Chapters 7-12 - Custom Scholars
Home » Flash Cards » Chapters 7-12

# Chapters 7-12

question
short run
period of time during which some of the firm's cost commitments will NOT have ended.
question
long run
period of time long enought for all of the firm's comments to end.
question
fixed cost
cost of an input whose quantity does not rise when output goes up
question
variable cost
varies with output.
question
total physical product (TPP)
amount of output obtained from a given quantity of input
question
average physical product (APP)
output per unit of product
question
APP (formula)
TPP/X (where X is the quantity of input)
question
marginal physical product (MPP)
increase in total output from a one-unit increase in the input quantity, holding the amounts of all other inputs constant
question
law of diminishing marginal returns
an increase in the amount of any one input, ultimately leads to lower marginal returns to the expanding input.
question
marginal revenue product (MRP)
the additional revenue that the producer earns from the increased sales when it uses and additional unit of input.
question
MRP (formula)
MPP x Price of Output
question
optimal quantity of an input
when MPP = Price. Only holds true when we see diminishing marginal returns. When the MPP exceeds price it pays to use more of an input.
question
Total Cost (TC)
fixed cost + variable costs (+ opportunity costs)
question
Average Variable cost (AVC)
total variable cost / quantity produced
question
Marginal variable cost (MVC)
increase in total variable cost from one additional unit of output
question
MVC (formula)
Chg Total Cost/ Chng Total Quantity
question
total fixed cost curve
straight line
question
average cost curve
U-Shaped due to the downward sloping segment of increasing marginal physcial products and distribution of fixed costs over ever-larger quantities of outputs.
question
average cost curve and more production
as you produce more fixed costs go down
question
average cost (formula)
AFC + AVC
question
Marginal cost (formula)
MFC + MVC = 0 + MVC = MVC
question
economies of scale and production relationship
long run average cost curves decline as output expands
question
production indifference curve
sometimes called an isoquant. A curve showing all the difference quantities of two inputs that are just sufficient to produce a given quantity of output
question
production indifference curve characteristic for higher curves
represent larger outputs and larger quantities of both inputs that corresponding points on the lower curve
question
production indifference curve and slope
negative slope
question
production indifference curve shape
curves inward towards the origin to reflect diminishing returns
question
production indifference curve and budget line
the least costly way to produce any given level of output is indicated by the point of tangency between a budget line and production indifference curve
question
expansion path
for each possible output levels, the combination of input quantities that minimize the cost of producing that output.
question
Price quantity pair
point on the demand curve
question
Total Profit (TP) (economic total profit)
total revenue - total cost (counts opportunity cost)
question
economic profit
accounting profit (net earnings) minus opportunity cost
question
Total Revenue (TR)
P X Q
question
Average Revenue (AR) (formula)
TR/Q = PxQ/Q = P
question
Marginal Revenue (definition)
the additional total revenue resulting from the addition of one unit to total output.
question
Marginal Revenue (formula)
MR = TR1 - TR0
question
Total Cost Curve
increasing with output
question
average cost curve
U-shaped
question
Marginal cost curve
U-shaped
question
Total profit graphically
vertical distance between TR curve and TC curve
question
marginal profit
addition to total profit from one more unit of output. The slope of the total profit curve
question
If MP > 0
increase output
question
If MP = 0
optimal
question
Rule of profit maximization
profit can only be maximized at an output level at which marginal revenue is equal to marginal costs (MR = MC).
