| A | B |
|---|
| accounting profit | "Total revenue a firm receives minus its explicit costs. Economic profit plus normal profit." |
| average fixed cost (AFC) | "Fixed cost divided by the quantity of a firm's output. Decreases at a decreasing rate as output rises." |
| average product | "The total product of a firm divided by the amount of a particular input used to produce the total product." |
| average total cost (ATC) | "The sum of average fixed cost and average variable cost. Total costs incurred divided by number of units produced. Typically falls and then rises as output increases." |
| average variable cost (AVC) | "Variable cost divided by the quantity of a firm's output. Typically falls and then rises as output increases." |
| barriers to entry | "Anything that prohibits or discourages new firms from entering into a market." |
| cartel | "A group of producers in an industry who collude in order to form a functional monopoly." |
| collusion | "Agreement by producers in an industry to cooperate and set prices instead of competing with one another." |
| commodity | "A good that is identical regardless of which firm produced it." |
| constant returns to scale | "This exists when a firm's long-run average total cost remains constant as the firm's size increases." |
| copyright | "The government protection of someone's intellectual property from being taken or sold by another. Serves as a barrier to entry of new firms, giving the owner of the copyright monopoly power." |
| decreasing (marginal) returns | "This happens when both total product and marginal product both decrease as an input is added to the production process." |
| diminishing marginal returns | "This happens when marginal product is decreasing while total product is still increasing as an input is added to the production process." |
| diseconomy of scale | "This exists when a firm's long-run average total cost increases as the firm's size increases. The firm becomes less productively efficient as output rises in the long run. Also known as decreasing returns to scale." |
| dominant strategy | "In game theory, a strategy which a player always chooses independent of the other player's choice." |
| economic profit | "Profits earned by a firm over and above normal profit. Areas of profit shown on economic graphs are economic profit (or loss) and encourage new firms to join industries in which they can expect to earn more than normal profit." |
| economy of scale | "This exists when a firm's long-run average total cost declines as the firm's size increases. The firm becomes more productively efficient as output rises in the long run. Also known as increasing returns to scale." |
| excess capacity | "The difference in the log run between the quantity that a perfectly competitive market produces and the quantity produced by monopolistically competitive firms. Underutilization of the factories or productive capabilities of each firm; amount by which a firm would increase production to be productively efficient." |
| firm | "An organization that produces a good or a service in order to make a profit for its owner or owners. Many people refer to a firm as a business. A fundamental assumption of economics is that firms seek to maximize profits." |
| fixed cost | "A cost that does not change as a firm's production changes. This cost is incurred prior to producing even the first unit." |
| game theory | "A situation in which a discrete number of players can be identified, each has specific strategies or choices, and the payoffs to each player can be quantified for strategic analysis." |
| geographic monopoly | "A market condition in which a firm faces no competition in a certain geographic area." |
| government monopoly | "A market condition in which government provides a good or service and prevents the private sector from competing in the market." |
| homogenous products | "Products that are identical or so similar that consumers can't or don't distinguish between the products made by various firms." |
| increasing (marginal) returns | "This happens when both total product and marginal product both increase as an input is added to the production process." |
| interdependence | "The condition in which the decisions of producers are based on the possible decisions of other producers." |
| kinked demand curve | "Illustrates price rigidity in a non-colluding oligopoly." |
| long run | "The production period in which all of a firm's inputs can be varied and in which firms can enter or exit various industries." |
| long run average total cost (LRATC) | "A graph which shows a firm's average total cost as it varies its size and displays economies of scale and/or diseconomies of scale." |
| marginal cost (MC) | "The cost of producing an additional unit of output. Change in total cost divided by change in output." |
| marginal product | "The additional output which is produced when an additional unit of input, often labor, is added to the production process." |
| monopolistic competition | "A relatively competitive market structure in which many firms compete, each having limited ability to set prices and earn economic profits because of product differentiation." |
| monopoly | "A market structure with only one seller." |
| natural monopoly | "A market condition in which a firm is able to prevent competition because its economy of scale allows it to produce at a lower average total cost than any smaller competitor could." |
| normal profit | "Amount of accounting profit that a firm would earn equal to fair market value of the resources the firm's owner uses. In particular, this includes the wages or salary that the entrepreneur could have earned working for another firm." |
| oligopoly | "A market structure in which a few firms dominate and behave interdependently." |
| patent | "A government-granted license to be the sole producer of a new good or service. Similar in function to a copyright because it is a source of monopoly power for the sole legal producer." |
| payoff matrix | "A grid that shows the outcomes of decisions made by producers in a game which can be used to determine dominant strategies." |
| perfect competition | "A market condition in which individual buyers and sellers have no influence over price because they are small, independent, trade in commodities, and are unable to place barriers to entry or exit from the market." |
| perfect price discrimination | "The ability of a monopolist to charge each individual consumer the highest price the consumer would willingly pay for a good or service. Because each buyer pays his or her reservation price, there is no consumer surplus." |
| price discrimination | "The ability of some producers to charge consumers different prices for the same good or service based on different customers' willingness to pay." |
| price leadership model | "When on firm in an oligopoly sets the price for the industry and other firms defer to the price." |
| price taker | "Firms in perfect competition are assumed to be price takers because they cannot control the market price for the good they sell." |
| product differentiation | "The efforts by firms to make their products appear different from those of competitors. Also known as non-price competition." |
| production function | "The amount of output varies as inputs are added in production. Typically, output increases as inputs are added, but often at a decreasing rate." |
| profit | "The revenue a firm has remaining after paying all of its costs." |
| short run | "The period of production time in which at least one input is constant." |
| tacit collusion | "When oligopolies end up colluding unintentionally." |
| technological monopoly | "A market condition in which the firm's possession of either a patent or copyright prevents other firms from legally competing in the market for a good or service." |
| total cost | "The sum of fixed and variable costs. Economists include implicit costs as costs." |
| total product | "All of a firm's output created by its inputs." |
| variable cost | "A cost that changes with the firm's level of production." |
