Modern Principles: Microeconomics, 6th
Edition by Tyler Cowen and Alex Tabarrok –
Premier 2025/2026 Resource for Deadweight
Loss Mastery: Guaranteed to Pass Exams on
First Attempt and Avoid Resits
the producer (Ch. 10) External Cost - ANSWER//Cost paid
by people other than the consumer or the producer trading
in the market (Ch. 10) Social Cost - ANSWER//The cost to
everyone: the private cost plus the external cost (Ch. 10)
Externalities - ANSWER//External costs or external
benefits that fall on bystanders (Ch. 10) Social Surplus -
ANSWER//Consumer surplus plus producer surplus plus
everyone else's surplus (Ch. 10) Efficient Equilibrium -
ANSWER//Price and quantity that maximizes social
surplus (Ch. 10) Efficient Quantity - ANSWER//The
quantity that maximizes social surplus (Ch. 10) Pigouvian
Tax - ANSWER//Tax on a good with external costs (Ch. 10)
External Benefit - ANSWER//Benefit received by people
other than the consumers or producers trading in the
market (Ch. 10) Pigouvian Subsidy - ANSWER//Subsidy
on a good with external benefits (Ch. 10) Transaction
Costs - ANSWER//All the costs necessary to reach an
agreement (Ch. 10) Long Run - ANSWER//Time after all
exit or entry has occurred (Ch. 11) Short Run -
ANSWER//Period before exit or entry can occur (Ch. 11)
Total Revenue (TR) - ANSWER//Price times the quantity
sold. TR = P x Q (Ch. 11) Total Cost - ANSWER//Cost of
producing a given quantity of output (Ch. 11) Explicit Cost
- ANSWER//Cost that requires a money outlay (Ch. 11)
Implicit Cost - ANSWER//Cost that does not require an
outlay of money (Ch. 11) Economic Profit -
ANSWER//Total revenue minus total costs including
implicit costs (Ch. 11) Accounting Profit - ANSWER//Total
revenue minus explicit costs (Ch. 11) Fixed Costs -
ANSWER//Costs that do not vary with output (Ch. 11)
Variable Costs - ANSWER//Costs that do vary with output
, (Ch. 11) Marginal Revenue (MR) - ANSWER//Change in
total revenue from selling an additional unit - MR is equal
to delta TR over delta qty. For a firm in a competitive
industry, MR=Price (Ch. 11) (Ch. 13) Marginal Cost (MC) -
ANSWER//The change in total cost from producing an
additional unit (Ch. 11) To maximize profit, a firm
increases output until MR = MC (Ch. 13) Average Cost -
ANSWER//Of production, is the cost per barrel, that is, the
cost of producing Q barrels divided by Q - AC equals TC
over Q (Ch. 11) Zero Profits - ANSWER//Or normal profits,
occur when P=AC. At this price the firm is covering all of
its costs, inducing enough to pay labor and capital their
ordinary opportunity costs (Ch. 11) Sunk Cost -
ANSWER//Cost that once incurred can never be
recovered (Ch. 11) Increasing Cost Industry -
ANSWER//An industry in which industry costs increase
with greater output; shown with an upward sloped supply
curve (Ch. 11) Constant Cost Industry - ANSWER//An
industry in which industry costs do not change with greater
output; shown with a flat supply curve (Ch. 11) Decreasing
Cost Industry - ANSWER//An industry in which industry
costs decrease with an increase in output; shown with a
downward sloped supply curve (Ch. 11) Elimination
Principle - ANSWER//Above-normal profits are eliminated
by entry and below-normal profits are eliminated by exit
(Ch. 12) Market Power - ANSWER//The power to raise
price above marginal cost without fear that other firms will
enter the market (Ch. 13) Monopoly - ANSWER//A firm
with market power (Ch. 13) Economies of Scale -
ANSWER//Advantages of large-scale production that
reduce average cost as quantity increases (Ch. 13)
Natural Monopoly - ANSWER//Said to exist when a single
firm can supply the entire market at a lower cost than two
or more firms (Ch. 13) Barriers to Entry -
ANSWER//Factors that increase the cost to new firms of
entering an industry (Ch. 13) Price Discrimination -
ANSWER//Selling the same product at different prices to
