Theory of the Firm
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| 10841460622 | Marginal physical product (MPP) | change in total output resulting from the firm adding an extra unit of labor MPP = ∆Q/∆L MPP > 0, total output increases when an extra labor unit is added MPP = 0, total output is at its maximum value MPP < 0, total output decreases when an extra labor unit is added | 0 | |
| 10841460623 | Total product (TP) or total output (Q) | total number of units of output produced by the firm per period of time slope of the Q curve = MPP | 1 | |
| 10841607580 | Average physical product (APP) | amount of output produced per unit of labor per period of time APP = Q/L MPP > APP, APP increases MPP < APP, APP decreases | 2 | |
| 10841466215 | Diminishing marginal productivity (DMP) | MPP diminishes as the firm uses additional units of labor marginal cost in output increases and the marginal product of labor decreases as each additional unit of input is added bottom of MC curve | 3 | |
| 10842987676 | Total product curve (Q curve) | curve showing the relationship between the quantity of labor and the quantity of output produced, ceteris paribus inflection point is the point before diminishing marginal returns and is the maximized slope average is at its highest wherever the slope of Q touches the Q curve Q is maximized at the highest point |  | 4 |
| 10843001052 | Marginal product and average product curve | shows the change in output from one input extra, ceteris paribus MPP highest at diminishing marginal returns MPP and APP intersect when the APP is at its highest MPP is 0 when Q is maximized |  | 5 |
| 10932383868 | Per-unit cost curve | shows the change in per unit cost from one input extra, ceteris paribus MC lowest at diminishing marginal returns and crosses ATC and AVC at their lowest points MC below ATC, ATC falls, vice versa MC below AVC, AVC falls, vice versa MC falls, MPP rises, vice versa AVC falls, APP rises, vice versa |  | 6 |
| 10932681377 | Total cost curve | shows the change in total cost from one input extra, ceteris paribus |  | 7 |
| 10857389835 | Fixed costs | costs that do not vary with the quantity of output produced | 8 | |
| 10861885467 | Total fixed costs (TFC) | total costs that do not vary with the quantity of output produced TFC = fixed costs per day | 9 | |
| 10857389836 | Average fixed costs (AFC) | fixed cost per unit produced AFC = TFC/Q AFC = ATC - AVC | 10 | |
| 10857390704 | Variable costs | costs that vary with the quantity of output produced | 11 | |
| 10861885468 | Total variable costs (TVC) | total costs that vary with the quantity of output produced TVC = (labor cost × L) + (raw material cost × Q) | 12 | |
| 10857390705 | Average variable costs (AVC) | variable cost per unit produced AVC = TVC/Q AVC = ATC - AFC AVC = wage/APP | 13 | |
| 10857418886 | Total cost (TC) | sum of fixed costs and variable costs TC = TVC + TFC | 14 | |
| 10857419934 | Average total cost (ATC) | total cost per unit produced ATC = TC/Q ATC = AVC + AFC | 15 | |
| 10857418887 | Marginal cost (MC) | cost of producing an additional unit of a good (variable cost) MC = ∆TC/MPP MC = wage/MPP | 16 | |
| 10861901408 | Marginal revenue (MR) | additional income from selling one more unit of a good MR = price of good per unit | 17 | |
| 10968922568 | Economic profit | price is above the minimum of the ATC curve total revenue - (implicit costs + explicit costs) | 18 | |
| 10968922569 | Economic loss | price below the minimum of the ATC curve | 19 | |
| 10968924606 | Normal profit | price on the minimum of the ATC curve demand tangent to ATC curve implicit cost of ownership | 20 | |
| 10969071627 | What are the characteristics of perfect competition | many firms with no entry barriers firms maximize profits and are price takers identical products (perfect substitutes) no long run profit and have perfect information no control over price or advertisements | 21 | |
| 11277412151 | What are the characteristics of a pure competition graph | demand is perfectly elastic labeled MR = D = AR = P supply is MC above AVC ATC touches the MC at its lowest point and is always above AVC and AFC AVC touches the MC at its lowest point and approaches (but never touches) the ATC AFC is perpetually decreasing MC is shaped like a swoosh |  | 22 |
| 10995758536 | Optimal output (profit maximization) | wherever marginal revenue (MR) = marginal cost (MC) | 23 | |
| 11282390549 | Total revenue maximization | wherever marginal revenue (MR) = 0 | 24 | |
| 10969095130 | Short run average total cost (SRATC) | period of time during which at least one of a firm's inputs is fixed | 25 | |
| 10969095131 | Long run average total cost (LRATC or planning curve) | period of time in which a firm has paid off all of its fixed costs consists of many increasing then decreasing SRATC curves of various plant sizes available to a firm price = minimum ATC |  | 26 |
