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Definition
the increase in total cost that arises from an extra unit of production
MC function is identical to supply function
MC=price firms pays for an input/MP |
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| the change in total revenue from an additional unit sold |
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| the increase in output that arises from an additional unit of input |
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a measure of happiness or satisfaction a consumer experiences when purchasing a product
MU function is identical to demand function |
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| Perfectly Competitive Market Firm |
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Definition
1. Marginal Costs (MC) are equal to Marginal Benefits (MB) or Marginal Utility (MU) on graph
2. Normal profits are earned, meaning only enough profit to keep firm in business
3. Average Total Cost (ATC) is minimized, meaning the firm's productivity is 100% efficient
Firms prices in a perfectly competitive market are perfectly elastic, meaning firms can't change their prices, only quantity supplied.
Marginal Revenue is equal to Demand as opposed to in Monopolistic Functions. |
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Definition
1. Products will be produced at a non-optimal level of output-instead level of output will be at which Marginal Revenue (MR) will be equal to Marginal Costs (MC)
2. Above normal profits will be earned by the firm due to the lack of firms to compete with this one
3. Firm isn't as productively efficient as it could be, meaning more products could be coming to the market where the MB outweighs the MC, but these products aren't being produced
Prices have inelasticity, but are not quite perfectly inelastic because of certain constraints. Demand does change based on price.
The Marginal Revenue function is more steeply sloped than the Demand function, meaning that Marginal Revenue always (besides at the start of the graph) is less than Demand. |
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Definition
Costs unaccounted for by a firm and as a result paid by the community, not the firm
Means too much production is occurring and that supply function is further right that otherwise would be
Quantity being supplied is a quantity at which social marginal costs are greater than social marginal benefits |
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When consumers have access to a product without having to pay for it
Too little production is occurring, meaning the supply function is further left than it otherwise would be |
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| Perfectly competitive market model states that when there is a set price for labor and supply exceeds demand in the labor market, workers will compete by bidding the price down. This concept, however, does not occur in real life. |
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Definition
Costs of production that take into account three factors:
1. Variable Cost
2. Fixed Cost
3. Opportunity Cost
ATC can be calculated by combining variable costs, fixed costs, and opportunity costs and then dividing by quantity (level of output).
ATC is minimized when it is equal to MC. |
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Definition
Cost subject to change due to various inputs
Summation of the marginal costs
Most often labor |
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Definition
Costs that occur because the firm exists
Costs are not subject to change |
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| Costs that are foregone by the existence of the firm (could be earning money elsewhere, but aren't because of present firm) |
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| Malthus' theory that economic growth will inevitably fall due to the growing population and limited amount of land available. Diminishing Returns has set in as soon as Marginal Product decreases, meaning that level of output will not increase but in fact decrease as a result of hiring new units of labor. This means that it costs more for a firm to hire an extra unit of labor than to not, proof that Marginal Costs will rise as a result of Diminishing Returns. |
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Definition
Better able to introduce technology than smaller firms, shifting the supply function to the right (long run).
When big firms are subjected to diminishing returns, scarcity will occur (short run). |
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| When supply equals demand |
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| Difference between what a firm pays for its production and what society must pay as a result of production |
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Definition
Includes those in the labor market seeking work, but are unable to find it.
If unemployment can't be solved due to sticky wages, alternative is to undertake gov. policy that shifts the demand function to the right (create need for public jobs). |
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Definition
1. Negative Externalities
2. Free Riding
3. Monopolistic Disadvantages
4. Downwardly Sticky Wages |
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Definition
| Goods that are accessible to the public without paying for them |
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Definition
Fundamental problem of economics
Satisfying material wants or needs of people-can't be done
Lack of materials or unsatisfied wants is scarcity
2 ways to solves scarcity:
Economic Development (Markets)
An institutionalized mechanism whereby what’s available is allocated or distributed to the population (communism) |
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Term
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Definition
Downwardly sloped function (in PCM and Monopolies) that determines the want or demand of a product.
Identical to the Marginal Utility or Marginal Benefits function.
Determined by:
1. Tastes and Preferences
2. Distribution of Income
3. Prices of Other Goods |
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Definition
Function that determines how much a firm will supply based on costs.
Identical to Marginal Cost Function. |
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| Most Efficient Level of Production |
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Definition
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