econ test 3 definitions

economies of scale

ATC falls as Q increases

diseconomies of scale

ATC rises as Q increases

minimum efficient scale

Output level that minimizes ATC in long run

indivisible setup costs

some inputs are so expensive upfront that some amount of business is needed for feasibility

short-run vs. long-run in cost curved

• short run is constraint in regard to what production decisions it can make. some in puts are forced.

• long run is how a firm chooses from all possible production techniques and all inputs are variable

fixed costs vs. variable costs in cost curves

• fixed costs are those spent and cannot be changed in the period of time under consideration

• variable costs are costs that change as output changes

Price taker

a company that must accept the prevailing prices in the market of its products, its own transactions being unable to affect the market price

Sunk cost

a cost that has already been committed and cannot be recovered

excess capacity

quantity is not at minimum ATC ( on the downward sloping portion of ATC)

• when product differentiation presents sellers from capturing all economies of scale

collusion

agreement among firms in a market about quantities to produce or prices to charge

cartel

a group of firms acting in unison

prisoner’s dilemma

particular “game” between two captured prisoners. shows why cooperation is difficult

predatory pricing / price wars

a firm cuts prices to prevent entry or drive a competitor out of the market

excess capacity

quantity is not at minimum ATC (on the downward sloping portion)

• when product differentiation presents sellers from capturing all economies of scales

trademarks

legla protection for a firms name, logo, ect

brand management

efforts by the firm to maintain product differentation

marketing

all activities undertaken by the firm in order to sell its output

advertising

a campaign designed to increase demand for firms output

MSRP

manufacturer suggested retail price

• anchoring

• make people have a high quality customer experience

price leadership

strategy for a cartel

• when one raises and the rest match

patent

cant be copied! gives inventors the exclusive right to sell their product

copyrights

gives creators the sole rights to their intellectual property

network externality

things like microsoft and google

natural monopoly

one firm can product more efficiently than 2 or more firms

horizontal merger

a firm combines with a competitor

vertical merger

a firm combines with another firm in its own supply chain

price discrimination

different prices to different things

average fixed costs (AFC)

equals fixed cost divided by quantity produced, AFC = FC/Q

average variable costs (AVC)

equals variable cost divided by quantity produced

AVC = VC/Q

averagte total cost (ATC)

equals total cost divided by quantity produced

• ATC= TC/Q or ATC = AFC + AVC

marginal costs (MC)

increase in total