Edition by Tyler Cowen and Alex Tabarrok –
Premier 2025/2026 Resource for Deadweight
Loss Mastery: Guaranteed to Pass Exams on
First Attempt and Avoid Resits
the producer (Ch. 10) External Cost - ANSWER//Cost paid
by people other than the consumer or the producer trading
in the market (Ch. 10) Social Cost - ANSWER//The cost to
everyone: the private cost plus the external cost (Ch. 10)
Externalities - ANSWER//External costs or external
benefits that fall on bystanders (Ch. 10) Social Surplus -
ANSWER//Consumer surplus plus producer surplus plus
everyone else's surplus (Ch. 10) Efficient Equilibrium -
ANSWER//Price and quantity that maximizes social
surplus (Ch. 10) Efficient Quantity - ANSWER//The
quantity that maximizes social surplus (Ch. 10) Pigouvian
Tax - ANSWER//Tax on a good with external costs (Ch. 10)
External Benefit - ANSWER//Benefit received by people
other than the consumers or producers trading in the
market (Ch. 10) Pigouvian Subsidy - ANSWER//Subsidy
on a good with external benefits (Ch. 10) Transaction
Costs - ANSWER//All the costs necessary to reach an
agreement (Ch. 10) Long Run - ANSWER//Time after all
exit or entry has occurred (Ch. 11) Short Run -
ANSWER//Period before exit or entry can occur (Ch. 11)
Total Revenue (TR) - ANSWER//Price times the quantity
sold. TR = P x Q (Ch. 11) Total Cost - ANSWER//Cost of
producing a given quantity of output (Ch. 11) Explicit Cost
- ANSWER//Cost that requires a money outlay (Ch. 11)
Implicit Cost - ANSWER//Cost that does not require an
outlay of money (Ch. 11) Economic Profit -
ANSWER//Total revenue minus total costs including
implicit costs (Ch. 11) Accounting Profit - ANSWER//Total
revenue minus explicit costs (Ch. 11) Fixed Costs -
ANSWER//Costs that do not vary with output (Ch. 11)
Variable Costs - ANSWER//Costs that do vary with output
, (Ch. 11) Marginal Revenue (MR) - ANSWER//Change in
total revenue from selling an additional unit - MR is equal
to delta TR over delta qty. For a firm in a competitive
industry, MR=Price (Ch. 11) (Ch. 13) Marginal Cost (MC) -
ANSWER//The change in total cost from producing an
additional unit (Ch. 11) To maximize profit, a firm
increases output until MR = MC (Ch. 13) Average Cost -
ANSWER//Of production, is the cost per barrel, that is, the
cost of producing Q barrels divided by Q - AC equals TC
over Q (Ch. 11) Zero Profits - ANSWER//Or normal profits,
occur when P=AC. At this price the firm is covering all of
its costs, inducing enough to pay labor and capital their
ordinary opportunity costs (Ch. 11) Sunk Cost -
ANSWER//Cost that once incurred can never be
recovered (Ch. 11) Increasing Cost Industry -
ANSWER//An industry in which industry costs increase
with greater output; shown with an upward sloped supply
curve (Ch. 11) Constant Cost Industry - ANSWER//An
industry in which industry costs do not change with greater
output; shown with a flat supply curve (Ch. 11) Decreasing
Cost Industry - ANSWER//An industry in which industry
costs decrease with an increase in output; shown with a
downward sloped supply curve (Ch. 11) Elimination
Principle - ANSWER//Above-normal profits are eliminated
by entry and below-normal profits are eliminated by exit
(Ch. 12) Market Power - ANSWER//The power to raise
price above marginal cost without fear that other firms will
enter the market (Ch. 13) Monopoly - ANSWER//A firm
with market power (Ch. 13) Economies of Scale -
ANSWER//Advantages of large-scale production that
reduce average cost as quantity increases (Ch. 13)
Natural Monopoly - ANSWER//Said to exist when a single
firm can supply the entire market at a lower cost than two
or more firms (Ch. 13) Barriers to Entry -
ANSWER//Factors that increase the cost to new firms of
entering an industry (Ch. 13) Price Discrimination -
ANSWER//Selling the same product at different prices to
