# Shared Flashcard Set

## Details

Final Exam Eco
N/A
48
Economics
12/18/2012

Term
 Fixed inputs
Definition
 (for example, equipment or structures): producer cannot change levels.
Term
 Variable inputs
Definition
 (for example, labor, fertilizer for crops): producer can change levels.
Term
 Short run
Definition
 short enough that some inputs are fixed while others are variable.
Term
 Long run
Definition
 long enough that all inputs are variable.
Term
 Marginal Product of Labor
Definition
 Change in quantity of output / Change in quantity of labor
Term
 Total Cost Curve
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
Term
 Diminishing Returns
Definition
 The total cost curve becomes steeper as more output is produced due to diminishing returns.
Term
 Average Total Costs
Definition
 equal Average Fixed Costs plus Average Variable CostsATC = AFC + AVC
Term
 Marginal Costs
Definition
 MC = (Change in Total Costs)/(Change in Output)
Term
 Conditions for Perfect Competition
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
Term
 Marginal Revenue
Definition
 MR = ΔTR/ΔQChange in total revenue / change in output
Term
 optimal output rule
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.
Term
 When Is Production Profitable?
Definition
 •If TR > TC, the firm is profitable.•If TR = TC, the firm breaks even.•If TR < TC, the firm incurs a loss.
Term
 Profitability and the Market Price PROFIT
Definition
 [image]
Term
 Profitability and the Market Price LOSS
Definition
 [image]
Term
 When should the firm shut down?
Definition
 Higher profits by producing if P-AVC>0.
Term
 The Short-Run Individual Supply Curve
Definition
 [image]
Term
 The Short-Run Market Equilibrium
Definition
 [image]
Term
 The Long-Run Market Equilibrium
Definition
 [image]
Term
 Comparing the Short-Run and Long-Run Industry Supply Curves
Definition
 [image]
Term
 Properties of Long Run Equilibrium
Definition
 •Costs of production will be minimized.•Price will equal minimum ATC•Price will equal MC•Profits will be zero.
Term
 How Does a Monopolist Avoid Competition?
Definition
 •Control Source of Input (Canneries)•Increasing Returns to Scale (natural monopoly)•Technological superiority (iPads?)•Government-created barriers. Adam Smith, patents.
Term
 What a Monopolist Does
Definition
 [image]
Term
 The Monopolist’s Profit-Maximizing Output and Price
Definition
 [image]
Term
 The Monopolist’s Profit
Definition
 Profit = TR − TC= (PM × QM) − (ATCM × QM)= (PM − ATCM) × QM
Term
 Monopoly Causes Inefficiency
Definition
 [image]
Term
 Price DiscriminationTwo Types of Airline Customers
Definition
 [image]
Term
 Payoff Matrix
Definition
 [image]
Term
 The Prisoners’ Dilemma
Definition
 [image]
Term
 Externalities
Definition
 arise when third parties are affected. E.g. pollution, noise, congestion.
Term
 Environmental Standards
Definition
 [image]
Term
 Emission Taxes
Definition
 [image]
Term
 Categories of Goods
Definition
 [image]
Term
 Public goods
Definition
 Free rider problem with nonexcludable goods. No incentive for firms to provide. Problem of optimal level. Cost-benefit analysis.
Term
 Artificially scarce goods
Definition
 No cost to additional user, so efficient price is zero. But excludability allows firms to operate.
Term
 Common resources
Definition
 No one owns resource, so overused. Compare average catch with marginal catch for fishing vessels.
Term
 Private goods
Definition
 Efficient outcome in perfect competition
Term
 What would cause a shift in demand for labor (a shift in VMPL )?
Definition
 •Price of output•Price of other factors•Use of other factors (increased capital per worker)•Change in technology
Term
 The Value of the Marginal Product Curve
Definition
 [image]
Term
 Derived demand for factors
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.
Term
 Marginal Productivity Theory of Income Distribution
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.
Term
 VMPL = ?
Definition
 P X MPL
Term
 The substitution effect
Definition
 is when the price of one good rises, and the consumer buys more of the cheaper good.
Term
 The income effect
Definition
 is when the consumer cuts back on all goods, not simply the good that has become more expensive.
Term
 Rival Good
Definition
 good whose consumption by one consumer prevents simultaneous consumption by other consumers.
Term
 Non-Rival Good
Definition
 if, for any level of production, the cost of providing it to a marginal (additional) individual is zero
Term
 Excludable good
Definition
 if it is possible to prevent people who have not paid for it from having access to it.
Term
 Non-Excludable Good
Definition
 if it is not possible to exclude non-paying consumers from consuming the good.
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