ECON 201 microeconomics

question

accounting cost

answer

the direct cost of operating a business, including costs for raw materials

question

accounting profit

answer

total revenue minus total explicit cost

question

Average Fixed Cost (AFC)

answer

total fixed costs divided by quantity of output

question

Average Variable Cost (AVC)

answer

total variable costs divided by quantity of output

question

constant returns to scale

answer

the property whereby long-run average total cost stays the same as the quantity of output changes

question

diminishing returns

answer

stage of production where output increases at a decreasing rate as more units of variable input are added

question

diseconomies of scale

answer

the property whereby long-run average total cost rises as the quantity of output increases

question

explicit costs

answer

The actual payments a firm makes to its factors of production and other suppliers.

question

Fixed Cost (FC)

answer

the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold

question

implicit costs

answer

Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur

question

Long Run Average Cost (LAC)

answer

The long-run cost divided by the quantity produced

question

long-run marginal cost (LMC)

answer

change in LTC/change in Q

question

long-run total cost (LTC)

answer

the total cost of production when a firm is perfectly flexible in choosing its inputs

question

marginal product of labor

answer

the additional output a firm produces as a result of hiring one more worker

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minimum efficient scale

answer

The lowest rate of output at which a firm takes full advantage of economies of scale

question

short run average total cost (ATC)

answer

Short-run total cost divided by the quantity of output; equal to AFC + AVC

question

short-run marginal cost

answer

the change in short-run total cost resulting from a one-unit increase in output

question

short run total cost (TC)

answer

the sum of short-run variable cost and fixed cost

question

total product curve

answer

A curve showing the relationship between the quantity of labor and the quantity of output produced, ceteris paribus

question

Variable Cost (VC)

answer

the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold

question

economic cost

answer

the value of all resources used to produce a good or service; opportunity cost

question

economic profit

answer

total revenue minus total cost, including both explicit and implicit costs

question

economies of scale

answer

the property whereby long-run average total cost falls as the quantity of output increases

question

indivisible input

answer

an input that cannot be scaled down to produce a smaller quantity of output

question

break-even price

answer

The price where average revenue is equal to average total cost. Below this price, the firm will shut down in the long run.

question

constant cost industry

answer

an industry that can expand or contract without affecting the long run per-unit cost of production; the long-run industry supply curve is horizontal

question

firm-specific demand curve

answer

a curve showing the relationship between the price charged by a specific firm and the quantity the firm can sell

question

increasing cost industry

answer

an industry that faces higher per-unit production costs as industry output expands in the long run; the long run industry supply curve slopes upward

question

long-run market supply curve

answer

a curve showing the relationship between the market price and quantity supplied in the long run

question

Marginal Revenue (MR)

answer

the change in total revenue from selling one more unit of a product

question

perfectly competitive market

answer

A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.

question

price taker

answer

a buyer or seller that is unable to affect the market price

question

short-run market supply curve

answer

a curve showing the relationship between the market price and quantity supplied in the short run

question

short-run supply curve

answer

A curve showing the relationship between the market price of a product and the quantity of output supplied by a firm in the short run

question

shut-down price

answer

the price at which the firm is indifferent between operating and shutting down; equal to the minimum average variable cost

question

sunk cost

answer

a cost that has already been paid and cannot be recovered

question

barriers to entry

answer

factors that make it difficult and costly for an organization to enter a particular task environment or industry

question

market power

answer

the ability of a company to change prices and output like a monopolist

question

Monopoly

answer

A market in which there are many buyers but only one seller.

question

natural monopoly

answer

a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms

question

network externalities

answer

a characteristic of a product in which its usefulness increases with the number of consumers who use it

question

patent

answer

(n.) exclusive rights over an invention; copyright; (v.) to arrange or obtain such rights; (adj.) plain, open to view; copyrighted

question

price discrimination

answer

the business practice of selling the same good at different prices to different customers

question

Cartel

answer

an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition.

question

concentration ratio

answer

the value of sales by the top firms of an industry stated as a percentage of total industry sales

question

contestable market

answer

an imperfectly competitive industry subject to potential entry if prices or profits increase

question

dominant strategy

answer

a strategy that is the best for a firm, no matter what strategies other firms use

question

duopolists' dilemma

answer

A situation in which both firms in a market would be better off if both chose the high price, but each chooses the low price.

question

Duopoly

answer

an oligopoly consisting of only two firms

question

game tree

answer

a graphical representation of the consequences of different actions in a strategic setting

question

grim trigger strategy

answer

A strategy where a firm responds to underpricing by choosing a price so low that each firm makes zero economic profit

question

limit price

answer

the price that is just low enough to deter entry

question

Limit pricing

answer

the strategy of reducing the price to deter entry

question

low-price guarantee

answer

a promise to match a lower price of a competitor

question

merger

answer

a combination of two or more businesses to form a single firm

question

monopolistic competition

answer

A market structure in which barriers to entry are low and many firms compete by selling similar, but not identical, products.

question

Nash Equilibrium

answer

a situation in which each firm chooses the best strategy, given the strategies chosen by other firms

question

Oligopoly

answer

A market structure in which a few large firms dominate a market

question

predatory pricing

answer

the practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market

question

price fixing

answer

an agreement between two or more firms on the price they will charge for a product

question

price leadership

answer

the strategy by which one or more dominant firms set the pricing practices that all competitors in an industry follow

question

product differentiation

answer

the creation of real or perceived product differences

question

Tie-in sales

answer

An illegal practice in which the purchase of an additional product is mandatory

question

tit-for-tat strategy

answer

A strategy in the prisoner's dilemma game in which the player's first move is cooperative; thereafter, the player mimics the other person's behavior, whether cooperative or competitive. This strategy fares well when interacting with other strategies.

question

trust

answer

An arrangement under which the owners of several companies transfer their decision-making powers to a small group of trustees.

