Econ Exam 2

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Terms in this set (...)

negative externality
supply (private cost) curve + external costs
positive externality
demand (private value) curve + external benefits
private goods
excludable, RiC
public goods
not excludable, not RiC
susceptible to free-rider problem
common resources
not excludable, RiC
susceptible to tragedy of the commons
club goods
excludable, not RiC
TC
FC+VC
ATC
TC/Q
MC
change TC / change Q
AFC
FC/Q
AVC
VC/Q
MPL
change Q / change labor
economies of scale
more you produce, the lower ATC gets
diseconomies of scale
more you produce, the higher ATC gets
constant scale
ATC stays same as produce more
change in profit
MR-MC
firms in competitive markets (14)
maximize profits: MR=MC
price=MC
can't earn economic profits in long run
horizontal demand curve
Revenue of comp. firm
TR
P x Q
AR
TR/Q = P*
MR
TR/Q = P*
so for comp. markets only, MR=P
...
shut-down
lose all revenue (TR)
save VC
shut-down rules, comp. market
if TR<VC
or P<AVC* in short run
EXIT if P<ATC in the long run (enter if P>ATC)
entry and exit complete when P=ATC
to analyze graphs of comp. market for time frame
in long run, profits are zero, P=minimum ATC
-if its short run, they'll be making P or less
monopoly
maximize profits: MR=MC
MR<P
P>MC
when a monopoly increases the Q it sells this has 2 effects on TR
output effect: more output sold, Q higher, increases TR
price effect: price falls, P is lower, tends to decrease TR
profit
(P-ATC) x Q
CS and PS
CS=WTP-Price
PS=Revenue-Cost
AR
TR/Q=P
monopolistic competition
many firms sell similar but not identical products
long run economic profits are zero
firm has market power
downward sloping demand
-in short run, very similar to monopoly
-in long run, like perfectly competitive
why mon. comp. is less efficient than perfect competition
...
excess capacity
mon. comp. firm operates on downward-sloing part of ATC curve
=competitive quantity - monopoly quantity
markup
P/MC at monopoly quantity
(perfect comp. P=MC)
Oligopolies
few sellers, similar or identical product
dwl
between demand, monopoly quantity line, mc curve
efficient scale
q that minimizes ATC
-M prod. below, has excess cap.
-PC produces at the ES