Total Utility:
Marginal Utility
Law of Diminishing Marginal Utility
Consumer Equilibrium
The condition in which an individual consumer’s budget is exhausted and the last dollar spend on each good yields the same marginal utility; therefore, utility is maximized
Marginal valuation
Consumer Surplus
The Marginal Value of Medical Care
Indifference Curve
Marginal Rate of Substitution (MRS
Indicates the number of “x” that you are willing to give up to get one more unit of “y” – neither gaining nor losing utility in the process
Law of Diminishing Marginal rate of Substitution
As your consumption of “x” increases, the number of “y” you are willing to give up to get one more until of “x” decreases.
Indifference Map
A graphical representation of a consumer’s taste.
Budget Line
Depicts all possible combinations of “x” and “y”, given their prices and your budget.
Slope of a Budget Line
The Indifference Curve indicates what you are willing to buy. The Budget Line shows what you can buy. We must therefore bring together the indifference curve and the budget line to find out what quantities of each good you are both willing and able to buy.
Explicit cost
Implicit cost:
A firm’s opportunity cost of using its own resources or those provided by its owners without a corresponding cash payment
Accounting profit
A firm’s total revenue minus its explicit costs.
Economic profit
A firm’s total revenue minus its explicit and implicit costs.
Normal profit
Variable resources:
Any resource that can be varied in the short run to increase or decrease production.
Fixed resource
Any resource that cannot be varied in the short run.
Short run
A period during which at least one of the firm’s resources is fixed.
Long run:
A period during which all resources under the firm’s control are variable.
Total product
Marginal product
Increasing marginal returns
Law of diminishing marginal returns
Fixed cost:
Any production cost that is independent of the firm’s rate of output
Variable cost
Production function
The relationship between the amount of resources employed and a firm’s total product.
Average variable cost:
Variable divided by output, or AVC = VC/q
Average total cost
Total cost divided by output or, ATC = TC/q: the sum of average fixed cost and average variable cost, or ATC = AFC + AVC.
Long-run average cost curve
Economies of scale
Forces that reduce a firm’s average cost as the scale of operation increases in the long run.
Diseconomies of scale
Forces that may eventually increase a firm’s average cost as the scale of operation increases in the long run.
Constant long-run average cost
Production function
Identifies the maximum quantities of a particular good or service that can be produced per time period with various combinations of resources, for a given level of technology.
Isoquant curve
Marginal rate of technical substitution (MRTS)
Isocost line
Expansion path
Market structure
Important features of a market, such as the number of firms, product uniformity across firms, firms’ ease of entry and exit, and forms of competition.
Perfect competition
Commodity
Price taker
Marginal Revenue
Golden rule of profit maximization
Average Revenue
Short-run firm supply curve
A curve that shows the quantity a firm supplies at each price in the short run; in perfect competition, that portion of a firm’s marginal cost curve that intersects and rises above the low point on its average variable cost curve
Short-run industry supply curve
A curve that indicates the quantity supplied by the industry at each price in the short run; in perfect competition, the horizontal sum of each firm’s short-run supply curve.
Long-run industry supply curve
Constant-cost industry
Increasing-cost industry
Producer efficiency
Allocative efficiency
Producer surplus
Social welfare
Monopoly
Barrier to entry
Patent
Natural monopoly
Innovation
Price maker
Deadweight loss of monopoly
Rent seeking
Price discrimination
Increasing profit by charging different groups of consumers’ different prices when the price differences are not justified by differences in costs.
Perfectly discrimination monopolist
A monopolist who charges a different price for each unit sold; also called the monopolist’s dream.
Monopolistic competition
A market structure with many firms selling products that are substitutes but different enough that each firm’s demand curve slopes downward; firm entry is relatively easy.
Oligopoly
Undifferentiated Oligopoly
Differentiated Oligopoly
Collusion
Cartel
Price leader
The Marginal Value of Medical Care
Total cost
The sum of fixed cost and variable cost, or TC = FC + VC.
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