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| The monetary payment a firm must make to an outsider to obtain a resource |
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| The monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market |
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| The payment made by a firm to obtain and retain entrepreneurial ability; the minimum income etrepreneurial ability must receive to induce it or perform entrpreneurial functions for a firm |
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| The total revenue of a firm less its economic costs; also called "pure profit" and "above-normal profit" |
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| Law of Diminishing Returns |
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| The principle that as successive increments of a variable resource is added to a fixed resource, the marginal product of the variable resource will eventally decrease |
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| Any cost that in total does not change when the firm changes its output; the cost of fixed resources |
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| A firm's total fixed cost divided by output |
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| A cost that in total increases when the firm increases its ouput and decreases when the firm reduces its ouput |
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| A firm's total variable cost divided by output |
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| The sum of fixed cost and variable cost |
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| A firm's total cost divided by output; equal to average fixed cost plus average variable cost |
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| The extra cost of producing 1 more unit of ouput; equal to average fixed cost plus average variable cost |
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| The change in total revenue that results from the sale of 1 additional unit of a firm's product; equal the change in total revenue divided by the change in the quantity of the product sold |
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| Reductions in the average total cost of producing a product as the firm expands the size of plant in the long run; the economies of mass production |
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| Increases in the average total cost of producing a product as the firm expands the size of its plant in the long run |
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| An industry in which economies of scale are so great that a single firm can produce the product at a lower average total cost than would be possible if more than one firm produced the product |
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| A market structure in which many firms sell a differentiated product, into which entry is relatively easy, in which the firm has some control over its produt price, and in which there is considerable nonprice competition |
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| A market structure in which a few firms sell either a standardized or differentiated produce, into which entry is difficult, in which the firm has limited control over product price because of mutual interdependence and there's typically nonprice competition |
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| All market structures expect pure competion; includes monopoly, monopolistic competition, and oligopoly |
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| A seller (or buyer) that is unable to affect the price at which product or resource sells by changing the amount it sells |
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| The principle that a firm will maximize its profit by producing the output at which marginal revenue equals marginal cost provided product price is equal to or greater than average variable cost |
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| A seller that is able to affect the product or resource price by chaing the amount it sells |
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| The apportionment of resources among firms and industries to obtain the production of the products most wanted by society; the ouput of each product at which its marginal cost and price/marginal benefit are equal, and at which the sum of consumer surplus and producer surplus is maximized |
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| The prouction of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar's worth of input is the same for all inputs |
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| The production of output, whatever its level, at a higher average cost than is necessary for producing that level of output |
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| the actions by persons, firms or unions to gain special benefits from government at the taxpayers' or someone else's expense |
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| The price of a product that results in the most efficient allocation of an economy's resources and that is equal to the marginal cost of the product. D=MC |
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| The price of a product that enables its producer to obtain a normal profit and that is equal to the average total cost of producing it. D=ATC |
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| A strategy in which one firm's product is distinguished from competing products by means of its design, related services, quality, location, or other attributes (expect price). |
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| Competition based on distinguishing one's product by means of product differentiation and then advertising the distinguished product to consumers |
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| An oligopoly in which the firms produce a differentiated product |
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| The percentage of the total sales of an industry made by the four largest sellers in the industry |
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| A means of analyzing the business behavior of oligopolists that uses the theory of strategy associated with games such as chess and bridge |
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| Two firms realize they would make higher profits if each used a high-price strategy. But each firm ends up choosing a low-price strategy because it fears that it will be worse off if the other firm uses a low-price strategy against it. |
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| In game theory, an outcome from which neither firm wants to deviate; the outcome that once achived is stable and therefore lasting |
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| A situation in which firms act together and in agreement to fix prices, divide a market, or otherwise restrict competition |
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| Successive and continued decreases in the prices charged by firms in an oligopolistic industry. Each firm lowers its price below rivals' prices, hoping to increase its sales and revenues at its rivals' expense |
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| A formal agreement among firms in an industry to set the price of a product and establish the outputs of the individual firms or to divide the market for the product geographically |
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| In game theory, an option that is better than any other alternative option regardless of what the other firm does |
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| An informal method that firms in an oligopoly may employ to set the price of their product: one firm (the leader) is the first to announce a change in price, and the other firms (the followers) soon announce identidcal or similar changes |
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