question
How to problem solve profit maximization
If MR > MC --> produce one more unit
If MR < MC ---> do not produce more because MR = MC is optimal between the two
question
Finding optimal price
1) find the profit maximizing quantity
2) find the price that corresponds to that quantity on the demand curve
question
profit maximize price and quantity and fixed costs
when fixed cost increases profit maximizing price and output remain unchanged so long as it pays the firm to stay in business
question
perfect competition
1) Numerous small firms and customers
2) Homogeneity of product
3) Freedom of entry and exit
4) Perfect information
question
numerous small firms and customers
competitive markets contain so many buyers and sellers that each one constitutes a negligible portion of the whole
question
homogeneity of product
question
freedom of entry and exit
no impediments to entry. If good is not profitable there is no barrier to leaving the market
question
perfect information
each seller knows the other's price and products
question
perfectly competitive firm
firm has no choice but to accept the market price. Flat horizontal demand curve, sells as much as it wants at the market price
question
equilibrium for a profit maximizing firm in a perfectly competitive market
occurs at an output level at which marginal cost equals price = AR = MR. This is because the horizontal demand curve makes price and marginal revenue equal and therefore bost must equal marginal costs. MC = MR = P
question
P > AC
firm will earn a profit
question
P < AC
firm will suffer a loss
question
If TR < TC
firm will suffer a loss
question
If TR > total short run variable cost (TVC)
the firm should continue to operate in the short run
question
P > AVC
firms should continue to operate in the short run
question
total revenue
P x Q
question
If P > ATC [TR >TC]
profit
question
If P < ATC
operates at a loss
question
TR < TC
operates at a loss
question
If P < AVC
firm shuts down
question
TR < TVC
firm shuts down
question
If P < AVC (reasoning)
loss of shutting down (TC - TVC) is less than loss of operating (TC-TR
question
relationship between MC and supply curve in perfectly competitive firm
the short run supply curve is thE MC CURVE that lies above the low point of the AVC curve. anything below AVC means we have to shut down.
question
industry short run
period of time too brief for new firms to enter or old firms to leave.
question
industry long run
period of time long enough for any firm to enter or exit as it desires.
question
supply curve of perfectly competitive industry
at any price add up the quantity supplied by each of the firms
question
short term industry supply curve shift
shifts out to the right as new firms enter the market
question
long run maximized profits perfectly competitive industry
P = MC = AC
question
Monopoly barriers to entry and cost advantages
legal restrictions, patents, control of a scarce resource or input, deliberately erected entry barriers, large sunk costs (boeing competitor), tech superiority, economies of scale (as you produce more average costs get lower and lower).
question
Monopoly and demand curve
monopolies select price or quantity and have a down-ward sloping demand curve where P = AR = D
question
Monopoly marginal revenue curve
below demand curve. MR < AR
question
Monopoly: how to analyze when a profit
1) find MR = MC and get the quantity
2) find price at that quantity
3) If P > AC, you have a profit
question
Find optimal output for a monopoly
find where MR = MC and total profit is the highest
question
monopoly v. perfect competition
-monopolist output persists
- monopoly restricts output to raise shortrun prices
- monopoly restricts output to raise long run prices
-monopoly leads to inefficient resource allocation
question
monopoly shift in demand curve
results in an outward shift of marginal revenue curve
question
monopolistic competition
demand curve has a negative slope, a price increase may lead to losing some customers
question
Short run equilibrium of firm under monopolistic competition
MR curve falls below AC and demand curve
question
Long run equilibrium under monopolistic competition
demand curve is tangent to the AC curve, zero economic profit
question
oligopoly
- market dominated by a few sellers
- identical or differentiated products
- seeks to create new products
question
Oligopolistic behavior
must take into account rivals' responses because there is a lot of direct competition
question
excess capacity theorem and resource allocation
monopolistic competition tends to lead firms to have unused or wasted capacity
question
Oligopolistic behavior models
-ignoring interdependence
- strategic intereaction (moves counter moves)
- cartel (opec)
-tacit collusion
question
average fixed costs
as you produce more average fixed costs go down. curve is convex to the origin
question
total cost and total revenue curves
total cost increases over time. total revenue decreases over time.
