A level Year 2 Microeconomics

Costs that do not change with output

When organisational wastage leads to a loss of efficiency (Eff)

When there is a wide-ranging agreement among several firms in a market

The characteristics of a market which determine the behaviour of firms

Costs that are dependant on output

Unit cost advantages from expanding the scale of production in the long-run

In perfect competition, when price = AVC

A small number of large firms produce most of the output of an industry (MS)

Informal agreement - firms monitor one another and copy each others actions (Collusion)

Total revenue - Total cost - Opportunity cost

Focusses on the change in choice and quantity over time; linked with innovation (Eff)

The market share of the largest firms in the industry

In highly contestable markets, firms enter and leave in order to make short term supernormal profits

Total revenue - Total cost

Occurs when a whole industry grows larger and firms benefit from lower long-run average costs (EoS)

A large number of small suppliers producing non-homogenous goods so have some price setting power (MS)

Secret or illegal cooperation in order to deceive other firms / achieve a common goal

When an economy is allocating scarce resources to meet society's wants and needs (P=MC) (Eff)

Any profit made above normal profit causing new firms to enter the market (AR>AC)

Fixed cost + Variable cost

How easy it is for new firms to enter an industry/market

A large number of small suppliers, none of which is large enough to dominate the market (MS)

Lead to a rise in a firms long-run average costs

Costs of production which are not recoverable if a firm leaves the market

When AR < AC causing firms to leave the market

A formal agreement - when firms agree to fix prices and quantity (illegal in EU, UK and US) (Collusion)

Producing at the lowest possible cost of production (MC=AC) (Eff)