs when ___
Definition
 firms not only charge different consumers different prices, but also charge each person the maximum that they would be willing to pay for a good. This is rare because firms typically don't have perfect information about how much each person is willing to pay
Term
 From most profit to lowest, a monopolist will do these steps ____ (4)
Definition
 The firm has ability to perfectly price discriminate -> the firm can charge different prices to different consumers -> The firm charges consumers all the same price -> the firm must charge a price that is equivalent to its marginal cost
Term
 Antitrust laws in monopolies are MAINLY used to ___
Definition
 Antitrust laws are used to promote competition (not reduce competition) by determining whether or not a particular merger would be significantly detrimental to competition
Term
 Marginal Cost (MC) pricing in monopolies are when ___
Definition
 regulating agencies force the firm to price at it's Marginal cost (where MC meets D), BUT will not always result in a profit loss for the firm
Term
 Antitrust laws in monopolies CAN ALSO (beneficial) be used to ___
Definition
 create monopolistic synergy, merging firms to reduce Average cost of production
Term
 A price taker is a ____ while a price maker is a ___
Definition
 competitive firm // monopoly
Term
 Coupons are an example of ___
Definition
 price discrimination because it offers a certain group of people (those willing to collect coupons are usually lower income) a lower price on certain goods in order make sales and therefor maximize profit for the firm.
Term
 total variable cost =
Definition
 AVC x Q
Term
 total fixed cost =
Definition
 TC - TVC
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