Econ 300 Exam 2 - Custom Scholars
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# Econ 300 Exam 2

question
1. The firm produces a single good
2. The firm has already chosen which product to produce
3. The firm's goal is to minimize the cost of producing it
4. The firm uses only capital and labor to make its product
5. In the short run, a firm can only choose labor; In the long run, the firm can freely choose both labor and capital it employs
6. The more inputs the firm uses, the more output it makes
7. Diminishing marginal returns to labor and capital
8. The firm can buy as many capital or labor inputs as it wants at fixed market prices
9. If there is a well functioning capital market, the firm does not have a budget constraint
question
Short Run
The period of time during which one or more inputs into production cannot be changed (firms can only alter labor)
question
Fixed Inputs
Inputs that cannot be changed in the short run
question
Variable Inputs
Inputs that can be changed in the short run
question
Long Run
The amount of time necessary for all inputs into production to be fully adjustable (firms can alter both labor and capital)
question
Production Function
a mathematical relationship that describes how much output can be made from different combos of inputs
question
Cobb-Douglas production function
Q = KaLb
question
Marginal Product
The additional output that a firm can produce by using an additional unit of an input
question
Average Product
APl = Q/L
question
Diminishing Marginal Product
The reduction in the incremental output obtained from adding more and more labor
question
Cost minimization
A firms goal of producing a specific quantity of output at minimum cost
question
Isoquants
The curves representing all combos of inputs that allow a firm to make a particular quantity of output
question
Marginal Rate of Technical Substitution (MRTSxy)
The rate at which the firm can trade input X for input Y, holding output constant
question
Negative Slope of the Isoquant
The marginal rate of technical substitution of labor L for capital K
question
Perfect Substitute in Production
Straight Line
question
Perfect Complement in Production
L shaped
question
What happens as labor becomes more expensive
The isoquant line becomes steeper
question
What happens as you move farther from the origin
The isoquant lines represent higher total expenditure
question
Constant Returns to Scale
A production function for which changing the amount of capital and labor by some multiple changes the quantity of output by exactly the same multiple
question
Increasing Returns to Scale
A production function for which changing all inputs by the same proportion changes output more than proportionately
question
Decreasing Returns to Scale
A production function for which adjusting all inputs by the same multiple changes output by less than that multiple
question
Total Factor productivity growth (technological change)
An improvement in technology that changes the firms production function such that it gets more output from the same amount of inputs
question
Economic Cost
The sum of a producers accounting and opportunity costs
question
Accounting Cost
The direct costs of operating a business, including costs for raw materials, wages paid to workers, rent paid for office or retail space, and the like
question
Opportunity Cost
The value of what a producer gives up by using an input
question
Economic Profit
A firms total revenue minus its economic cost
question
Accounting Profit
A firms total revenue minus its accounting cost
question
Fixed Cost
An input cost that does not vary with amount of output
question
Sunk Cost
A cost that, once paid, cannot be reversed
question
Variable Cost
The cost of inputs that change as the firm changes its quantity of output
question
The Demand Curve in a perfectly competitive market
Perfectly elastic at the market equilibrium price
question
Profit
The difference between a firms revenue and its total cost
question
Marginal Revenue
The additional revenue from selling one additional unit of output (change in TR/ Change in Q)
question
In a perfectly competitive market marginal revenue at market price
MR=P
question
Profit maximizing level
MR=MC
question
Operate or Shut down (short run)
Operate if TR >= VC
Shut down if TR < VC
question
Producer Surplus
TR-VC
question
Long-run competitive equilibrium
The point at which the market price is equal to the minimum average total cost and the firms would gain no profits
question
Adjustments between Long run equilibrium (Demand Increase)
Price increases first and then back down while the new equilibrium quantity rises
question
Adjustments between Long run equilibrium (Cost decrease)
quantity increases and prices decrease throughout the transition from the high-cost to the low-cist long run equilibrium
question
Market Power
The ability to influence the market price of its products
question
Barriers to entry
Factors that keep entrants out of a market despite the existence of a large producer surplus
question
Natural Monopoly
A market in which it is efficient for a single firm to produce the entire industry output
question
Switching Costs
customers must give something up to switch to a competing product, this will tend to generate market power for the incumbent and make entry difficult
question
Network Good
A good whose value to each consumer increases with the number of other consumers of the product
question
Oligopoly
Market Structure characterized by competition among a small number of firms
question
Monopolistic Competition
A type of imperfect competition where a large number of firms have some market power, but each makes zero economic profit in the long run
question
Marginal Revenue Equation
MR = P + (Change P/Change Q) * Q
