Term
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Definition
Social Cost (optimal quantity) > Private Cost (market quantity)
Government imposes corrective tax (pigou tax) or gives out tradeable permits (cap-and-trade) or regulates
Ex: pollution costs society $1--> pigou tax=$1
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Term
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Definition
Social Value (optimal quantity) > Private Value (market quantity)
Government offers a subsidy
Ex: Education (U.S. vs. India)
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Term
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Definition
| idea: if private parties/firms can bargain w/out cost over the allocation of resources, they can solve the problem of externalities on their own |
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Term
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Definition
TC/Q
Where MC=ATC, ATC increases |
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Term
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Definition
| change in TC/ change in Q |
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Definition
| Quantity of output that minimizes ATC |
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Term
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Definition
| long-run ATC falls as quantity of output increases |
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Term
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Definition
| long-run ATC rises as the quantity of output increases |
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Term
| Constant Returns to Scale |
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Definition
| long-run ATC stays the same as output changes |
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Definition
| more output sold, so Q is higher, and increases total revenue |
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Term
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Definition
| price falls, profit decreases, and total revenue decreases |
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Term
| Maximize Profit in Monopoly |
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Definition
| Price>MR=MC--> intersection of MR and MC, then use D to find price |
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Term
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Definition
total revenue-total cost
(p-ATC)Q |
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Term
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Definition
change in TR/change in Q
price of good in competitve market |
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Term
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Definition
Keep producing/increase production
puts more $ in pockets (MR), then it will take out (MC)
MC crosses ATC @ min. ATC |
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Term
| Profit Maximization (comp. market) |
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Definition
MR>MC increase output
MR<MC decrease output
MR=MC max. profit |
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Term
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Definition
firm shuts down when P<AVC
supply curve=portion of MC curve that lies above AVC
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Term
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Definition
Exit if P<ATC
supply curve=portion of MC that lies above ATC
Firm's must operate at zero economic profit |
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Term
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Definition
Profit: (P-ATC)Q-->P>ATC
Loss: (P-ATC)Q-->P<ATC |
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Term
| Maximizing Total Net Benefit in Monopoly |
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Definition
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Term
| Economic Loss in Monopoly |
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Definition
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Term
| Economic Profit in Monopoly |
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Definition
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Term
| Max. Net Benefit (externalities) |
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Definition
| Max. NB=MB(society)=MC(society) |
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