Cost and Production; Economics of Organization; Market Equilibrium and Perfect Competition Model

These flashcards summarize key concepts and definitions from the lecture on cost, production, organization economics, and market dynamics.

What reflects the cost on a per unit basis?

Average cost

What kind of return to scale does the output increase by 100% when inputs increase by 100%?

Constant Return to Scale

What is the optimal output level for profit maximization?

When marginal revenue equals marginal cost (MR = MC).

What refers to the combination of skills, resources, and processes that give an organization a competitive advantage?

Core Competencies

What approach to production planning starts with intended goods and services?

Cost Approach to Production Planning.

When inputs increase by 100% and the increase in output is less than 100%, what is this called?

Decreasing Return to Scale

What term describes the demand for a good or service resulting from demand for related goods?

Derived demand

What happens when firms increase their scale and see average costs rise?

Diseconomies of Scale

What is the reduction in average cost that occurs each time cumulative production doubles?

Doubling Rate

What is the difference between the maximum price a provider can charge for limited input and the minimum amount they would accept?

Economic Rent

What are cost benefits gained by companies when production becomes more efficient?

Economies of Scale.

When does economies of scale exist?

If the result is less than one.

What is it called when producing multiple products simultaneously is cheaper than producing them separately?

Economies of Scope.

What is the marginal revenue created by using one additional unit of resources called?

Marginal Revenue Product (MRP)

What kind of return to scale occurs when inputs increase by 100% and output increases more than 100%?

Increasing Return to Scale

What do we call two or more products generated within a single production process?

Joint Products.

What describes the improvement in productivity from better knowledge and management of resources?

Learning By Doing

What is the change in output due to adding one additional unit of input called?

Marginal Product.

What is another term for marginal product?

Marginal Physical Product.

What concept shows that efficiency increases as individuals gain experience in performing tasks?

Learning Curve.

What is a production decision with sufficient time to adjust facilities called?

Long run production decision.

What is the balance point for producing goods at a competitive price known as?

Minimum Efficient Scale.

What distinguishes short-run from long-run production decisions in terms of characteristics?

Nature of costs and capacity.

How do businesses track improvements and compare operations?

Productivity.

What is the rate at which output changes in response to a change in inputs?

Return to Scale.

When does economies of scope exist?

If the result is greater than 0.

What does the resource approach to production planning start with?

Determining where a firm excels in operations.

What is the cost of producing an additional unit called?

Marginal Cost.

What is a production decision where businesses are limited by factors called?

Short run production decision.

What is the conversion factor of one square meter to square feet?

10.764 square feet.

How do you convert 10,655 square feet to square meters?

Approximately 990 sq. meters.

In the formula Q = L + K, what does K stand for?

Capital.

What network accounts for the creation of a product?

Value Chain.

What classification of business expansion occurs at the same stage in a value chain?

Horizontal Integration.

What classification occurs at different stages in the same value chain?

Vertical Integration.

What is a classification of business expansion within different value chains?

Conglomerate Merger.

What are the two primary driving factors in horizontal integration?

Cost efficiencies and market power.

What type of vertical integration occurs when a business expands upstream?

Upstream Integration.

What type of vertical integration occurs when a business expands downstream?

Downstream Integration.

What occurs when two divisions of the same company perform different stages of the value chain?

Double Marginalization.

What is sought by a downstream firm to ensure the lowest price from an upstream firm?

Best Price Policy.

What is the situation wherein one party has private information in a vertical arrangement called?

Adverse Selection.

What is a business enterprise participating in multiple, different value chains?

Conglomerate.

What is the benefit of diversification for a conglomerate?

To withstand difficult times in one industry.

What is the failure of key information to get to the right person called?

Information overload.

What theory explains when a firm should expand or break apart?

Transaction Cost Economics.

What is the cost involved in making an exchange called?

Transaction Cost.

What is the principle indicating when firms should continue to expand based on transaction costs?

Coase Hypothesis.

What division tries to contribute to overall profitability at minimum cost?

Cost Center.

What division is treated as a business with its own revenues and costs?

Profit Center.

What is the measurement of value for exchange items called?

Transfer Price.

What are the two components of transfer pricing?

Opportunity cost and outlay cost.

What type of wage is an incentive for productivity often above marginal revenue product?

Efficiency Wage.

What approach applies to setting wages based on classical principles?

Classical Approach to Setting Wages.

What results when an employer cannot monitor an employee's actions?

Principal-Agent Problem.

What principle suggests including performance measures in employee contracts?

Informativeness Principle.

What are observable actions that distinguish a high-quality worker called?

Signalling.

What theory indicates that higher CEO pay can motivate other executives?

Tournament Theory.

What is the collective activity of buyers and sellers for a particular product called?

Market.

What is considered the gold standard of a market?

Perfect Competition Model.

What is an individual or company that must accept market prices called?

Price Taker.

What characteristic indicates all sellers sell the same good?

Homogeneous.

What describes producers' access to the capabilities of other producers?

Perfect Information.

What determines the total quantity that sellers provide at any price?

Supply Curves.

What captures the relationship between quantity provided and market price?

Market Supply Curves.

What defines the quantity and price at which sellers and buyers concur?

The Market Equilibrium.

What process adjusts market prices to reach equilibrium?

Invisible Hand.

What impact examines changes on the equilibrium point?

Comparative Statics.

What is the difference between what a customer was willing to pay and what they actually paid?

Consumer Surplus.

What occurs when consumers pay less for a product than they are willing to pay?

Consumer Surplus.

What is the difference between the price a producer sells for and the minimum price they would accept?

Producer Surplus.

What no longer benefits either consumers or producers?

Deadweight Loss.

What model reflects a market similar to perfect competition with slight variations?

Monopolistic Competition.

What describes a market with similar but not identical products?

Monopolistic Competition.

What idealized market includes a modest number of sellers?

Contestable Market Model.

What strategy involves keeping costs below those of competitors?

Cost Leadership Strategy.

What advises firms to maintain low costs relative to competitors?

Cost Leadership Strategy.

What aims to keep products distinct from competitors?

Product Differentiation Strategy.

What strategy keeps products distinguishable from those of other firms?

Product Differentiation Strategy.

What is the formula for Average Cost Per Unit?

Total Cost of the units / Number of units.

What is the formula for Average Product or Productivity?

Total Number of Units / Total Units of an Input.

What is the formula for Minimum Efficient Scale?

Fixed Costs / (Output per unit * Variable Costs per unit).

What is the formula for Economies of Scale?

Percentage change in cost / Percentage change in output = %ΔCost / %ΔOutput.

What is the formula for Economies of Scope (S)?

(C(qa) + C(qb) - C(qa+qb)) / C(qa+qb) x 100.

What is the formula for Marginal Revenue Product (MRP)?

MPP x MR, where MPP is Marginal Physical Product and MR is Marginal Revenue.

What is an alternative measure of Average Productivity?

Total Dollars in Revenue or Profits / Total Units of an Input.

What is the formula for Return to Scale?

Q = L + K.

What is the formula for Marginal Product?

Change in Output / Change in Inputs.

What is the formula for Marginal Cost?

MC = ΔCost / ΔQuantity.

How is the Productivity of a Store evaluated?

Total Revenue over a period / Available Square Footage.

What is the formula for Consumer Surplus?

(1/2) x Qd x ΔP.

What is the formula for Producer Surplus?

Total Revenue minus Cost of Production.