econ exam 2

amount by which total benefits to consumers from consuming a good exceed total expenditures on the good

• total benefit of activity minus opportunity cost; the triangle of marginal benefit (negative slope showing the change in benefit of each item for each extra item) and the marginal cost (positive slope showing the benefit of item given up for each item of using the other item)
• eg. for each hour of study in economics you get a total benefit of 0, 14, 24, 30, 32, 32 which is the marginal benefit of 14, 10, 6, 2, 0 at a cost of studying something else at a total cost of 0, 2, 8, 18, 32, 50, which gives a marginal cost of 2, 6, 10, 14, 18

• marginal utility per dollar of each good purchased
• also referred to as consumer equilibruim
• MU/P of product 1 = MU/P of product 2 = MU/P of any product

change in a consumers consumption of a good in response to an relative price change

change in the amount consumed of a good due to change in buying power, ability to purchase, due to price change of the good

this tendency of marginal utility to decline beyond some level of consuption during period (where you no longer value the wanted item due to enough consumstion

the amount of pleasure given by 1 or more items consumed 0 items give 0TU 1 item gives 36TU 2 items give 64 TU change in TU/change in item gives marginal utility between 0 & 1 MU is 36 between 1 and 2 gives 28 MU

• AFC is total fixed cost divided by total output or quantity
• AFC = TTC/Q

• total variable cost divided by total output
• AVC = TVC/Q

the decrease in per unit costs as the quanitity of production increases and all resources are variable

total cost of production / total quantity of output produced

change in total cost / change in quantity

change in quantity / change in variable factor (like labor)

decline of LRAC as level of production increases

• difference between TR and TC (total revenue and total cost) and is maximized when marginal revenue equals marginal cost
• Is found by multiplying economic profit per unit & # of units produced
• includes total cost includes opportunity cost

difference between price & average total cost includes opportunity cost in total cost

difference between total cost and total revenue when total cost includes only the explicit costs (change that must be paid for in the factors of production and includes estimated depreciation, does not include opportunity cost

model of the market based on the assumption that a large number of firms produce identical goods consumed by a large number of buyers

• all goods are identical
• large # of buyers and sellers
• case of entry & exit
• complete information of buyers and sellers

• the increase in total revenue frone a one unit increase in quantity; includes slope of total revenue curve
• AR = TR/Q = (P)(Q) / Q = P = MR

• Price = marginal cost
• basically when the price = marginal cost then you are at the breakeven point
• the point at which economic profit = zero (ATC)

a market structure characterized by few firms, either standardized or differentiated products, & difficult entry (price maker)

• % of output accounted for by the largest firms in the industry
• higher the concentration the more the firms account rival's behavoir
• lower the concentration the more industry reflects characteristics of monopolistic competors or perfect competition

sum of the square of the % share of each firm in an insutry

products are differernt enough that the producing firms exercise "mini monopoly over their product

• large # of firms
• products produced are differentiated in different firms
• entry & exit occur easily

each firm can affect the market by each firm's choices that are dependent on the choices of other firms (interdependent)

both have differentiated products but oliopoly has few firms & difficult entry while mc has many firms and easy entry

makes demand less elastic and enable firms to earn higher profits

situation in which a firm charges different prices for the same good or service to different consumers, even though there is no difference in cost to the firm of suppling these consumers

• the marginal revenue curve of a monopoly is downward sloping and lying below the regular demand curve
• as firms enter the mr curve shifts to the left until mr is less than economic profit and earning a loss

market structure with more than one firm in an industry in which at least 1 firm is the price setter

The demand curve if competitors follow the price decrease creating a new demand curve that is "kinked" at the current price

model of the market based on the assumption that a large number of firms produce identical goods consumed by a large number of buyers

a firm that is the only producer of a good or service for which there are no close subsitutes and for which entry by potential rivals is prohibitively difficult

• PC has large # of sellers & buyers producing homogenouse goods and easy entry
• monopoly has large # of buyers but only 1 seller, entry blocked

• PC is horizontal line at market price
• monopoly has market demand curve but mr is below makret demand

• PC is price takers and equals marginal cost
• monopoly is price setter and price is greater than mc

• PC - produces where MC = MR
• monopoly - produces where MC = MR & charge corresponding price on demand curve

• PC - entry forces economic profit to zero in long run
• monopoly - can sustain economic profit in long run

• PC - equilibrium solution is efficient because P = MC
• monopoly - equilibrium solution is inefficient because P > MC