ECON 206 Exam 2 - Custom Scholars
Home » Flash Cards » ECON 206 Exam 2

# ECON 206 Exam 2

question
Total utility
the total satisfaction a consumer gets from a certain good.
question
Marginal utility
the additional satisfaction obtained from consuming one more unit of a good.
question
Ceteris paribus
the utility that a consumer derives from an additional unit of a particular product is assumed to diminish as total consumption of the product increases. In other words, we assume diminishing marginal utility
question
Maximizing Utility: Consumers arrange their consumption to maximize total utility. This is achieved when _____.
the marginal utility per dollar is the same for all goods.
question
maximizing utility example: Take lattes (L) and scones (S) again. If you told me that your last latte (which cost \$4) made you 120 units happier, but the last scone (which cost \$2) only made you 20 units happier, then we would have...
120/4= 30 > 20/2= 10 or in equation form MUl/Pl > MUs/Ps
question
If the consumer's utility is maximized, then this condition must hold
MUL/PL = MUS/PS
question
substitution effect
only the response to the change in relative prices. It reduces the quantity demanded of a good whose (relative) price has increased, and it increases the quantity demanded of the goods whose (relative) price has fallen.
question
Accounting Profits=
Revenues - Explicit Costs
question
Economic Profits=
Accounting Profits - Implicit Costs
question
Implicit cost
the opportunity costs of the owner's time
and money.
question
Firms raise financial capital in two ways:
debt & equity
question
Production function
relates inputs to outputs. It shows the maximum quantity of output (q) that can be obtained with different input levels. We write the input labor as L, and input capital as K. In general terms, q = f(L,K) Ex: q = 2 L2K -0.5 L3
question
The total quantity of output produced in a certain period of time is also called the _______.
total product
question
The ______ is a period of time during which some of the firm's factors of production are fixed.
short run
question
The output we get per unit of labor is called the __________.
average product of labor
question
By contrast, the _________ of labor refers to the The additional output we get from one more unit of labor.
Marginal Product
-MP is not a fixed number. At low levels, adding workers may allow for specialization, so the Marginal Product may be greater for worker #3 than for #2.
But as more workers are added to a fixed amount of capital, the Marginal Product must fall at some point.
question
Average-Marginal Relationship
In the graph, AP rises whenever MP is above it.
MP > AP means that the additional worker's contribution to
output exceeded the average worker's contribution, so the
average is being "pulled up."
We also see that AP falls whenever MP is below it.
MP < AP means the marginal worker's output is below average, so the average is being "dragged down."
When MP=AP we see that AP is neither rising nor falling.
question
Costs in the Short Run
Total cost= total fixed cost + total variable cost
TC=TFC+TVC
The same is true per unit of output:
Average Total Cost = Average Fixed Cost + Average Variable Cost
ATC=AFC+AVC
question
The level of output where ATC is at its minimum is called the ______ of the firm.
capacity
question
A firm that is producing at an output less than that is said to have ______.
excess capacity
question
In the long run all input levels are variable. There are no more _________ of production.
fixed factors (and no fixed costs)
question
A change in price has two distinct effects: it alters ___1__ & it changes ___2___.
1. relative prices
2. consumers' real income
question
A profit-maximizing firm will choose the ____1___ that produces a given level of output in the _____2___.
1. mix of inputs
2. cheapest way
question
Costs are minimized when the__1___ is equal to ___2___.
1. marginal product of capital per dollar spent on a unit of capital
2. marginal product of labor per dollar spent on a unit of labor.
*equation: MPk/Pk=MPl/Pl or MPk/MPl=Pk/Pl meaning that the relative contributions (to output) of the last units of each input should equal their relative prices.
question
The Principle of Substitution
This condition for cost-minimiszation also says that when the right-hand side changes, then the left-hand side must change too. In response to changing relative factor prices, firms will adjust the quantities of the inputs used.
question
Principle substitution, In response to an increase in the price of machines (pK)...
firms will use fewer machines (less K), which raises MPK, and hire more people (more L), which reduces MPL
question
Short-run cost functions show the lowest cost of producing each level of output when ____.
capital is fixed
question
Long-run cost functions show the lowest cost of producing each level of output when ___.
all inputs can be varied
question
