Final Review

question

explicit costs

answer

input costs that require an outlay of money by the firm

question

implicit costs

answer

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

question

accounting profit

answer

total revenue - explicit costs

question

economic cost

answer

revenue - opportunity cost
revenue - (explicit +implicit costs)

question

Capital

answer

the total value of assets

question

implicit cost of capital

answer

the opportunity cost of the use of one's own capital - the income earned if the capital had been employed in its next best alternative use

question

optimal point

answer

marginal benefit = marginal cost

question

sunk cost

answer

a cost that has already been committed and cannot be recovered
- can be ignored in decisions about future actions

question

marginal

answer

change in total / change in input

question

average

answer

total / number of units

question

production

answer

turning inputs into outputs

question

fixed input

answer

an input whose quantity is fixed for a period of time and cannot be varied

question

variable input

answer

an input whose quantity the firm can vary at any time

question

long run

answer

all outputs can be varied

question

short run

answer

at least on input is fixed

question

total product curve

answer

shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input

question

marginal product

answer

the increase in output that arises from an additional unit of input

question

marginal product of labor

answer

the change in output from hiring one additional unit of labor
- slope of the total product curve

question

diminishing marginal product

answer

the property whereby the marginal product of an input declines as the quantity of the input increases

question

fixed costs

answer

Costs that do not vary with the quantity of output produced

question

variable costs

answer

costs that vary with the quantity of output produced

question

total cost

answer

fixed costs plus variable costs

question

total cost curve

answer

shows how total cost depends on the quantity of output
- becomes steeper as more output is produced, as a result of diminish returns

question

short run average total cost

answer

The curve describing average total cost when some costs are considered fixed.

question

long-run average total cost curve

answer

shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output

question

increasing returns to scale (economies of scale)

answer

when long-run average total cost declines as output increases

question

constant returns to scale

answer

when long-run average total cost is constant as output increases

question

decreasing returns to scale (diseconomies of scale)

answer

when long-run average total cost increases as output increases

question

monopoly

answer

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

question

market power

answer

the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

question

barriers to entry

answer

control of a scarce resource
increasing returns to scale
technology restrictions
network externalities
government made barriers

question

marginal revenue

answer

below the demand curve

question

quantity effect

answer

one more unit is sold, increasing total revenue by the price at which the unit is sold

question

price effect

answer

after a price increase, each unit sold sells at a higher price, which tends to raise revenue

question

profit maximization

answer

choose a quantity where MR=MC

question

price discimination

answer

The act of selling the same product for different prices to different people.
Ex. selling a toothbrush to poor people for 1 dollar but to rich for 10

question

Oligopoly

answer

A market structure in which a few large firms dominate a market
- Imperfect competition

question

HHI

answer

sum of squared market shares
less than 1000: stringly competative
1000-1800: somewhat competative
above 1800: oligopoly
- If HHI is over 1000, a merger will receive scrutiny by government

question

Duopoly

answer

an oligopoly consisting of only two firms

question

collusion

answer

secret agreement or cooperation

question

cartel

answer

a group of firms acting in unison
- act like a monopoly

question

game theory

answer

Evaluates alternate strategies when outcome depends not only on each individual's strategy but also that of others.

question

Types of Product Differentiation

answer

style/type, location, quality

question

competition among sellers

answer

entry by more producers reduces the quantity each existing producer sells

question

value diversity

answer

consumers gain from the increased diversity of products

question

monopolistic competition short run

answer

photo

1 of 46

question

explicit costs

answer

input costs that require an outlay of money by the firm

question

implicit costs

answer

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

question

accounting profit

answer

total revenue - explicit costs

question

economic cost

answer

revenue - opportunity cost
revenue - (explicit +implicit costs)

question

Capital

answer

the total value of assets

question

implicit cost of capital

answer

the opportunity cost of the use of one's own capital - the income earned if the capital had been employed in its next best alternative use

question

optimal point

answer

marginal benefit = marginal cost

question

sunk cost

answer

a cost that has already been committed and cannot be recovered
- can be ignored in decisions about future actions

question

marginal

answer

change in total / change in input

question

average

answer

total / number of units

question

production

answer

turning inputs into outputs

question

fixed input

answer

an input whose quantity is fixed for a period of time and cannot be varied

question

variable input

answer

an input whose quantity the firm can vary at any time

question

long run

answer

all outputs can be varied

question

short run

answer

at least on input is fixed

question

total product curve

answer

shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input

question

marginal product

answer

the increase in output that arises from an additional unit of input

question

marginal product of labor

answer

the change in output from hiring one additional unit of labor
- slope of the total product curve

question

diminishing marginal product

answer

the property whereby the marginal product of an input declines as the quantity of the input increases

question

fixed costs

answer

Costs that do not vary with the quantity of output produced

question

variable costs

answer

costs that vary with the quantity of output produced

question

total cost

answer

fixed costs plus variable costs

question

total cost curve

answer

shows how total cost depends on the quantity of output
- becomes steeper as more output is produced, as a result of diminish returns

question

short run average total cost

answer

The curve describing average total cost when some costs are considered fixed.

question

long-run average total cost curve

answer

shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output

question

increasing returns to scale (economies of scale)

answer

when long-run average total cost declines as output increases

question

constant returns to scale

answer

when long-run average total cost is constant as output increases

question

decreasing returns to scale (diseconomies of scale)

answer

when long-run average total cost increases as output increases

question

monopoly

answer

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

question

market power

answer

the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

question

barriers to entry

answer

control of a scarce resource
increasing returns to scale
technology restrictions
network externalities
government made barriers

question

marginal revenue

answer

below the demand curve

question

quantity effect

answer

one more unit is sold, increasing total revenue by the price at which the unit is sold

question

price effect

answer

after a price increase, each unit sold sells at a higher price, which tends to raise revenue

question

profit maximization

answer

choose a quantity where MR=MC

question

price discimination

answer

The act of selling the same product for different prices to different people.
Ex. selling a toothbrush to poor people for 1 dollar but to rich for 10

question

Oligopoly

answer

A market structure in which a few large firms dominate a market
- Imperfect competition

question

HHI

answer

sum of squared market shares
less than 1000: stringly competative
1000-1800: somewhat competative
above 1800: oligopoly
- If HHI is over 1000, a merger will receive scrutiny by government

question

Duopoly

answer

an oligopoly consisting of only two firms

question

collusion

answer

secret agreement or cooperation

question

cartel

answer

a group of firms acting in unison
- act like a monopoly

question

game theory

answer

Evaluates alternate strategies when outcome depends not only on each individual's strategy but also that of others.

question

Types of Product Differentiation

answer

style/type, location, quality

question

competition among sellers

answer

entry by more producers reduces the quantity each existing producer sells

question

value diversity

answer

consumers gain from the increased diversity of products

question

monopolistic competition short run

answer

photo

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