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Econ Midterm 2- Graves
N/A
47
Economics
Undergraduate 1
11/15/2010
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Term
Explicit Costs
 Definition
input costs that require a monetary payment- opportunity costs to the firm
Term
Implicit Costs
 Definition
the opportunity costs of production that dont require monetary payment.
Term
Profits
 Definition
the difference between total revenues and total costs
Term
Accounting profits
 Definition
total revenues minus total explicit costs
Term
Economic profits
 Definition
total revenues minus explicit and implicit costs
Term
sunk costs
 Definition
costs that have been incurred and cannot be recovered
Term
Short Run
 Definition
a period too brief for some production inputs to be varied
Term
Long run
 Definition
a period which all production inputs are variable
Term
Production function
 Definition
the relationship between the quantity of inputs and the quantity of outputs
Term
Total Product
 Definition
the total output of a good produced by a firm
Term
Marginal Product
 Definition
the change in total output of a good that results from a one unit change in output
Term
Diminishing marginal product
 Definition
as a variable input increases, with other inputs fixed, a point will be reached where the additions to output will eventually decline
Term
Fixed Costs
 Definition
costs that do not vary with the level of output
Term
Total Fixed Costs (TFC)
 Definition
the sum of the firm's fixed costs
Term
variable costs
 Definition
costs that vary with the level of output
Term
total variable cost (TVC)
 Definition
the sum of the firm's total variable costs
Term
Total Cost (TC)
 Definition
the sum of the firm's total fixed costs and total variable costs
Term
Average Total Cost (ATC)
 Definition
a per-unit cost of operation; total cost divided by output
Term
Average Fixed Cost (AFC)
 Definition
a per unit measure of fixed costs; fixed costs divided by output
Term
Average Variable Cost (AVC)
 Definition
a per-unit measurement of variable costs; variable costs divided by output
Term
Marginal Cost (MC)
 Definition
the change in total costs resulting from a one-unit change in output
Term
Economies of Scale
 Definition
occur in an output range where LRATC falls as output increases
Term
Minimum efficient scale
 Definition
the output level where economies of scale are exhausted and constant returns to scale begin
Term
Diseconomies of scale
 Definition
occur in an output range where LRATC rises as output expands
Term
Constant Returns to scale
 Definition
occur in an output range where LRATC does not change as output varies
Term
Perfectly Competitive Market: Characteristics
 Definition
1)Many buyers and sellers
2)Identical (homogeneous) products
3)Easy market entry and exit
Term
Price Taker
 Definition
a perfectly competitive firm that that takes the price it is given by the intersection of the market demand and supply curves
Term
Total Revenue (TR)
 Definition
the product price times the quantity sold
TR = P x Q
Term
Average Revenue (AR)
 Definition
total revenue divided by the number of units sold
Term
Marginal Revenue (MR)
 Definition
the increase in total revenue resulting from a one-unit increase in sales
Term
Profit-maximizing level of output
 Definition
a firm should always produce at the output where MR = MC
Term
Determining Short Term Profits and Losses
Perfectly competitive market
 Definition
1) Find where marginal revenue equals marginal cost, go down to find q*
2) At q* go up to demand curve and then left to find p* then find TR = P x Q
3)Find total cost by going up from q* to the ATC curve and then left to find average cost per unit. TC = ATC x Q
Term
Short-run supply curve
 Definition
the portion of the MC curve above the AVC curve
Term
Short-run market supply curve
 Definition
the horizontal summation of the individual supply curves in the market
Term
Constant cost industry
 Definition
an industry where input prices (and cost curves) do not change as industry output changes
Term
Increasing-cost industry
 Definition
an industry where input prices rise (and cost curves rise) as industry output rises
Term
Productive Efficiency
 Definition
where a good or service is produced the at the lowest possible cost
Term
Allocative Efficiency
 Definition
where P = MC and production will be allocated to reflect consumer preferences
Term
Monopoly
 Definition
the single supplier of a product that has no close substitute
Term
Natural Monopoly
 Definition
a firm that can produce at a lower cost than a number of smaller firms can
Term
Determining short term profits and losses: monopoly
 Definition
1) Find where MR = MC and go straight down to find Q monopoly
2) At Q monopoly go straight up to demand curve and go left to find P monopoly. then calculate TR = P x Q
3) Find total cost. go straight up from Q monopoly to the ATC curve and go left to find average total cost at Q monopoly. TC = ATC x Q
Term
Average Cost Pricing
 Definition
setting price equal to average total cost
Term
Price discrimination
 Definition
the practice of charging different consumers different prices for the same good or service
Term
Reservation Price
 Definition
the maximum amount a customer would be willing to pay for a unit of output
Term
Peak Load Pricing
 Definition
when producers charge different prices during different periods because the demand and the cost of producing a product vary over time
Term
Output Effect
 Definition
monopoly gains more revenue because it sells more when adjusting price
Term
Price Effect
 Definition
gains less revenue because it gets less from each unit sold because of the lower price, monopoly
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