Principles of Micronomics at Universität Wien

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opportunity costs 

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The goal of each firm is to maximize profit. It chooses to produce the quantity of milk that makes profit as large as possible. How can the firm find its profit-maximizing quantity?

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Two characteristics describe the long-run equilibrium in a monopolistically competitive market
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rational people

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market economy 

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property rights

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inflation    
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externality 

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Name the two possible causes for market failure! 

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market power

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productivity 
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market failure

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Exemplary flashcards for Principles of Micronomics at the Universität Wien on StudySmarter:

Principles of Micronomics

opportunity costs 
whatever must be given up to obtain some item

Principles of Micronomics

The goal of each firm is to maximize profit. It chooses to produce the quantity of milk that makes profit as large as possible. How can the firm find its profit-maximizing quantity?
By comparing marginal revenue and marginal cost: As long as marginal revenue exceed marginal cost, increasing the quantity produced raises profit. If marginal revenue is less than marginal cost is should decrease production. If the firm thinks at the margin and makes incremental adjustments to the level of production, it will end up producing the profit-maximizing quantity.

Principles of Micronomics

Two characteristics describe the long-run equilibrium in a monopolistically competitive market
  • as in a monopoly market, price exceeds marginal cost: This conclusion arises because profit maximization requires marginal revenue to equal marginal cost and because the downward-sloping demand curve makes marginal revenue less than the price 
  • as in a competitive market, price equals average total cost. This conclusion arises because free entry and exit drive economic profit to zero. 

Principles of Micronomics

rational people
people who systematically and purposefully do the best they can to achieve their objectives

Principles of Micronomics

market economy 
an economy that allocates resources through the decentralized decisions of many firms and household as they interact in markets for goods and services

Principles of Micronomics

property rights
the ability of an individual to own and exercise control over scarce resources

Principles of Micronomics

inflation    
an increase in the overall level of prices in the economy

Principles of Micronomics

externality 
the impact of one person's actions on the well-being of a bystander (eg pollution) 

Principles of Micronomics

Name the two possible causes for market failure! 
  1. externality 
  2. market power

Principles of Micronomics

market power
the ability of a single person or firm to unduly influence market prices 

Principles of Micronomics

productivity 
the quantity of goods and services produced from each unit of labor input 

Principles of Micronomics

market failure
a situation in which a market left on its own fails to allocate resources efficiently 

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