| 10972865578 | Productive efficiency | producing a good in the least costly way (minimal use of resources) P = minimum ATC | 27 | |
| 10972865579 | Allocative efficiency | distribution of resources towards the production of products most wanted by society P = MC | 28 | |
| 10973011556 | Shutdown point | point where price is less than minimum AVC and the firm must shut down to minimize its losses firm should continue to produce as long as it's price is above the AVC | 29 | |
| 10995715683 | Increase in demand in the short run (perfect competition) | market price and market quantity increases firm price and firm quantity increases profit occurs |  | 30 |
| 10995854394 | Increase in supply in the short run (perfect competition) | market price decreases and market quantity increases firm price and firm quantity decreases encourages entry into the market |  | 31 |
| 10995811097 | Decrease in demand in the short run (perfect competition) | market price and market quantity decreases firm price decreases and firm quantity decreases loss occurs |  | 32 |
| 10995936650 | Decrease in supply in the short run (perfect competition) | market price increases and market quantity decreases firm price and firm quantity increases encourages exiting out of the market |  | 33 |
| 11017332381 | When will only the ATC shift upwards | fixed costs increase once price and quantity remain the same | 34 | |
| 11017335572 | When will only the ATC shift downwards | fixed costs decrease once price and quantity remain the same | 35 | |
| 11017345223 | When will only the MC, AVC, and ATC shift upwards | fixed costs increase per unit price increases and quantity decreases | 36 | |
| 11017345224 | When will only the MC, AVC, and ATC shift downwards | fixed costs decrease per unit price decreases and quantity increases | 37 | |
| 11122863143 | What are the characteristics of a pure monopoly | single firm that is a price searcher firm has no substitutes market entry is blocked (no competition) legality dependent on government approval earns a profit in the long run by maximizing total profit and selling where price is elastic causes income inequality | 38 | |
| 11138736678 | What are the characteristics of a pure monopoly graph | MR slopes downwards from left to right at a faster rate ATC below MR = MC profit-maximizing price is the point on the demand curve of the profit-maximizing quantity at MR = MC D = P ≠ MR D = P is the demand curve and slopes downwards from left to right no supply curve exists creates deadweight loss, has no productive or allocative efficiency in the long run, and an unfair market price demand is elastic where MR > 0, inelastic where MR < 0, and unitary elastic where MR = 0 |  | 39 |
| 11154300760 | Simultaneous (nonrivalous) consumption | product's ability to satisfy a large number of people at the same time | 40 | |
| 11154256035 | Why do costs differ in a monopoly | economies of scale x-inefficiency need for monopoly preserving expenditures very long run | 41 | |
| 11154318379 | Network effects | increases in the value of a product to each user, including existing users, as the total number of users rises | 42 | |
| 11154325578 | X-inefficiency | occurs when a firm produces output at a higher cost than is necessary to produce it | 43 | |
| 11154949073 | Rent-seeking expenditures | any activity designed to transfer income or wealth to a particular firm or resource supplier at someone else's, or even society's, expense | 44 | |
| 11155602689 | Price discrimination | practice of selling the same good at different prices but not justified by cost differences leading to greater profits and output | 45 | |
| 11157764317 | 1st degree price discrimination (perfect price discrimination) | seller charges each buyer maximum consumer surplus |  | 46 |
| 11157764318 | 2nd degree price discrimination | seller charges less to buyers who buy more but does not extract all of the consumer surplus |  | 47 |
| 11157766771 | 3rd degree price discrimination | seller charges different prices to elastic and inelastic consumer groups based on who and when they buy to obtain more profits |  | 48 |
| 11156726759 | When can price discrimination be possible | monopoly power market segregation no resale possible | 49 | |
| 11157057251 | Price regulation (rate regulation) | limits the price that a monopolist is allowed to charge and will result in increased output | 50 | |
| 11157157157 | Socially optimal price | price of a product that results in allocative efficiency with possible losses P = MC | 51 | |
| 11157159743 | Fair rate of return price | price of a product that results in a normal profit without allocative efficiency P = ATC | 52 | |
