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Topics IV and V
Microeconomics 202
44
Economics
04/01/2013

Term
 In the short run
Definition
 the firm can change output only within the constraints of an existing plant size
Term
 in the long run
Definition
 all costs are variable
Term
 according to the marginal decision rule, if the marginal cost of producing an additional unit output is greater than the marginal revenue of that unit
Definition
 the firm should not produce that unit of output
Term
 according to the law of decreasing returns, as more units of a variable input are added to a fixed input, the ______ of the variable input must eventually decline
Definition
 marginal product
Term
 according to the marginal average rule, when marginal product rises above average product,
Definition
 it pulls the average product higher
Term
 formula for marginal product (MP)
Definition
 MP= (change in Q)/(change in labor(L))
Term
 formula for average product (AP)
Definition
 AP= Q/L
Term
 formula for total cost (TC)
Definition
 TC=TFC+TVCex: TC= 500+150L
Term
 formula for total variable cost (TVC)
Definition
 say labor costs \$100 per unit...then the formula would be 100L -example: with 4 labor units, TVC would be 100(4)=400
Term
 formula for average fixed cost (AFC)
Definition
 AFC= MP/Q
Term
 formula for average variable cost (AVC)
Definition
 AVC= TVC/Q
Term
 formula for average total cost (ATC)
Definition
 ATC= TC/Qor ATC= AFC+AVC
Term
 formula for marginal cost (MC)
Definition
 MC= (change in TC)/(change in Q)orMC= (price of labor)/(MP of labor)
Term
 marginal cost is minimized at the level where
Definition
 marginal product is maximized
Term
 the _____ determines the characteristics of the marginal cost, the average variable cost, and the average total cost curves
Definition
 law of decreasing returns
Term
 in the long run
Definition
 all inputs and costs are variable
Term
 in the ____ run, firms have enough time to change their plant sizes, build new plants, close down old plants, and enter/ leave industries
Definition
 long
Term
 economists typically derive the firm's long run average cost (LRAC) curve as
Definition
 the least-cost segments of the ATC curves for all possible plant sizes
Term
 the firm is experiencing _____ in the output range from 0 to Q1
Definition
 economies of scale
Term
 under competitive conditions, this firm can/cannot expect to survive operating at an output level below Q1.
Definition
 cannot
Term
 we would expect to find ____ firms in an industry characterized by minimum efficient scale (MES) at a low output level immediately followed by diseconomies of scale.
Definition
 small
Term
 besides the location of MES, what other factors may explain the size and number of firms in an industry?
Definition
 -marketing expertise-firm goodwill-consumer convenience
Term
 what are the competitive factors used to define market types?
Definition
 -# of firms in industry-similarity of firms' products-ease of market entry/exit
Term
 which market structure is least competitive?
Definition
 monopoly
Term
 Automobile manufacturing is an example of what?
Definition
 an oligopolistic industry
Term
 which market structure is characterized by a very large number of sellers, a homogeneous product, and easy market entry/exit?
Definition
 perfect competition
Term
 economists refer to the perfectly competitive firm as a
Definition
 price taker
Term
 for the individual perf. comp. firm, price
Definition
 is constant for all output levels
Term
 under perfect competition, price
Definition
 is set by the market
Term
 the perf. comp. firm maximizes profits/minimizes losses by producing at the output level where
Definition
 price equals marginal cost, provided that price is greater than average variable cost
Term
 Assume a perfectly competitive firm is producing 1,000 units of output at a price of \$10 per unit. At this output level, marginal cost equals \$10, average variable cost equals \$6, and average total cost equals \$8. This firm
Definition
 is maximizing profit at 1,000 units of output, because P>AVC and P>ATC (when P>ATC, you have profit)
Term
 The perfectly competitive firm's short run supply curve equals
Definition
 its marginal cost curve for all prices greater than average variable cost
Term
 the perf. competitive market short run supply curve equals
Definition
 the sum of the marginal cost curves of all firms in that market
Term
 which of the following items represents a condition for long run equilibrium for perf. comp. firm and market?
Definition
 the typical firm earns zero profit (P=ATC)
Term
 Assume a perfectly competitive market and firm are operating under conditions of long-run equilibrium. If the demand for the good or service produced in this market increases, which of the following adjustments will occur in the short run?
Definition
 -market prices will increase-firm and market output with increase
Term
 After all of the short-run adjustments implied by the question above occur, which of the following adjustments will occur in the long run?
Definition
 -firms will enter the market-market supply will increase
Term
 Assuming the market described in the previous two previous questions represents a decreasing cost industry, the new long-run equilibrium price will be
Definition
 less than the original long run equilibrium price
Term
 the long run supply curve that slopes upward is
Definition
 an increasing cost industry
Term
 Production efficiency
Definition
 the perfectly competitive firm operates at the minimum point on its average total cost curve at long run equilibrium
Term
 Allocative efficiency
Definition
 the perf. comp. firm produces at the output level where price equals marginal cost, provided price exceeds average variable cost
Term
 formula for marginal revenue (MR)
Definition
 MR= (change in TR)/(change in Q)
Term
 formula for total revenue (TR)
Definition
 TR=P*Q
Term
 formula for revenue per unit of output
Definition
 TR/Q=P
Term
 formula for variable cost per unit of output
Definition
 VC/Q=AVC
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