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question
1. The firm produces a single good
2. The firm has already chosen which product to produce
3. The firm's goal is to minimize the cost of producing it
4. The firm uses only capital and labor to make its product
5. In the short run, a firm can only choose labor; In the long run, the firm can freely choose both labor and capital it employs
6. The more inputs the firm uses, the more output it makes
7. Diminishing marginal returns to labor and capital
8. The firm can buy as many capital or labor inputs as it wants at fixed market prices
9. If there is a well functioning capital market, the firm does not have a budget constraint
question
Short Run
The period of time during which one or more inputs into production cannot be changed (firms can only alter labor)
question
Fixed Inputs
Inputs that cannot be changed in the short run
question
Variable Inputs
Inputs that can be changed in the short run
question
Long Run
The amount of time necessary for all inputs into production to be fully adjustable (firms can alter both labor and capital)
question
Production Function
a mathematical relationship that describes how much output can be made from different combos of inputs
question
Cobb-Douglas production function
Q = KaLb
question
Marginal Product
The additional output that a firm can produce by using an additional unit of an input
question
Average Product
APl = Q/L
question
Diminishing Marginal Product
The reduction in the incremental output obtained from adding more and more labor
question
Cost minimization
A firms goal of producing a specific quantity of output at minimum cost
question
Isoquants
The curves representing all combos of inputs that allow a firm to make a particular quantity of output
question
Marginal Rate of Technical Substitution (MRTSxy)
The rate at which the firm can trade input X for input Y, holding output constant
question
Negative Slope of the Isoquant
The marginal rate of technical substitution of labor L for capital K
question
Perfect Substitute in Production
Straight Line
question
Perfect Complement in Production
L shaped
question
What happens as labor becomes more expensive
The isoquant line becomes steeper
question
What happens as you move farther from the origin
The isoquant lines represent higher total expenditure
question
Constant Returns to Scale
A production function for which changing the amount of capital and labor by some multiple changes the quantity of output by exactly the same multiple
question
Increasing Returns to Scale
A production function for which changing all inputs by the same proportion changes output more than proportionately
question
Decreasing Returns to Scale
A production function for which adjusting all inputs by the same multiple changes output by less than that multiple
question
Total Factor productivity growth (technological change)
An improvement in technology that changes the firms production function such that it gets more output from the same amount of inputs
question
Economic Cost
The sum of a producers accounting and opportunity costs
question
Accounting Cost
The direct costs of operating a business, including costs for raw materials, wages paid to workers, rent paid for office or retail space, and the like
question
Opportunity Cost
The value of what a producer gives up by using an input
question
Economic Profit
A firms total revenue minus its economic cost
question
Accounting Profit
A firms total revenue minus its accounting cost
question
Fixed Cost
An input cost that does not vary with amount of output
question
Sunk Cost
A cost that, once paid, cannot be reversed
question
Variable Cost
The cost of inputs that change as the firm changes its quantity of output
question
The Demand Curve in a perfectly competitive market
Perfectly elastic at the market equilibrium price
question
Profit
The difference between a firms revenue and its total cost
question
Marginal Revenue
The additional revenue from selling one additional unit of output (change in TR/ Change in Q)
question
In a perfectly competitive market marginal revenue at market price
MR=P
question
Profit maximizing level
MR=MC
question
Operate or Shut down (short run)
Operate if TR >= VC
Shut down if TR < VC
question
Producer Surplus
TR-VC
question
Long-run competitive equilibrium
The point at which the market price is equal to the minimum average total cost and the firms would gain no profits
question
Adjustments between Long run equilibrium (Demand Increase)
Price increases first and then back down while the new equilibrium quantity rises
question
Adjustments between Long run equilibrium (Cost decrease)
quantity increases and prices decrease throughout the transition from the high-cost to the low-cist long run equilibrium
question
Market Power
The ability to influence the market price of its products
question
Barriers to entry
Factors that keep entrants out of a market despite the existence of a large producer surplus
question
Natural Monopoly
A market in which it is efficient for a single firm to produce the entire industry output
question
Switching Costs
customers must give something up to switch to a competing product, this will tend to generate market power for the incumbent and make entry difficult
question
Network Good
A good whose value to each consumer increases with the number of other consumers of the product
question
Oligopoly
Market Structure characterized by competition among a small number of firms
question
Monopolistic Competition
A type of imperfect competition where a large number of firms have some market power, but each makes zero economic profit in the long run
question
Marginal Revenue Equation
MR = P + (Change P/Change Q) * Q

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