Econ2a-f

Labour

Anyone that gets paid to work.

4 critea for competitive

No individual influences the price

Uniformed product

Relevant information is known

Freedom of entry and exit

Capital

Physical asset.

Entrepreneurship

The process of starting and launching a business, including the willingness and ability to take on business risks.

Factor payments

Payments made to the factors of production.(Land,Wages,Returns,Profits)

What do returns refer to in the context of economics?

Returns refer to profits or earnings generated by business activities.

Total revenue

Price multiplied by output.

Explicit costs

Costs for which there is a direct monetary payment, typically accompanied by a receipt.

Implicit costs

Input costs that do not require an outlay of money by the firm.

What is the opportunity cost of money invested?

The potential return that could have been earned if the money was invested elsewhere.

Total costs

The sum of explicit costs and implicit costs.

Normal profits

The minimum amount of money required for a firm to stay in business.

Economic profit

Profit that exceeds normal profit; it's calculated as total revenue minus total cost.

What is accounting profit?

Total revenue minus explicit costs.

Economic loss

When total revenue is below the normal profit level.

What is the formula for total revenue?

Total revenue equals total cost plus profit.

Total product (TP)

The total quantity of goods produced.

Average product (AP)

Total product divided by the quantity of inputs used (e.g., labor).

What does the production function illustrate?

The relationship between the quantity of inputs used and the quantity of output produced.

Marginal product (MP)

The change in total product from hiring an additional unit of labor.

Fixed costs

Costs that do not change with the level of output, such as rent and loans.

Law of diminishing marginal product

As more units of a variable input are added, the additional output produced will eventually decrease.

Average costs (AC)

Total costs divided by the quantity produced, typically U-shaped.

Marginal cost (MC)

The additional cost incurred from producing one more unit.

Short-run vs Long-run relationships

In the short run, many decisions are fixed; in the long run, firms can adjust all inputs.

Long-run average cost (LRAC) curve

A curve that represents the lowest possible average cost of production for any level of output when all inputs are variable.

Economies of scale

The reduction in cost per unit as output increases.

Diseconomies of scale

The increase in long-run average costs as output expands.

Isoquants

Curves that represent combinations of inputs that yield the same level of output.

Cost minimization

Achieving the highest isoquant for the lowest cost, where the isoquant is tangent to the isocost curve.

Market structure

The characteristics of a market, influencing the behavior of firms within it.

Pure competition

A market structure with many firms selling identical products, where no single firm can influence the market price.

Monopolistic competition

A market structure with many firms selling similar but differentiated products.

Oligopoly

A market structure characterized by a small number of firms that dominate the market.

Monopoly

A market structure where a single firm is the sole producer of a product with no close substitutes.

Price taker

A firm that must accept the market price due to the competitive nature of the market.

Profit maximization rule

Firms maximize profit where marginal revenue equals marginal cost.

Break-even point

The point where total revenue equals total cost, resulting in zero economic profit.

Shut down point

The level at which price falls below average variable costs.

Marginal utility

The added satisfaction obtained from consuming one additional unit of a good.

Productive efficiency

Production at the lowest cost, using resources in the most efficient way.

Allocative efficiency

The state where production reflects consumer preferences.

What happens in the long-run equilibrium for firms?

Firms make zero economic profit, and demand shifts adjust until profits are normalized.

What is the role of advertising in monopolistic competition?

To differentiate products and attract consumers, allowing firms to charge higher prices.

Critiques of advertising

Advertising manipulates consumer preferences, creates artificial desires, and reduces price sensitivity.

Defense of advertising

Advertising provides information, helps consumers make informed choices, and encourages competition.

Brand names

Names that identify a product and differentiate it from others, often associated with quality.

Deadweight loss

The loss of economic efficiency when the equilibrium outcome is not achievable or not achieved.

Product-variety externality

The positive externality resulting from the variety of products available to consumers.

Game Theory

The study of strategic interactions among firms within an oligopoly.

Non-price competition

Methods to attract customers that do not involve changing the price, such as advertising and product differentiation.

Benefits of non-price competition to consumers

Improved consumer loyalty, stability in prices, and enhanced quality of goods.

Demand curve of Oligopoly(Elastic

increase in price, lose many customers and revenue

Demand curve of Oligopoly(Inelastic

Decrease in price, gain few customers but will lose revenue

Barriers to entry

Firms might not be able to enter the industry because of Financial, Branding,Control over vital assets(the channels of distribution),Governmental

Relationship between the demand curve and the marginal revenue curve

Because the D/C is kinked the firm’s MR curve consists of two distinct parts.

It is constant between D and E.

Between these points, if MC changes, the price will not change.

constant return of scales

Long-run average total cost stays the same as the quantity of output changes

Total cost

total fixed cost+total variable cost

Average total cost

average fixed cost+average variable cost

Price

Average Revenue(Break even point

Price=Average variable cost

Average variable cost

P<Average variable cost

firm needs to shut down

If price is between atc and avc

operate in the short run, exit in the long run