Studied by 1 person
(Key Term): the seller’s problem has 3 parts
Production
Costs
Revenues
An optimizing seller makes decisions at the ________
margin
The supply curve reflects the _______ to sell a good or service at various price levels.
willingness
Producer surplus is the
difference between the market price and the marginal cost curve
Sellers enter and exit markets based on _________
profit opportunities
(Q): How would an ethanol subsidy affect ethanol producers? (farmers?)
Conditions of a perfectly competitive market:
No buyer or seller in the market is big enough to influence the market price
sellers in the market produce identical goods
there is free entry and exit in the market
No buyer or seller in the market is big enough to influence the market price
Because there are so many consumers and producers, no one
individual can change the market price with his/her behavior.
Sellers in the market produce identical goods.
An individual seller can’t influence the market price by selling a unique
product.
There is free entry and exit in the market. (ans. to the question; Why do many corn and soybean farmers invest in grain storage?
Sellers can respond to potential profits in a market by entering, or by
leaving markets that are no longer profitable—both of which have
implications on market price.
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The Seller’s Problem: Goal of the seller: Maximize Profit
to achieve this goal, sellers must solve 3 problems:
How to make the product
What is the cost of making the product
How much can the seller get for the product in the markets?
The Seller’s Problem: How to make the product (q.) How do you make a cake?
turning inputs into outputs
(Key Term): Production:
The process by which the transformation of inputs to outputs occurs.
(Key Term): Physical Capital
Any good, including machines and buildings, used for production
The Seller’s Problem:
(Key Term): Short Run; Period of time when some of the firms Inputs _____ be changed.
Cannot
Example: in the short run, you can’t buy another oven - if you are
baking cakes today you are limited by the current number of ovens
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The Seller’s Problem:
(Key Term) Long Run; Period of time when all of the firm’s inputs ______ be changed.
Can
Example: in the long run, you can buy another oven, even build
another kitchen.
The Seller’s Problem:
(Key Term): Variable Factor of Production
Input that can be changed in a certain period of time and that changes
if the level of output changes
The Seller’s Problem:
(Key Term): Fixed Factor of Production
Input that cannot be changed in the short-run and that stays the same,
regardless of how much output is produced
The Seller’s Problem:
(Key Term): Marginal Product
is the change in total output associated with using
one more unit of input.
Three Conditions that characterize perfectly competitive markets:
no buyer or seller is big enough to influence the market price
sellers in the market produce identical goods
there is free entry and exit in the market
The Seller’s Problem:
(Key Term): Specialization
Workers are more efficient when they specialize in production and
work together to produce goods.
The Seller’s Problem:
What’s important about this production table?
1. Marginal product increases with the first workers
The Seller’s Problem:
What’s important about this production table?
2. Eventually, marginal product falls
The Seller’s Problem:
(Key Term): Law of diminishing returns
At some point, each additional worker contributes less output than the
worker before.
The Seller’s Problem:
What’s important about this production table?
Marginal Product can be negative
The Seller’s Problem:
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