micro vocab ch 13-17
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| industrial organization | the study of how firms’ decisions about prices and quantities depend on the market conditions they face
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| total revenue | the amount a firm receives for the sale of its output
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| total cost | the market value of the inputs a firm uses in production
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| profit | total revenue minus total cost
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| explicit costs | input costs that require an outlay of money by the firm
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| implicit costs | input costs that do not require an outlay of money by the firm
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| accounting profit | total revenue minus total explicit cost
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| economic profit | total revenue minus total cost, including both explicit and implicit costs
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| production function | the relationship between quantity of inputs used to make a good and the quantity of output of that good
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| marginal product | the increase in output that arises from an additional unit of input
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| diminishing marginal product | the property whereby the marginal product of an input declines as the quantity of the input increases
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| fixed costs | costs that do not vary with the quantity of output produced
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| variable costs | costs that vary with the quantity of output produced
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| average total cost | total cost divided by the quantity of output
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| average fixed cost | fixed cost divided by the quantity of output
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| average variable cost | variable cost divided by the quantity of output
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| marginal cost | the increase in total cost that arises from an extra unit of production
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| Average total cost | tells us the cost of a typical unit of output if total cost is divided evenly over all the units produced
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| Marginal cost | tells us the increase in total cost that arises from producing an additional unit of output
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| efficient scale | the quantity of output that minimizes average total cost
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| its minimum | The marginal-cost curve crosses the average-total-cost curve at
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| diseconomies of scale | the property whereby long-run average total cost rises as the quantity of output increases
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| economies of scale | the property whereby long-run average total cost falls as the quantity of output increases
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| constant returns to scale | the property whereby long-run average total cost stays the same as the quantity of output changes
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| specialization | Economies of scale often arise because higher production levels allow
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| coordination problems | Diseconomies of scale can arise because of
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| competitive market | a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker
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| average revenue | total revenue divided by the quantity sold
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| price takers. | Buyers and sellers in competitive markets must accept the price the market determines and, therefore, are said to be
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| the price of the good | average revenue equals
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| marginal revenue | the change in total revenue from an additional unit sold
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| the price of the good | for competitive firms, marginal revenue equals
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| the market price. | a competitive firm is a price taker, so its marginal revenue equals
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| supply curve. | Marginal-cost curve determines the quantity of the good the firm is willing to supply at any price, the marginal-cost curve is the competitive firm’s
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| Shutdown | refers to a short-run decision not to produce anything during a specific period of time because of current market conditions
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| leave the market | Exit refers to a long-run decision to
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| sunk cost | a cost that has already been committed and cannot be recovered
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| sunk cost. | making the short-run decision whether to shut down for a season, the fixed cost of land is said to be a
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| variable costs of production | the firm shuts down if the revenue that it would earn from producing is less than its
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| above average variable cost. | The competitive firm’s short-run supply curve is the portion of its marginal-cost curve that lies
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| the firm exits the market if | the revenue it would get from producing is less than its total costs
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| above average total cost | The competitive firm’s long-run supply curve is the portion of its marginal-cost curve that lies
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| driven to equality | The process of entry and exit ends only when price and average total cost are
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| more elastic than the short-run supply curve. | Because firms can enter and exit more easily in the long run than in the short run, the long-run supply curve is typically
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| a price maker | While a competitive firm is a price taker, a monopoly firm is
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| Monopoly | a firm that is the sole seller of a product without close substitutes
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| barriers to entry | The fundamental cause of monopoly is
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| Barriers to entry | Monopoly resources, Government regulation, production process make up the
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| natural monopoly | a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
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| natural monopoly | arises when there are economies of scale over the relevant range of output.
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| The output effect: | More output is sold, so Q is higher, which tends to increase total revenue.
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| The price effect: | The price falls, so P is lower, which tends to decrease total revenue.
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| marginal-cost curve | the monopolist’s profit maximizing quantity of output is determined by the intersection of the marginal-revenue curve and the
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| marginal cost | In competitive markets, price equals __________. In monopolized markets, price exceeds it
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| socially efficient | the _________ quantity is found where the demand curve and the marginal-cost curve intersect
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| socially efficient | The monopolist produces less than _______the quantity of output
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| price discrimination | the business practice of selling the same good at different prices to different customers
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| arbitrage, the process | of buying a good in one market at a low price and selling it in another market at a higher price to profit from the price difference.
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| Perfect price discrimination | a situation in which the monopolist knows exactly each customer’s willingness to pay and can charge each customer a different price
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| synergies | companies that merge to lower costs through more efficient joint production known as
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| Oligopoly | a market structure in which only a few sellers offer similar or identical products
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| concentration ratio | which is the percentage of total output in the market supplied by the four largest firms
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| monopolistic competition | a market structure in which many firms sell products that are similar but not identical
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| Many sellers, Product differentiation, Free entry and exit of market | monopolistic competition describes a market with the what attributes:
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| efficient scale of the firm. | The quantity that minimizes average total cost is called the
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| excess capacity | Firms are said to have _________under monopolistic competition
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| The product-variety externality: | Because consumers get some consumer surplus from the introduction of a new product, entry of a new firm conveys a positive externality on consumers.
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| The business-stealing externality: | Because other firms lose customers and profits from the entry of a new competitor, entry of a new firm imposes a negative externality on existing firms
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| Oligopoly | a market structure in which only a few sellers offer similar or identical products
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| game theory | the study of how people behave in strategic situations
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| collusion | an agreement among firms in a market about quantities to produce or prices to charge
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| cartel | a group of firms acting in unison
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| Nash equilibrium | a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen
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| The output effect: | Because price is above marginal cost, selling one more unit at the going price will raise profit
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| The price effect: | Raising production will increase the total amount sold, which will lower the unit price and lower the profit on all the other units sold
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| prisoners’ dilemma | a particular “game” between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial
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| dominant strategy | a strategy that is best for a player in a game regardless of the strategies chosen by the other players
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