ECON 211 Chapter 13 Behavior of Sellers

Perfect competition to

monopoly

first type of imperfect competition

monopolistic competition

second type of imperfect competition

oligophy

firm

an entity that produces/sells a good

goal of a firm

maximize profit

profit=

total revenue-total cost

first question a firm must address

what price do you charge?

second question a firm must address

what quantity do you produce?

third question a firm must address

when should you enter/exit the market?

first characteristic of firms in a competitive market

homogeneous good

second characteristic of firms in a competitive market

many sellers

third characteristic of firms in a competitive market

firms can freely enter/exit the market

answer to what price to charge

market price

Answer to what quantity to produce

look at production function and DMP

production function

relationship between type and number of inputs and q of output

Q=f(inputs?)

workers, factory, machines, raw materials, utilities

marginal product

change in q of output due to additional unit of input

MP=

change in q/change in input

first thing we typically see in MP

initially, an increase in MP at lower levels of input

second thing we typically see in MP

eventually, diminishing MP

diminishing marginal product

property whereby, MP decreases as the amount of that input increases

actual answer to question 2

carefully think about benefits and costs of adding input

explicit cost

cost that requires an outlay of money

implicit cost

cost that does not require an outlay of money

accounting profit=

total revenue-explicit costs

economics profit=

total revenue-(explicit cost+implicit cost)

fixed inputs

inputs that do not vary with output such as factories and machines

variable inputs

inputs that do vary with output such as raw materials, utilities, and hourly workers

total costs=

FC+VC

first thing to look at how costs differ at different levels of output

average cost at different levels of output

second thing to look at how costs differ at different levels of output

how costs change if you produce an additional unit (MP)

AFC=

FC/q

AVC=

VC/q

ATC=

TC/q

marginal cost

change in tc due to change in quantity of output

MC=

change in tc/change in q

AFC is always

decreasing

AVC will

decrease, then increase because of DMP

ATC will

decrease, then increase because of DMP

MC will

decrease, then increase because of DMP

MC curve intersects

at the minimum of ATC curve

categorization of total costs into fixed costs or variable costs depend upon

time horizon

inputs that are fixed now, become

variable in the long-run

short-run

period in which at least one input is fixed

long-run

period in which all inputs are variable

in the long-run, you can choose

which SRATC you are on

economies scale

property whereby lratc decreases as output increases

constant returns to scale

lratc is constant as output increases

diseconomies of scale

lratc increases as output increases