This flexibility means costs are almost always lower in the long run. In other words, long-run average cost (LRAC) will always be lower than short-run average total cost (SRATC), except at one point:
(see graph in notes)
question
A market with many firms, all doing the same thing is
best described by the model of ____.
Perfect Competition
question
Perfect Competition, Assumptions:
-Firms are free to enter the industry
-There are many small firms
-All firms are selling a homogenous project
-The consumers are well-informed
question
The last three assumptions imply that an individual firm has no control over the price of the good. We say such a firm is a _____.
Price-Taker.
question
Selling more output usually changes a firm's revenue. The change in revenue per extra unit of output is called _____.
Marginal Revenue
MR=TR/Q
question
A firm in ____1_____ is a price taker, and the price doesn't change when it sells more output. But for firms that choose their own prices we will see that ___2___
1. perfect competition MR=p
2. MR>p
question
Any profit-maximizing firm will produce the output level (q*) where the last unit's contribution to revenue _1_is the same as its contribution to cost _2_.
1. MR
2. MC
question
In long-run equilibrium, the remaining firms:
-have reached capacity, and are earning zero economic profit.
question
monopolist
the only firm in an industry. It has the
entire demand curve to itself.
ex: the cable company, the local electricity company, makers of new prescription drugs
question
single-price monopolist
charges the same price for all units. When it wants to sell more, it reduces the price on all units.
question
A monopolist chooses both the ___1___ and the ___2__.
1. output level
2. price (highest)
question
We know that in perfectly competitive markets there can't be any __________ in the long run.
positive economic profits
question
But a monopolist can maintain positive economic profits as long as it remains a monopolist, that is, as long as there are ___1___ Some ___1___ are natural. Other __1___are created by law, using patents,
1. entry barriers
question
With large setup costs and increasing returns to scale we have a ________.
Natural monopoly
1 of 42
question
Total utility
the total satisfaction a consumer gets from a certain good.
question
Marginal utility
the additional satisfaction obtained from consuming one more unit of a good.
question
Ceteris paribus
the utility that a consumer derives from an additional unit of a particular product is assumed to diminish as total consumption of the product increases. In other words, we assume diminishing marginal utility
question
Maximizing Utility: Consumers arrange their consumption to maximize total utility. This is achieved when _____.
the marginal utility per dollar is the same for all goods.
question
maximizing utility example: Take lattes (L) and scones (S) again. If you told me that your last latte (which cost \$4) made you 120 units happier, but the last scone (which cost \$2) only made you 20 units happier, then we would have...
120/4= 30 > 20/2= 10 or in equation form MUl/Pl > MUs/Ps
question
If the consumer's utility is maximized, then this condition must hold
MUL/PL = MUS/PS
question
substitution effect
only the response to the change in relative prices. It reduces the quantity demanded of a good whose (relative) price has increased, and it increases the quantity demanded of the goods whose (relative) price has fallen.
question
Accounting Profits=
Revenues - Explicit Costs
question
Economic Profits=
Accounting Profits - Implicit Costs
question
Implicit cost
the opportunity costs of the owner's time
and money.
question
Firms raise financial capital in two ways:
debt & equity
question
Production function
relates inputs to outputs. It shows the maximum quantity of output (q) that can be obtained with different input levels. We write the input labor as L, and input capital as K. In general terms, q = f(L,K) Ex: q = 2 L2K -0.5 L3
question
The total quantity of output produced in a certain period of time is also called the _______.
total product
question
The ______ is a period of time during which some of the firm's factors of production are fixed.
short run
question
The output we get per unit of labor is called the __________.
average product of labor
question
By contrast, the _________ of labor refers to the The additional output we get from one more unit of labor.
Marginal Product
-MP is not a fixed number. At low levels, adding workers may allow for specialization, so the Marginal Product may be greater for worker #3 than for #2.
But as more workers are added to a fixed amount of capital, the Marginal Product must fall at some point.
question
Average-Marginal Relationship
In the graph, AP rises whenever MP is above it.
MP > AP means that the additional worker's contribution to
output exceeded the average worker's contribution, so the
average is being "pulled up."
We also see that AP falls whenever MP is below it.
