Economics-Microeconomics 1.5 Theory of the firm

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Average costs

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The cost of production per unit calculated by dividing the total cost of production by the quantity produced

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Average fixed costs

answer

Total fixed cost divided by the number of output

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Average revenue

answer

Total revenue divided by quantity

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Breakevenpoint

answer

A production point where TR=TC or P=ATC or only normal profit is made

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Cartel

answer

a group of producers in an industry that join together to regulate supply (or fix prices) e.g. OEDC

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Collusion

answer

A situation where a small number of firms act together to avoid competition by resorting to agreements to fix prices( or output)

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Constant returns to scale

answer

An increase in the scale of all the factors of production results in the same proportionate increase in output.

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Decreasing returns to scale

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An increase in the scale of all the factors of production results in less than proportionate increase in output

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Diseconomies of scale

answer

An increase in output leads to an increase in the long run average cost.

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Economic cost

answer

Include both implicit and explicit cost

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Economies of scale

answer

As a firm increases its output, the long run average cost reduces

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Explicit cost

answer

Costs that are counted by looking through firm's account reports.

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Fixed cost

answer

Cost that does not vary with output elvel

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Fixed factors

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Factors that remain constant as output increases

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Implicit cost

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Value of the opportunity cost

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Increasing returns to scale

answer

An increase in the scale of all the factors of production results in a more than proportionate increase in output

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Law of diminishing marginal returns

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It states that an increasing number of variable inputs are added to at least one fixed input, marginal product first increases than eventually decreases

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Long run

answer

It refers to production where all factors of production are variable and no fixed factors are involved

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Loss

answer

Loss is made when total revenue excess costs

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Marginal revenue

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The additional revenue obtained by selling one extra unit of good.

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Market structure

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It describes how the market is organised, in terms of the number of sellers and buyers, the entry and exit barriers, the level of market information available, the degree of price-setting power by firms, and the level of product differentiation.

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Monopoly

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Market structure where the is one dominant firm in the market.

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Non-price compeition

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Firms compete for sales by means of non-price methods, such as heavy packaging.

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Normal profit

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The total revenue needed to cover the total economic costs of production/the minimum amount of return that will keep the firm in the industry.

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Oligopoly

answer

A market structure with few dominant sellers and high barriers to entry, usually selling differentiated products.

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Price competition

answer

Firms compete for sales by means of lowering price

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Price discrimination

answer

Producer charges a different price to consumers for an identical good or service.

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Productive efficiency

answer

Productive efficiency exists when production is achieved at the lowest average total cost level.

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Revenue maximizing

answer

A producer produces up to MR=0.

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Revenue maximizing point

answer

A producer produces up to MR=0.

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Short run

answer

It refer to production where there are both variable and fixed factors.

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Shutdown point

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A production point where P=AVC. Below this price, fir,s will shut down in the short run

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Supernormal/Abnormal/Economic profits

answer

Any return to the entrepreneur that is above the normal profit/the level of profit that is required to ensure that a fir, will continue to supply its existing good service.

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Tacit collusion

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It exists when there is a dominant firm and few smaller competitors in the market. The dominant firm will set a relatively high price to maximize its profit, and other small firms will accept and follow the price

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Total cost

answer

The sum of total fixed and variable cost

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Variable cost

answer

Cost that varies with output level

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Variable factors

answer

Factors that increase as output increases

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Profit maximisation

answer

A production point where MC = MR or no marginal profit is made

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question

Average costs

answer

The cost of production per unit calculated by dividing the total cost of production by the quantity produced

question

Average fixed costs

answer

Total fixed cost divided by the number of output

question

Average revenue

answer

Total revenue divided by quantity

question

Breakevenpoint

answer

A production point where TR=TC or P=ATC or only normal profit is made

question

Cartel

answer

a group of producers in an industry that join together to regulate supply (or fix prices) e.g. OEDC

question

Collusion

answer

A situation where a small number of firms act together to avoid competition by resorting to agreements to fix prices( or output)

question

Constant returns to scale

answer

An increase in the scale of all the factors of production results in the same proportionate increase in output.

question

Decreasing returns to scale

answer

An increase in the scale of all the factors of production results in less than proportionate increase in output

question

Diseconomies of scale

answer

An increase in output leads to an increase in the long run average cost.

question

Economic cost

answer

Include both implicit and explicit cost

question

Economies of scale

answer

As a firm increases its output, the long run average cost reduces

question

Explicit cost

answer

Costs that are counted by looking through firm's account reports.

question

Fixed cost

answer

Cost that does not vary with output elvel

question

Fixed factors

answer

Factors that remain constant as output increases

question

Implicit cost

answer

Value of the opportunity cost

question

Increasing returns to scale

answer

An increase in the scale of all the factors of production results in a more than proportionate increase in output

question

Law of diminishing marginal returns

answer

It states that an increasing number of variable inputs are added to at least one fixed input, marginal product first increases than eventually decreases

question

Long run

answer

It refers to production where all factors of production are variable and no fixed factors are involved

question

Loss

answer

Loss is made when total revenue excess costs

question

Marginal revenue

answer

The additional revenue obtained by selling one extra unit of good.

question

Market structure

answer

question

Monopoly

answer

Market structure where the is one dominant firm in the market.

question

Non-price compeition

answer

Firms compete for sales by means of non-price methods, such as heavy packaging.

question

Normal profit

answer

The total revenue needed to cover the total economic costs of production/the minimum amount of return that will keep the firm in the industry.

question

Oligopoly

answer

A market structure with few dominant sellers and high barriers to entry, usually selling differentiated products.

question

Price competition

answer

Firms compete for sales by means of lowering price

question

Price discrimination

answer

Producer charges a different price to consumers for an identical good or service.

question

Productive efficiency

answer

Productive efficiency exists when production is achieved at the lowest average total cost level.

question

Revenue maximizing

answer

A producer produces up to MR=0.

question

Revenue maximizing point

answer

A producer produces up to MR=0.

question

Short run

answer

It refer to production where there are both variable and fixed factors.

question

Shutdown point

answer

A production point where P=AVC. Below this price, fir,s will shut down in the short run

question

Supernormal/Abnormal/Economic profits

answer

Any return to the entrepreneur that is above the normal profit/the level of profit that is required to ensure that a fir, will continue to supply its existing good service.

question

Tacit collusion

answer

question

Total cost

answer

The sum of total fixed and variable cost

question

Variable cost

answer

Cost that varies with output level

question

Variable factors

answer

Factors that increase as output increases

question

Profit maximisation

answer

A production point where MC = MR or no marginal profit is made

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Economics-Microeconomics 1.5 Theory of the firm

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