Understanding Costs, Profit Maximization, and Market Structures

Short Run

Period with at least one fixed input.

Long Run

Period where all inputs can vary.

Specialization

Efficiency gained by dividing tasks among workers.

Diminishing Returns

Decreasing additional output from increased inputs.

Marginal Cost (MC)

Cost of producing one additional unit.

Average Total Cost (ATC)

Total cost divided by quantity produced.

Long-Run Average Total Cost (LRATC)

Average cost when all inputs are variable.

Economies of Scale

Cost per unit decreases as output increases.

Constant Returns to Scale

Cost per unit remains constant as output changes.

Diseconomies of Scale

Cost per unit increases as output increases.

Marginal Revenue (MR)

Revenue from selling one additional unit.

Profit Maximization Rule

MR equals MC for maximum profit.

Price Taker

Firm that accepts market price as given.

Price Maker

Firm that sets its own price.

Allocative Efficiency

Resources allocated where P equals MC.

Productive Efficiency

Production at lowest possible cost.

Oligopoly

Market structure with few interdependent firms.

Dominant Strategy

Best choice regardless of others' actions.

Dominated Strategy

Worse choice compared to another strategy.

Nash Equilibrium

No player can improve outcome by changing strategy.

Payoff Matrix

Table showing outcomes for different strategies.

Prisoner's Dilemma

Situation where cooperation yields better outcomes.

Simultaneous Game

Players choose strategies at the same time.

Sequential Game

Players choose strategies in turns.

Market Structure

Characteristics defining competition level in a market.