c1 + c2 + c3/ macro + micro > upper micro > Flashcards

upper micro Flashcards

(75 cards)

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1
Q

Draw FC Short run diagram

A
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2
Q

Draw VC Short run diagram

A
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3
Q

Draw TC Short run diagram + formula

A

Total fixed + variable costs

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4
Q

Draw Average Costs Curve diagram + formula

A

Total Cost divided by Output (TC/Q)

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5
Q

Draw Marginal Cost and AVTC

A
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6
Q

Draw Marginal Cost diagram + formula

A

Change in TC / Change in Q

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7
Q

Draw MC, AC, AVC

A
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8
Q

Draw Long Run Average Costs Curve

A
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9
Q

The law of Diminishing returns

A

The law of diminishing returns says that, if you keep increasing one factor in the production of goods (such as your workforce) while keeping all other factors the same, you’ll reach a point beyond which additional increases will result in a progressive decline in output. - Only applies in shortrun

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10
Q

Marginal Physical Product definition + diagram

A

The additional quantity of output produced by an additional unit of labour input

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11
Q

Minimum Efficient Scale (MES) definition + Diagram

A

The MES is the minimum point of the LRAC curve; the output level at which the cost per unit is at its lowest.

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12
Q

LRAC as an Envelope Curve

A

It surrounds multiple short-run average cost (SRAC) curves, mapping the lowest possible unit cost for any output level when all inputs are variable

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13
Q

Economies of scale definition

A

When an increase in output leads to lower long run average costs

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14
Q

Show Internal economies of scale on a diagram.

A

Internal is a movement along the diagram - when firms get bigger

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15
Q

Show External economies of scale on a diagram.

A

External growth of the entire industry - whole lrac shifts

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16
Q

Draw MR , TR , AR Diagram

A
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17
Q

Supernormal profits are made when?

A

When a firm’s total revenue exceeds its total costs, including opportunity costs

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18
Q

Draw a profit max diagram

A

Firms produce where MR = MC

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19
Q

Draw Sales Revenue Max diagram

A

Sales revenue is where MR = 0

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20
Q

Draw Sales Volume Maximization diagram

A

AC = AR

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21
Q

Draw Profit Satisficing diagram

A

Found between anywhere Pmax and PAC or PMSales

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22
Q

CSR (Corporate Social Responsibility) Definition

A

CSR is when a firm takes actions to demonstrate its commitment to behaving in the public interest

Reasons for firms embracing CSR

  • Being a good citizen
  • Contracting benefits - help recruit employees
  • Customer related motivation
  • Lower production costs (more efficient packaging etc)

-

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23
Q

Explain the principle agent problem

A

The principle-agent problem arises primarily from an information asymmetry. This arises because the agents (the managers) have better information about the effects of their decisions than the owners (the principals), who are not involved in the day to day running of the business.

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24
Q

Show X- Inefficiency in a firm Diagram

A

If managers are not fully accountable they may become negligent and this leads to organizational slack