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question

accounting cost

answer

the direct cost of operating a business, including costs for raw materials

question

accounting profit

answer

total revenue minus total explicit cost

question

Average Fixed Cost (AFC)

answer

total fixed costs divided by quantity of output

question

Average Variable Cost (AVC)

answer

total variable costs divided by quantity of output

question

constant returns to scale

answer

the property whereby long-run average total cost stays the same as the quantity of output changes

question

diminishing returns

answer

stage of production where output increases at a decreasing rate as more units of variable input are added

question

diseconomies of scale

answer

the property whereby long-run average total cost rises as the quantity of output increases

question

explicit costs

answer

The actual payments a firm makes to its factors of production and other suppliers.

question

Fixed Cost (FC)

answer

the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold

question

implicit costs

answer

Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur

question

Long Run Average Cost (LAC)

answer

The long-run cost divided by the quantity produced

question

long-run marginal cost (LMC)

answer

change in LTC/change in Q

question

long-run total cost (LTC)

answer

the total cost of production when a firm is perfectly flexible in choosing its inputs

question

marginal product of labor

answer

the additional output a firm produces as a result of hiring one more worker

question

minimum efficient scale

answer

The lowest rate of output at which a firm takes full advantage of economies of scale

question

short run average total cost (ATC)

answer

Short-run total cost divided by the quantity of output; equal to AFC + AVC

question

short-run marginal cost

answer

the change in short-run total cost resulting from a one-unit increase in output

question

short run total cost (TC)

answer

the sum of short-run variable cost and fixed cost

question

total product curve

answer

A curve showing the relationship between the quantity of labor and the quantity of output produced, ceteris paribus

question

Variable Cost (VC)

answer

the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold

question

economic cost

answer

the value of all resources used to produce a good or service; opportunity cost

question

economic profit

answer

total revenue minus total cost, including both explicit and implicit costs

question

economies of scale

answer

the property whereby long-run average total cost falls as the quantity of output increases

question

indivisible input

answer

an input that cannot be scaled down to produce a smaller quantity of output

question

break-even price

answer

The price where average revenue is equal to average total cost. Below this price, the firm will shut down in the long run.

question

constant cost industry

answer

an industry that can expand or contract without affecting the long run per-unit cost of production; the long-run industry supply curve is horizontal

question

firm-specific demand curve

answer

a curve showing the relationship between the price charged by a specific firm and the quantity the firm can sell

question

increasing cost industry

answer

an industry that faces higher per-unit production costs as industry output expands in the long run; the long run industry supply curve slopes upward

question

long-run market supply curve

answer

a curve showing the relationship between the market price and quantity supplied in the long run

question

Marginal Revenue (MR)

answer

the change in total revenue from selling one more unit of a product

question

perfectly competitive market

answer

A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.

question

price taker

answer

a buyer or seller that is unable to affect the market price

question

short-run market supply curve

answer

a curve showing the relationship between the market price and quantity supplied in the short run

question

short-run supply curve

answer

A curve showing the relationship between the market price of a product and the quantity of output supplied by a firm in the short run

question

shut-down price

answer

the price at which the firm is indifferent between operating and shutting down; equal to the minimum average variable cost

question

sunk cost

answer

a cost that has already been paid and cannot be recovered

question

barriers to entry

answer

factors that make it difficult and costly for an organization to enter a particular task environment or industry

question

market power

answer

the ability of a company to change prices and output like a monopolist

question

Monopoly

answer

A market in which there are many buyers but only one seller.

question

natural monopoly

answer

a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms

question

network externalities

answer

a characteristic of a product in which its usefulness increases with the number of consumers who use it

question

patent

answer

(n.) exclusive rights over an invention; copyright; (v.) to arrange or obtain such rights; (adj.) plain, open to view; copyrighted

question

price discrimination

answer

the business practice of selling the same good at different prices to different customers

question

Cartel

answer

an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition.

question

concentration ratio

answer

the value of sales by the top firms of an industry stated as a percentage of total industry sales

question

contestable market

answer

an imperfectly competitive industry subject to potential entry if prices or profits increase

question

dominant strategy

answer

a strategy that is the best for a firm, no matter what strategies other firms use

question

duopolists' dilemma

answer

A situation in which both firms in a market would be better off if both chose the high price, but each chooses the low price.

question

Duopoly

answer

an oligopoly consisting of only two firms

question

game tree

answer

a graphical representation of the consequences of different actions in a strategic setting

question

grim trigger strategy

answer

A strategy where a firm responds to underpricing by choosing a price so low that each firm makes zero economic profit

question

limit price

answer

the price that is just low enough to deter entry

question

Limit pricing

answer

the strategy of reducing the price to deter entry

question

low-price guarantee

answer

a promise to match a lower price of a competitor

question

merger

answer

a combination of two or more businesses to form a single firm

question

monopolistic competition

answer

A market structure in which barriers to entry are low and many firms compete by selling similar, but not identical, products.

question

Nash Equilibrium

answer

a situation in which each firm chooses the best strategy, given the strategies chosen by other firms

question

Oligopoly

answer

A market structure in which a few large firms dominate a market

question

predatory pricing

answer

the practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market

question

price fixing

answer

an agreement between two or more firms on the price they will charge for a product

question

price leadership

answer

the strategy by which one or more dominant firms set the pricing practices that all competitors in an industry follow

question

product differentiation

answer

the creation of real or perceived product differences

question

Tie-in sales

answer

An illegal practice in which the purchase of an additional product is mandatory

question

tit-for-tat strategy

answer

question

trust

answer

An arrangement under which the owners of several companies transfer their decision-making powers to a small group of trustees.

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ECON 201 microeconomics

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