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Exam 2
Jeremy Thorton
45
Economics
Undergraduate 2
04/11/2011
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Term
excludable good
 Definition
people can be prevented from using the good
Term
rival good
 Definition
one's person use of the good reduce another person's ability to use it
Term
private good
 Definition
excludable and rival ex. ice cream cone
Term
public good
 Definition
neither rival or excludable
Term
common resource
 Definition
rival but not excludable
Term
free rider
 Definition
one who receives benefit of a good but doesn't pay for it (positive externality)
Term
Important public goods
 Definition
national defense, basic research, fighting poverty, lighthouses
Term
tragedy of the commons
 Definition
excludable: free of charge to anyone who wants to use them. but rival: one person's use of the common resource reduces other people's ability to use it.
Term
example of the tragedy of the commons
 Definition
clean air and water, congested roads, wildlife (fishing)
Term
Profit=
 Definition
TR-TC
Term
explicit costs
 Definition
pay workers; opportunity costs require the firm to pay out some money
Term
implicit costs
 Definition
costs that do not require a cash outlay
Term
economic profit
 Definition
TR- Opportunity costs (implicit and explicit)
Term
accounting profit
 Definition
TR- Explicit costs
Term
production function
 Definition
the relationship between the quantity of inputs (workers) and the quantity of output (units)
Term
diminishing marginal product
 Definition
as the number of inputs (workers) increase, the quantity of outputs (units) decreases
Term
fixed costs
 Definition
incurred no matter what; don't vary with quantity of output
Term
variable costs
 Definition
change as the firm alters the quantity of output produced
Term
Average total cost
 Definition
TC/Q
Term
AVerage fixed cost
 Definition
FC/Q
Term
Average variable costs
 Definition
VC/Q
Term
Marginal Cost
 Definition
ChangeTC/ChangeQ
Term
What does the ATC curve look like?
 Definition
U shaped
Term
Marginal cost ________ with the quantity of output
 Definition
rises
Term
The marginal cost curve crosses the ATC curve at the _________ of ATC.
 Definition
minimum
Term
economies of scale
 Definition
when long-run ATC declines as output increases
Term
diseconomies of scale
 Definition
when long-run ATC rises as output increases
Term
Constant returns to scale
 Definition
when long-run ATC does not vary with the level of output
Term
Total Cost
 Definition
FC + VC
Term
What are the 3 inputs that households give firms?
 Definition
land, labor and capital
Term
3 types of capital that households give firms?
 Definition
physical, human, financial
Term
implicit costs aka
 Definition
opportunity costs
Term
profit is max when
 Definition
slope of TC and TR are equal
Term
Profit=
 Definition
(P-ATC)Q or TR-TC
Term
4 assumptions of monopoly
 Definition
one seller/many buyers, no close subs, barrier to entry
Term
barrier to entry
 Definition
natural, technological, artifical, strategic and network effects
Term
the great lakes are
 Definition
common resources
Term
the tragedy of the commons occurs b/c
 Definition
common resource is rival in consumption
Term
the things that are foregone to acquire a good
 Definition
opportunity costs
Term
as Q increases, MC will eventually ________
 Definition
rise
Term
when operating in the short term, firms ______ adjust the quantity of _______
 Definition
cannot, fixed costs
Term
in the long run, _______ costs become _______
 Definition
fixed costs become variable
Term
long-run ATC> long run MC
 Definition
economies of scale
Term
long run ATC rises as output increases
 Definition
diseconomies of scale
Term
long run: MC is above ATC, the ATC curve exudes
 Definition
diseconomies of scale
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