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25
Draw a perfectly competitive firm demand curve + firm + industry
26
Supernormal profits in the short run P.C
Super normal profits are where P > AC and AR > AC
27
Supernormal profits in the long run
28
Losses in the shortrun
29
Allocative efficiency explanation + how its achieved
Allocative efficiency achieved as P = MC Allocative efficiency is achieved when the distribution of resources is optimized to produce the specific mix of goods and services that maximize society's welfare or utility. In economic terms, it occurs at the precise output level where the price that consumers are will
30
Productive efficiency achieved when?
Achieved when they produce at lowest AC Occurs when firms have chosen appropriate combinations of factors of production and produce the maximum output possible from those inputs, thus producing on the lowest point of the average total cost curve where average costs are minimized
31
What is Dynamic efficiency?
Dynamic efficiency - occurs over time and is linked to the pace of innovation in an industry. It leads to more choice for consumers and improve quality of products
32
What is a monopoly?
Monopoly - A pure monopoly is a market with a single seller
33
What is a Sunk Cost?
A sunk cost refers to money that has already been spent and cannot be recovered if the business is sold.
34
Draw diagram of supernormal profits for a monopoly. (Short and long run)
35
Explain first degree (perfect) price discrimination
This is where the monopolist charges each individual customer the MAXIMUM price they are willing to pay
36
Explain Second Degree Price discrimination
This is when a firm sells off any excess capacity that it has at a price that is LOWER than the normal published price
37
Explain Third-Degree price discrimination
This is the most frequently found form of discrimination and involves charging different prices for the SAME product to different groups of consumers who are separated into different parts of the same market known as segment's The market is usually separated in three ways: by time, by geography or by demographic factors such as age/income or gender
38
Draw a first degree price discrimination diagram
39
What is a natural monopoly?
A natural monopoly is a monopoly that arises in a industry which there are such substantial economics of scale that the more productively efficient market structure is for there to only be one firm
40
Draw a natural monopoly diagram
41
Features of monopolistic competition
Downward sloping demand (AR) Curve Differentiated (but similar) products Freedom of Entry - No or Low barriers to entry Many (small) Firms No Dominant Firm
42
Draw a Short run monopolistic competition Supernormal Profit/Loss diagram
Same diagram as monopoly
43
Draw a Monopolistic competitive firm in the long run
AC MUST BE TANGETIAL
44
What is an Oligopoly?
A market dominated by a few sellers, each of whom has some control over the market and in which each firm must take account of the current behavior and likely behavior of rival firms in the market
45
Explain Predatory Pricing
The firms sets a price below average variable costs to try and force a rival out of the market In the short run the consumer faces lower prices but in the long run, if successful the market becomes less competitive and prices may rise and choice falls Illegal some countries
46
Explain Limit Pricing
Limit pricing is pricing by the incumbent firm to deter the entry of new firms or the expansion of fringe firms Designed as a barrier to entry in order to protect a firms monopoly power and supernormal profit.
47
List Oligopoly characteristics
A few large firms dominate the market Many firms may make up the industry A high market concentration ratio Each firm has branded and differentiated products Significant barriers to entry and exit Firms are interdependent
48
How to calculate Concentration ratio
The concentration ratio measures the combined market share of the top 'n' firms in the industry
49
Draw Oligopoly Kinked demand curve
50
What is collusion?
Collusion is a non-competitive and sometimes illegal agreement between rivals which attempts to disrupt the markets equilibrium
51
What is cartel Collusion?
Cartel- An agreement between firms on price/and or output with the intention of maximizing their joint profits
52
What is Overt Collusion?
A situation in which firms openly work together to agree on prices or market shares
53
What is tacit Collusion?
Tacit collusion is a situation occurring when firms refrain from competing on price, but without communication or formal agreement between them, come to charge high prices
54
What is price leadership?
Price leadership occurs when firms with lower market shares follow the pricing changes prompted by the firm with the dominant position in the market
55
What is a contestable market?
A market in which the existing firm makes only normal profit as there are no barriers to entry. The incumbent firm there has to charge a lower price to deter entrants into the market - so the firm cannot make supernormal profits
56
Characteristics of Contestable markets
Face no barriers to entry or exit Incur no sunk costs in entering the market Have no competition disadvantage compared with incumbent firms Have access to the same technology as the incumbent firm Are able to exist and enter rapidly
57
What is marginal revenue product ( MRP) ?
The change in a firms revenue resulting from employing one more worker.
58
What is marginal product of labour ( MPL ) ?
The change in output that results from employing one more worker
59
Draw a diagram to show MRP
60
Explain the 4 factors (acronym LEPT) affecting wage elasticity for the demand for labour
**Labour** costs - When labour costs represent a large sum of total costs firms will be more affected to a change in wage rate - therefore leads to a higher reduction in staff Ease and cost of substitution - More elastic when a firm can easily and cheaply substitute between labour and capital inputs Price elasticity of the final product- Determines whether firms can pass on higher labour costs to consumers in higher prices Time period - Short run - Inelastic Long run elastic
61
What is Elastcity of labour
Elasticity of labour demand measures the responsiveness of demand for labour following a change in the wage rate
62
Draw a elastic + inelastic labour demand curve
63
What is the labour supply?
The labour supply is the number of hours that people are willing and able to supply at a given wage rate
64
Draw a labour supply curve
65
Factors affecting wage elasticity of the supply of labour (acronym) NVT
Nature of skills and qualifications required to work in an industry - Specific skilsl and educational requirements make supply inelastic Vocational Nature of Work- Strong vocational jobs such as nursing - people less sensitive Time Period - Short run labour relatively inelastic
66
Draw a labour market equilibrium diagram
67
What is transfer earnings
The minimum payment required to keep a factor of production in its present use.
68
What is economic rent?
A payment received by a factor of production over and above that which would be needed to keep it in its present use
69
Draw Economic rent + Transfer earnings on a diagram
The more inelastic labour supply is, the higher the proportion of total earnings is made up of economic rent
70
What is a monopsony?
A monopsony is a market in which there is a single buyer of a good, service or factor of production
71
Draw a monopsony diagram
72
What is a trade union
A trade union is a organization of workers that negotiates with employers on behalf of its members. 3 Major objectives: 1. Wage bargaining 2. The improvement of working conditions 3. Security of employment for their members
73
Draw a trade union diagram
If the trade union is strong enough it can actually create a minimum pay level, effectively creating a new shaped supply curve.
74
What is a bilateral monopoly
A bilateral monopoly is a situation in which a monopoly seller of labour ( trade union ) faces a monopsony buyer of labour
75
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