question
marginal physical product can tell a producer
how much the last input added to the total amount of production
question
the long run average cost curve
is a composite if short run AC curves
question
the long run average cost curve
shows the lowest possible AC corresponding to each level
question
the long run average cost curve
depends on the firms planning horizon
question
total profit
TR-TC
question
total profit
net profit times total output
question
total profit
total sales revenue minus total cost
question
total revenue can be calculated
directly from the demand curve
question
total revenue can be calculated
from the average revenue curve
question
total revenue can be calculated
P*Q
question
not a characteristic of perfect competition
all consumers have identical demand curves
question
Example of real life perfect competition
fishing industry
question
Average cost (formula)
TOTAL COST / QUANTITY
question
Shutdown immediately if
TR < SRVC
question
The difference between zero profit and zero economic profit is that
economists include opportunity cost in zero economic profit while accountants do not include opportunity cost in zero profit
question
Pure monopoly
- one supplier
- has no close substitutes for product
- exists when entry and survival of potential competitors is extremely unlikely
question
Why is the monopolist supply decision more complicated than that of competitive supply
because the monopolist can choose its price and the perfect competitor cannot
question
A monopolist can sell 10 sans if he changes \$10 per wang and \$11 if he charges \$9. The MR from selling the 11th is
-\$1
question
finding profit maximinzing output
point before marginal revenue starts to decline
question
Monopoly characteristics
- inefficient and therefore the least desireable form of market
- they may cause a shift in the demand curve to benefit society
- may aid in innovation
question
firms that engage in price discrimination
will earn more profit that those that do not
question
Monopolistic competitors and perfect competitors are alike because
they both have zero economic profit in the long run
question
The demand curve for a monopolistic competitor slopes downward because
there are close but not perfect substitutes for the product
question
The monopolistically competitive firm in short run equilibrium
- faces a downward sloping demand curve
question
The monopolistically competitive firm in short run equilibrium
has a MR which lies below its demand curve
question
The monopolistically competitive firm in short run equilibrium
maximizes profit where MR = MC
question
Oligopolists must
take rivals' reactions into account
question
The difficulty in analyzing oligopolistic behavior arises from
interdependant nature of oligopolistic decisions
question
When oligarcs join together in a cartel they
have admitted that their behavior is interdependant
question
A sales-maximizing firm produces the output level at which
MR = 0
question
The maximin criterion can be defined by which of the following
one seeks the maximum of minimum payoffs to the various available strategies
question
if a market is contestable
long run economic profits are zero
question
Placement of AVC and ATC curves on graph
ATC must always be above AVC
question
perfectly competitive firm maximizes profits when
price = marginal cost OR marginal revenue = MC OR
profits are the highest (greatest distance between total revenue and total cost)
question
The short run supply curve of a perfectly competitive firm
goes through the lowest point on both its short run average variable cost and its short run average total cost curves
question
Monopolistic competitors and perfect competitors are alike in
zero economic profit in the long run.
question
The demand curve for a monopolistic competitor slopes downward because
there are close but not perfect substitutes for the product.
question
According to the kinked demand curve model, an oligopolist may face
more elastic demand if she raises her price than if she lowers her price.
1 of 125
question
short run
period of time during which some of the firm's cost commitments will NOT have ended.
question
long run
period of time long enought for all of the firm's comments to end.
question
fixed cost
cost of an input whose quantity does not rise when output goes up
question
variable cost
varies with output.
question
total physical product (TPP)
amount of output obtained from a given quantity of input
question
average physical product (APP)
output per unit of product
question
APP (formula)
TPP/X (where X is the quantity of input)
question
marginal physical product (MPP)
increase in total output from a one-unit increase in the input quantity, holding the amounts of all other inputs constant
question
law of diminishing marginal returns
an increase in the amount of any one input, ultimately leads to lower marginal returns to the expanding input.
question
marginal revenue product (MRP)
the additional revenue that the producer earns from the increased sales when it uses and additional unit of input.
question
MRP (formula)
MPP x Price of Output
question
optimal quantity of an input
when MPP = Price. Only holds true when we see diminishing marginal returns. When the MPP exceeds price it pays to use more of an input.
question
Total Cost (TC)
fixed cost + variable costs (+ opportunity costs)
question
Average Variable cost (AVC)
total variable cost / quantity produced
question
Marginal variable cost (MVC)
increase in total variable cost from one additional unit of output
question
MVC (formula)
Chg Total Cost/ Chng Total Quantity
question
total fixed cost curve
straight line
question
average cost curve
U-Shaped due to the downward sloping segment of increasing marginal physcial products and distribution of fixed costs over ever-larger quantities of outputs.
question
average cost curve and more production
as you produce more fixed costs go down
question
average cost (formula)
AFC + AVC
question
Marginal cost (formula)
MFC + MVC = 0 + MVC = MVC
question
economies of scale and production relationship
long run average cost curves decline as output expands
question
production indifference curve
sometimes called an isoquant. A curve showing all the difference quantities of two inputs that are just sufficient to produce a given quantity of output
question
production indifference curve characteristic for higher curves
represent larger outputs and larger quantities of both inputs that corresponding points on the lower curve
question
production indifference curve and slope
negative slope
question
production indifference curve shape
curves inward towards the origin to reflect diminishing returns
question
production indifference curve and budget line
the least costly way to produce any given level of output is indicated by the point of tangency between a budget line and production indifference curve
question
expansion path
for each possible output levels, the combination of input quantities that minimize the cost of producing that output.
