Microeconomics section 2.3 (Definitions)

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• Created by: Amalie
• Created on: 16-03-13 19:42
Fixed costs
costs that do not change with the level of output. they will be the same for one or one thousand units. (The cost of producing nothing.)
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Variable costs
costs that vary with the level of output.
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Total costs
the total costs of producing a certain level of output - fixed costs + variable costs.
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Average cost
the average (total) cost of production per unit. calculated by dividing the total cost by the quantity produced. it is equal to the average variable cost plus the average fixed cost.
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Marginal cost
the additional cost of producing one more unit of output.
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Economic cost
accounting cost + opportunity cost
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Short run
period of time in which at least one factor of production is fixed - the production stage.
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Law of diminishing average returns
as extra units of a variable factor are applied to a fixed factor, the output per unit of the variable factor will eventually diminish.
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Law of diminishing (marginal) returns
as extra units of a variable factor are applied to a fixed factor, the output form each extra unit of the variable factor will eventually diminish.
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Long run
the period of time in which all factors of production are variable, but the state of technology is fixed - the planning stage.
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Economies of scale (EOS)
a fall in the long run unit (average) costs that come about as a result of a firm increasing its scale of production (output).
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Diseconomies of scale
an increase in the long run unit (average) costs that come about as a result of a a firm increasing its scale of production (output).
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Total revenue
the aggregate revenue gained by a firm from the sale of a particular quantity of output (equal to price times quantity sold).
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Average revenue
total revenue recieved divided by the number of units sold. Usually, price is equal to average revenue.
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Marginal revenue
the extra revenue gained from selling one more unit of a good or service.
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Normal profits
the amount of revenue needed to cover the total cost of production, including the opportunity costs.
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Abnormal profits
a level of profits that is greater than that required ensure a firm will continue to supply its existing good or service. (An amount of revenue greater than the total costs of production, including opportunity costs.)
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Profit-maximizing level of output
the level of output where marginal revenue is equal to marginal cost.
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Shut down price
the price where the average revenue is equal to the average variable cost. Below this price, the firm will shut down in the short run.
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Break even price
the price where average revenue is equal to average total cost. Below this price, the firm will shut down in the long run.
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Allocative efficiency
the level of output where marginal cost is equal to average revenue. The firm sells the last unit it produces at the amount that it costs to make it.
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Productive efficiency
exists when production is achieved at lowest cost per unit of output. The point where average total cost is at its lowest value.
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Perfect competition
a market structure where there are a very large number of small firms, producing identical products, that are incapable of affecting the market supply curve. Because of this, the firms are price takers. There is perfect information.
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Monopolistic competition
a market structure where there are many byers and sellers, producing differentiated products, with no barriers to entry or exit.
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product differentiation
ways in which suppliers attempt to make their products different from those of their competitors, e.g. differences in quality, performance, design, styling, or packaging. It is a form of non-price competition.
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Oligopoly
it is a market structure where there are few large firms that dominate the market. There is a high degree of interdependence among the decisions of the firms.
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Collusive oligopoly
few firms ac together to avoid competition by resorting to agreements to fix prices or output in an oligopoly.
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Non-collusive oligopoly
where firms in an oligopoly do not resort to agreements to fix prices or output. Competition tends to be non-price. Prices tend to be stable.
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Cartel
a group of firms in an industry that join together to fix prices. These are usually illegal in most countries.
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Monopoly
a market form where there is only one firm in the industry, so the firm is the industry. Monopolies may, or may not, have barriers to entry.
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Barrieres to entry
obstacles in the way of potential newcomers to a market, such as economies of scale, product differentiation, and legal protection.
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Natural monopoly
a situation where there are only enough economies of scale available in a market to support one firm.
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Contestabel market
a market where, in leaving, firms are able to get back their costs, less depreciation.
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Price discrimination
occurs when a producer charges a different price to different consumers for an identical good or service.
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Other cards in this set

Card 2

Variable costs

Back

costs that vary with the level of output.

Total costs

Average cost

Marginal cost