study guide 2

study guide 2 - Firms opportunity cost Resources bought in...

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Unformatted text preview: Firms opportunity cost Resources bought in market o Materials o labor o Lease o loan Owned by firm o Economic depreciation o Forgone interest Supplied by firms owner o Entrepeneurship o Owners labor services Technology constraint increase in profit that a firm can get is limited by revenue Information constraint quality and effort of workforce Market constraints- customer willingness to pay Technological efficiency- firm produces a given output by using least amount of inputs Economic efficiency- firm produces given output at least cost Command system- managerial hierarchy Incentive market like mechanism inside firm Principal- agent problem- problem of devising compensation rules than induce an agent to act in the best interest of a principal Assign ownership Incentive pay Long term contracts Proprietorship- firm with a single owner, unlimited liability Partnership- 2 or more owners with unlimited liability Corporation- firm owned by one or more limited liability stockholders Perfect competition- many firms, each selling an identical product, many buyers, and no restrictions on entering market Monopolistic- large number of firms compete by making similar products Oligopoly- small number of firms compete Monopoly- one firm which produces a product with no close substitutes and firm is protected by a barrier preventing entry of new firms Four-firm concentration ratio- percentage of vlue of sales accounted by the four largest frims o Monopoly- 100 o Perfect competition- low HHI- square of the percentage market share of each firm summed over largest 50 firms o Perfect- small o Monolpoly- 10000 Transaction costs- costs that arise from finding someone with whom to do business Economies of scale- cost of producing a unit of a good falls as output increases Economies of scope- specialized resources to produce a range of g/s Output and Costs Short run- time frame in which quantity of at least one factor of production is fixed Long run- time frame in which the quantities of all factors of production can be varied Sunk cost- past expenditure on a plant that has no resale value Total product- maximum amount of output that a given quantity of labor can produce Marginal product- increase in total product that results from a one unit increase in the quantity of labor employed, with all other inputs remaining the same Average product- equal to total product divided by quantity of labor employed Increasing marginal returns- when marginal product of an additional worker exceeds the marginal cost of the previous worker Diminishing marginal returns- the marginal product of an additional worker is less than the marginal product of the previous worker Law of diminishing returns- as a firm uses more of a variable factor of production, with a given quantity of the fixed factor of production, the marginal product of the variable...
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study guide 2 - Firms opportunity cost Resources bought in...

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