question
Price quantity pair
point on the demand curve
question
Total Profit (TP) (economic total profit)
total revenue - total cost (counts opportunity cost)
question
economic profit
accounting profit (net earnings) minus opportunity cost
question
Total Revenue (TR)
P X Q
question
Average Revenue (AR) (formula)
TR/Q = PxQ/Q = P
question
Marginal Revenue (definition)
the additional total revenue resulting from the addition of one unit to total output.
question
Marginal Revenue (formula)
MR = TR1 - TR0
question
Total Cost Curve
increasing with output
question
average cost curve
U-shaped
question
Marginal cost curve
U-shaped
question
Total profit graphically
vertical distance between TR curve and TC curve
question
marginal profit
addition to total profit from one more unit of output. The slope of the total profit curve
question
If MP > 0
increase output
question
If MP = 0
optimal
question
Rule of profit maximization
profit can only be maximized at an output level at which marginal revenue is equal to marginal costs (MR = MC).
question
How to problem solve profit maximization
If MR > MC --> produce one more unit
If MR < MC ---> do not produce more because MR = MC is optimal between the two
question
Finding optimal price
1) find the profit maximizing quantity
2) find the price that corresponds to that quantity on the demand curve
question
profit maximize price and quantity and fixed costs
when fixed cost increases profit maximizing price and output remain unchanged so long as it pays the firm to stay in business
question
perfect competition
1) Numerous small firms and customers
2) Homogeneity of product
3) Freedom of entry and exit
4) Perfect information
question
numerous small firms and customers
competitive markets contain so many buyers and sellers that each one constitutes a negligible portion of the whole
question
homogeneity of product
question
freedom of entry and exit
no impediments to entry. If good is not profitable there is no barrier to leaving the market
question
perfect information
each seller knows the other's price and products
question
perfectly competitive firm
firm has no choice but to accept the market price. Flat horizontal demand curve, sells as much as it wants at the market price
question
equilibrium for a profit maximizing firm in a perfectly competitive market
occurs at an output level at which marginal cost equals price = AR = MR. This is because the horizontal demand curve makes price and marginal revenue equal and therefore bost must equal marginal costs. MC = MR = P
question
P > AC
firm will earn a profit
question
P < AC
firm will suffer a loss
question
If TR < TC
firm will suffer a loss
question
If TR > total short run variable cost (TVC)
the firm should continue to operate in the short run
question
P > AVC
firms should continue to operate in the short run
question
total revenue
P x Q
question
If P > ATC [TR >TC]
profit
question
If P < ATC
operates at a loss
question
TR < TC
operates at a loss
question
If P < AVC
firm shuts down
question
TR < TVC
firm shuts down
question
If P < AVC (reasoning)
loss of shutting down (TC - TVC) is less than loss of operating (TC-TR
question
relationship between MC and supply curve in perfectly competitive firm
the short run supply curve is thE MC CURVE that lies above the low point of the AVC curve. anything below AVC means we have to shut down.
question
industry short run
period of time too brief for new firms to enter or old firms to leave.
question
industry long run
period of time long enough for any firm to enter or exit as it desires.
question
supply curve of perfectly competitive industry
at any price add up the quantity supplied by each of the firms
question
short term industry supply curve shift
shifts out to the right as new firms enter the market
question
long run maximized profits perfectly competitive industry
P = MC = AC
question
Monopoly barriers to entry and cost advantages
legal restrictions, patents, control of a scarce resource or input, deliberately erected entry barriers, large sunk costs (boeing competitor), tech superiority, economies of scale (as you produce more average costs get lower and lower).
question
Monopoly and demand curve
monopolies select price or quantity and have a down-ward sloping demand curve where P = AR = D
question
Monopoly marginal revenue curve
below demand curve. MR < AR
question
Monopoly: how to analyze when a profit
1) find MR = MC and get the quantity
2) find price at that quantity
3) If P > AC, you have a profit
question
Find optimal output for a monopoly
find where MR = MC and total profit is the highest
question
monopoly v. perfect competition
-monopolist output persists
- monopoly restricts output to raise shortrun prices
- monopoly restricts output to raise long run prices
-monopoly leads to inefficient resource allocation
question
monopoly shift in demand curve
results in an outward shift of marginal revenue curve
question
monopolistic competition
demand curve has a negative slope, a price increase may lead to losing some customers
question
Short run equilibrium of firm under monopolistic competition
MR curve falls below AC and demand curve
question
Long run equilibrium under monopolistic competition
demand curve is tangent to the AC curve, zero economic profit
question
oligopoly
- market dominated by a few sellers
- identical or differentiated products
- seeks to create new products
question
Oligopolistic behavior
must take into account rivals' responses because there is a lot of direct competition
question
excess capacity theorem and resource allocation
monopolistic competition tends to lead firms to have unused or wasted capacity
question
Oligopolistic behavior models
-ignoring interdependence
- strategic intereaction (moves counter moves)
- cartel (opec)
-tacit collusion
question
average fixed costs
as you produce more average fixed costs go down. curve is convex to the origin
question
total cost and total revenue curves
total cost increases over time. total revenue decreases over time.
