Term
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Definition
| (for example, equipment or structures): producer cannot change levels. |
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Term
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Definition
| (for example, labor, fertilizer for crops): producer can change levels. |
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Term
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Definition
| short enough that some inputs are fixed while others are variable. |
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Term
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Definition
| long enough that all inputs are variable. |
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Term
| Marginal Product of Labor |
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Definition
| Change in quantity of output / Change in quantity of labor |
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Term
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Definition
The total cost of producing a given quantity of output is the sum of the fixed cost (from fixed inputs) and the variable cost (from variable inputs) of producing that quantity of output.
TC = FC + VC |
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Term
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Definition
| The total cost curve becomes steeper as more output is produced due to diminishing returns. |
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Term
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Definition
equal Average Fixed Costs plus Average Variable Costs
ATC = AFC + AVC |
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Term
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Definition
| MC = (Change in Total Costs)/(Change in Output) |
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Term
| Conditions for Perfect Competition |
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Definition
•Many firms in the industry, so each firm is a price-taker (they cannot influence price).
•Many buyers in the industry, so consumers are price-takers (they cannot influence price).
•Buyers regard products from different firms as essentially the same.
•Free entry and exit |
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Term
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Definition
MR = ΔTR/ΔQ
Change in total revenue / change in output |
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Term
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Definition
| says that profit is maximized by producing the quantity of output at which the marginal cost of the last unit produced is equal to its marginal revenue. |
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Term
| When Is Production Profitable? |
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Definition
•If TR > TC, the firm is profitable.
•If TR = TC, the firm breaks even.
•If TR < TC, the firm incurs a loss. |
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Term
Profitability and the Market Price
PROFIT |
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Definition
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Term
Profitability and the Market Price
LOSS |
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Definition
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Term
| When should the firm shut down? |
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Definition
| Higher profits by producing if P-AVC>0. |
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Term
| The Short-Run Individual Supply Curve |
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Definition
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Term
| The Short-Run Market Equilibrium |
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Definition
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Term
| The Long-Run Market Equilibrium |
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Definition
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Term
| Comparing the Short-Run and Long-Run Industry Supply Curves |
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Definition
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Term
| Properties of Long Run Equilibrium |
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Definition
•Costs of production will be minimized.
•Price will equal minimum ATC
•Price will equal MC
•Profits will be zero. |
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Term
| How Does a Monopolist Avoid Competition? |
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Definition
•Control Source of Input (Canneries)
•Increasing Returns to Scale (natural monopoly)
•Technological superiority (iPads?)
•Government-created barriers. Adam Smith, patents. |
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Term
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Definition
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Term
| The Monopolist’s Profit-Maximizing Output and Price |
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Definition
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Term
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Definition
Profit = TR − TC
= (PM × QM) − (ATCM × QM)
= (PM − ATCM) × QM |
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Term
| Monopoly Causes Inefficiency |
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Definition
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Term
Price Discrimination
Two Types of Airline Customers |
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Definition
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Term
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Definition
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Term
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Definition
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Term
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Definition
| arise when third parties are affected. E.g. pollution, noise, congestion. |
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Term
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Definition
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Term
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Definition
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Term
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Definition
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Term
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Definition
| Free rider problem with nonexcludable goods. No incentive for firms to provide. Problem of optimal level. Cost-benefit analysis. |
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Term
| Artificially scarce goods |
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Definition
| No cost to additional user, so efficient price is zero. But excludability allows firms to operate. |
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Term
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Definition
| No one owns resource, so overused. Compare average catch with marginal catch for fishing vessels. |
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Term
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Definition
| Efficient outcome in perfect competition |
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Term
| What would cause a shift in demand for labor (a shift in VMPL )? |
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Definition
•Price of output
•Price of other factors
•Use of other factors (increased capital per worker)
•Change in technology |
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Term
| The Value of the Marginal Product Curve |
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Definition
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Term
| Derived demand for factors |
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Definition
| Labor produces marginal product, multiplying by price of output gives increase in revenue from using one more unit of labor. Firm compares this with wage rate. |
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Term
| Marginal Productivity Theory of Income Distribution |
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Definition
•Each factor (physical labor, human capital, physical capital, land) is paid according to its marginal product.
•Payments to factors divide up production among all factors. |
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Term
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Definition
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Term
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Definition
| is when the price of one good rises, and the consumer buys more of the cheaper good. |
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Term
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Definition
| is when the consumer cuts back on all goods, not simply the good that has become more expensive. |
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Term
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Definition
| good whose consumption by one consumer prevents simultaneous consumption by other consumers. |
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Term
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Definition
| if, for any level of production, the cost of providing it to a marginal (additional) individual is zero |
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Term
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Definition
| if it is possible to prevent people who have not paid for it from having access to it. |
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Term
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Definition
| if it is not possible to exclude non-paying consumers from consuming the good. |
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