Economics Study Guide: Module 9

A comprehensive set of flashcards covering key concepts from Module 9 of the Economics course, focusing on firm goals, profit types, market structures, and cost curves.

What is the firm's primary goal?

To maximize profit.

What are explicit costs?

Monetary payments such as wages, rent, utilities, and ingredients.

What are implicit costs?

Costs that include owner's time, economic depreciation, interest forgone, and entrepreneurial ability.

What is accounting profit?

Total Revenue minus explicit costs.

What is economic profit?

Total Revenue minus explicit costs and implicit costs.

Define opportunity cost.

The value of the best forgone alternative.

Describe the command system of organizing production.

A managerial hierarchy where orders flow downward and feedback flows upward.

What is moral hazard?

Hidden actions that occur after a transaction.

What is the principal-agent problem?

The issue where agents may not act in the best interest of the principals.

Name a pro and con of a proprietorship.

Pro: Full control; Con: Unlimited liability.

What are the characteristics of perfect competition?

Many buyers and sellers, identical products, no entry barriers, perfect information, and no market power.

What differentiates monopolistic competition from perfect competition?

Monopolistic competition has differentiated but similar products and some pricing power.

What defines an oligopoly?

A market structure where few large firms dominate and have high entry barriers.

What is a monopoly?

A market structure where one firm supplies the entire market with no close substitutes.

What are sunk costs?

Costs that have already been incurred and cannot be recovered.

What does the law of diminishing returns state?

That as more labor is added to fixed capital, marginal product eventually decreases.

What do total fixed costs (TFC) represent?

Costs that do not change with output.

What is the relationship between marginal cost (MC) and average total cost (ATC)?

MC intersects AVC and ATC at their minimum points, affecting their rise or fall.

How does marginal product (MP) relate to marginal cost (MC)?

As MP increases, MC decreases; as MP decreases, MC increases.

What is the long-run average cost curve (LRAC)?

It shows the lowest possible cost of producing each output level.

What leads to economies of scale?

Factors like specialization, dimensional advantages, and better equipment.

What causes diseconomies of scale?

Management inefficiency and communication/coordination problems.