question
marginal physical product can tell a producer
how much the last input added to the total amount of production
question
the long run average cost curve
is a composite if short run AC curves
question
the long run average cost curve
shows the lowest possible AC corresponding to each level
question
the long run average cost curve
depends on the firms planning horizon
question
total profit
TR-TC
question
total profit
net profit times total output
question
total profit
total sales revenue minus total cost
question
total revenue can be calculated
directly from the demand curve
question
total revenue can be calculated
from the average revenue curve
question
total revenue can be calculated
P*Q
question
not a characteristic of perfect competition
all consumers have identical demand curves
question
Example of real life perfect competition
fishing industry
question
Average cost (formula)
TOTAL COST / QUANTITY
question
Shutdown immediately if
TR < SRVC
question
The difference between zero profit and zero economic profit is that
economists include opportunity cost in zero economic profit while accountants do not include opportunity cost in zero profit
question
Pure monopoly
- one supplier
- has no close substitutes for product
- exists when entry and survival of potential competitors is extremely unlikely
question
Why is the monopolist supply decision more complicated than that of competitive supply
because the monopolist can choose its price and the perfect competitor cannot
question
A monopolist can sell 10 sans if he changes \$10 per wang and \$11 if he charges \$9. The MR from selling the 11th is
-\$1
question
finding profit maximinzing output
point before marginal revenue starts to decline
question
Monopoly characteristics
- inefficient and therefore the least desireable form of market
- they may cause a shift in the demand curve to benefit society
- may aid in innovation
question
firms that engage in price discrimination
will earn more profit that those that do not
question
Monopolistic competitors and perfect competitors are alike because
they both have zero economic profit in the long run
question
The demand curve for a monopolistic competitor slopes downward because
there are close but not perfect substitutes for the product
question
The monopolistically competitive firm in short run equilibrium
- faces a downward sloping demand curve
question
The monopolistically competitive firm in short run equilibrium
has a MR which lies below its demand curve
question
The monopolistically competitive firm in short run equilibrium
maximizes profit where MR = MC
question
Oligopolists must
take rivals' reactions into account
question
The difficulty in analyzing oligopolistic behavior arises from
interdependant nature of oligopolistic decisions
question
When oligarcs join together in a cartel they
have admitted that their behavior is interdependant
question
A sales-maximizing firm produces the output level at which
MR = 0
question
The maximin criterion can be defined by which of the following
one seeks the maximum of minimum payoffs to the various available strategies
question
if a market is contestable
long run economic profits are zero
question
Placement of AVC and ATC curves on graph
ATC must always be above AVC
question
perfectly competitive firm maximizes profits when
price = marginal cost OR marginal revenue = MC OR
profits are the highest (greatest distance between total revenue and total cost)
question
The short run supply curve of a perfectly competitive firm
goes through the lowest point on both its short run average variable cost and its short run average total cost curves
question
Monopolistic competitors and perfect competitors are alike in
zero economic profit in the long run.
question
The demand curve for a monopolistic competitor slopes downward because
there are close but not perfect substitutes for the product.
question
According to the kinked demand curve model, an oligopolist may face
more elastic demand if she raises her price than if she lowers her price.

## Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
\$26
The price is based on these factors:
Number of pages
Urgency
Basic features
• Free title page and bibliography
• Unlimited revisions
• Plagiarism-free guarantee
• Money-back guarantee
On-demand options
• Writer’s samples
• Part-by-part delivery
• Overnight delivery
• Copies of used sources
Paper format
• 275 words per page
• 12 pt Arial/Times New Roman
• Double line spacing
• Any citation style (APA, MLA, Chicago/Turabian, Harvard)

## Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

### Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

### Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

### Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.