| 11157202280 | Dilemma of regulation | trade off faced by a regulatory agency in setting the maximum legal price a monopolist may charge | 53 | |
| 11207163312 | Natural monopoly | monopoly that runs most efficiently when one large firm supplies all of the output |  | 54 |
| 11252961786 | Economies of scale | factors that cause a producer's average cost per unit to fall as output rises and can alter the quantity of all inputs LRATC decreasing | 55 | |
| 11267789621 | Constant economies of scale | all inputs can be increased equally to maintain the lowest cost per unit LRATC constant | 56 | |
| 11252962334 | Diseconomies of scale | average cost per unit increases in the long run due to size LRATC increasing | 57 | |
| 11234127683 | Accounting profit | total revenue - explicit costs | 58 | |
| 11271580970 | Explicit cost | cost that involves spending money for production | 59 | |
| 11271580971 | Implicit cost | opportunity cost when a firm uses owner-supplied resources | 60 | |
| 11274878234 | Minimum efficient scale (MES) | lowest level of output that a firm can minimize long-run average total cost | 61 | |
| 11274921447 | Geographic monopoly | monopoly based on the absence of other sellers in a certain geographic area | 62 | |
| 11278551278 | What are the characteristics of monopolistic competition | many firms that are price searchers no entry barriers products are similar but not identical constant advertising (fixed cost that increases demand and becomes more inelastic) normal long run profit market demand curve different (lowering prices does not instantly mean more market share for a firm) has no productive or allocative efficiency in the long run |  | 63 |
| 11278551279 | What are the characteristics of an oligopoly | few firms that are price searchers difficult entry barriers products are similar but not identical firms are interdependent (decisions dependent on each firm's actions) firms make their own price | 64 | |
| 11279649511 | What are the barriers of entry for a monopoly | patents and copyrights legal restrictions control of key resources high startup costs | 65 | |
| 11279685484 | Fair market price | price a producer is willing to sell a product at and a consumer is willing to buy it D = ATC | 66 | |
| 11282978512 | Changing cost industry in the long run (perfect competition) | quantity remains the same in the firm and quantity increases in the market after prices stabilize | 67 | |
| 11285813653 | When will firms enter a market | economic profit > 0 | 68 | |
| 11285813654 | When will firms exit a market | economic profit < 0 | 69 | |
| 11287904207 | Excess capacity | difference between a firm's profit-maximizing quantity and the productively efficient quantity occurs when the firm is producing quantity left of the productively efficient curve | 70 | |
| 11292493539 | Game theory | study of alternate strategies when outcome of an individual is interdependent | 71 | |
| 11307016579 | Government monopoly | monopoly that exists only when the government provides a certain good or service | 72 | |
| 11307016580 | Technological monopoly | monopoly that exists when the government grants a patent or copyright to an individual or firm | 73 | |
| 11307847674 | Collusion | rival companies cooperate for their mutual benefit | 74 | |
| 11307847675 | Cartel | organization of colluding oligopolists that agree to fix prices | 75 | |
| 11307935919 | Payoff matrix | grid that shows the possible combinations and outcomes when two firms make a decision | 76 | |
| 11307935920 | Nash equilibrium | situation in which firms each choose their best strategy given the strategies that all the other firms have chosen | 77 | |
| 11308069146 | Dominant strategy | strategy that is the best response (highest profit) for a firm no matter what strategies opposing firms use for the firm on the left check the top and bottom rows to see if both are greater than the other on the same side (repeat for the firm on the top this time left and right) | 78 | |
| 11310072869 | Price fixing | agreement among firms to charge one price for the same good | 79 | |
| 11331132297 | Increasing cost industry | industry that faces higher per-unit production costs as industry output increases in the long run long run industry supply curve slopes upward |  | 80 |
| 11331139525 | Decreasing cost industry | industry that faces lower per-unit production costs as industry output decreases in the long run long run industry supply curve slopes downward | 81 | |
| 11331139526 | Constant cost industry | industry that faces no change in per-unit production costs as industry output stays the same in the long run long run industry supply curve horizontal |  | 82 |
| 11331142213 | Autonomous demand | quantity being demanded when income equals zero expenditure for which the level does not depend on the level of output in the economy | 83 |