MP < AP means the marginal worker's output is below average, so the average is being "dragged down."
When MP=AP we see that AP is neither rising nor falling.
question
Costs in the Short Run
Total cost= total fixed cost + total variable cost
TC=TFC+TVC
The same is true per unit of output:
Average Total Cost = Average Fixed Cost + Average Variable Cost
ATC=AFC+AVC
question
The level of output where ATC is at its minimum is called the ______ of the firm.
capacity
question
A firm that is producing at an output less than that is said to have ______.
excess capacity
question
In the long run all input levels are variable. There are no more _________ of production.
fixed factors (and no fixed costs)
question
A change in price has two distinct effects: it alters ___1__ & it changes ___2___.
1. relative prices
2. consumers' real income
question
A profit-maximizing firm will choose the ____1___ that produces a given level of output in the _____2___.
1. mix of inputs
2. cheapest way
question
Costs are minimized when the__1___ is equal to ___2___.
1. marginal product of capital per dollar spent on a unit of capital
2. marginal product of labor per dollar spent on a unit of labor.
*equation: MPk/Pk=MPl/Pl or MPk/MPl=Pk/Pl meaning that the relative contributions (to output) of the last units of each input should equal their relative prices.
question
The Principle of Substitution
This condition for cost-minimiszation also says that when the right-hand side changes, then the left-hand side must change too. In response to changing relative factor prices, firms will adjust the quantities of the inputs used.
question
Principle substitution, In response to an increase in the price of machines (pK)...
firms will use fewer machines (less K), which raises MPK, and hire more people (more L), which reduces MPL
question
Short-run cost functions show the lowest cost of producing each level of output when ____.
capital is fixed
question
Long-run cost functions show the lowest cost of producing each level of output when ___.
all inputs can be varied
question
This flexibility means costs are almost always lower in the long run. In other words, long-run average cost (LRAC) will always be lower than short-run average total cost (SRATC), except at one point:
(see graph in notes)
question
A market with many firms, all doing the same thing is
best described by the model of ____.
Perfect Competition
question
Perfect Competition, Assumptions:
-Firms are free to enter the industry
-There are many small firms
-All firms are selling a homogenous project
-The consumers are well-informed
question
The last three assumptions imply that an individual firm has no control over the price of the good. We say such a firm is a _____.
Price-Taker.
question
Selling more output usually changes a firm's revenue. The change in revenue per extra unit of output is called _____.
Marginal Revenue
MR=TR/Q
question
A firm in ____1_____ is a price taker, and the price doesn't change when it sells more output. But for firms that choose their own prices we will see that ___2___
1. perfect competition MR=p
2. MR>p
question
Any profit-maximizing firm will produce the output level (q*) where the last unit's contribution to revenue _1_is the same as its contribution to cost _2_.
1. MR
2. MC
question
In long-run equilibrium, the remaining firms:
-have reached capacity, and are earning zero economic profit.
question
monopolist
the only firm in an industry. It has the
entire demand curve to itself.
ex: the cable company, the local electricity company, makers of new prescription drugs
question
single-price monopolist
charges the same price for all units. When it wants to sell more, it reduces the price on all units.
question
A monopolist chooses both the ___1___ and the ___2__.
1. output level
2. price (highest)
question
We know that in perfectly competitive markets there can't be any __________ in the long run.
positive economic profits
question
But a monopolist can maintain positive economic profits as long as it remains a monopolist, that is, as long as there are ___1___ Some ___1___ are natural. Other __1___are created by law, using patents,
1. entry barriers
question
With large setup costs and increasing returns to scale we have a ________.
Natural monopoly

## Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
\$26
The price is based on these factors:
Number of pages
Urgency
Basic features
• Free title page and bibliography
• Unlimited revisions
• Plagiarism-free guarantee
• Money-back guarantee
On-demand options
• Writer’s samples
• Part-by-part delivery
• Overnight delivery
• Copies of used sources
Paper format
• 275 words per page
• 12 pt Arial/Times New Roman
• Double line spacing
• Any citation style (APA, MLA, Chicago/Turabian, Harvard)

## Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

### Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

### Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

### Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.