Economics 200
Terms
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- Marginal Cost
- the cost of producing one additional unit
- Marginal Revenue
- the proceeds from selling one additional unit of a product
- Average Total Cost
- Total Cost divided by quantity of output
- Fixed cost
- the costs of fixed factors of production that is independent of the quantity produced
- Variable cost
- expenses that change in direct proportion to the activity of a business
- Explicit costs
- a cost that can be quantified into an exact dollar amount; payments made to others. Ex: wages, utilities, rent. Accounting costs
- Implicit Costs
- the opportunity cost of using resources you already own, no money changes hands. Implicit costs = opportunity costs
- Short Run
- the timeframe in which the quantities of at least one resource is fixed. SR costs only involves non-fixed assets such as labor. Ex: locked in lease
- Long Run
- the timeframe in which the quantities of all resources are variable. All the costs are variable in the long run.
- Perfectly Competitive Market Characteristics
- 1. large number of firms and consumers 2. products are perfect subs for each other 3. easy to enter/exit market 4. no advertising or non price competition 5. price takers 6. demand for product is highly elastic
- competitive firm is a ...
- price taker
- monopoly is a...
- price maker
- Keep producing until...
- mr = mc. this is when the maximum profit is attained.
- you lose money when ...
- MC > MR
- Pn
- the price where a firm makes normal profit. Normal profit = zero economic profit
- Long Run economic profit
- P > Pn
- Long run economic loss
- P < Pn
- Characteristics of a Monopoly
- 1. one or small # of firms 2. unique product 3. strong barriers to entry 4. price maker 5. demand for product is highly inelastic
- Public Good characteristics
- 1. non rival 2. non excludable
- Non rival
- once it has been produced, each person can benefit from it without diminishing anyone else's enjoyment
- Non excludable
- once it has been created, it is very difficult to prevent people from gaining access to the good
- Free Rider
- an individual that receives the benefits of a good or service w/o paying the cost.
- Positive Externality
- a production or consumption activity that creates an external benefit to individuals or groups other than the person making the decision Ex: department store in a mall
- Negative Externality
- a production or consumption activity that creates an external cost to individuals or groups other than the person making the decision. Ex: pollution
- Derived demand
- the demand for labor is derived from the demand for the product produced by the labor
- To get a worker hired ...
- 1. make worker more productive 2. decrease wages 3. increase price of good