ECON 312 CQ3 Review

question

explicit costs

answer

direct, out-of-pocket payments for inputs to its production process within a given period

question

implicit costs

answer

costs that reflect a forgone opportunity rather than an explicit expenditure

question

economic cost

answer

the value of all resources used to produce a good or service; opportunity cost (implicit costs + explicit costs)

question

opportunity cost

answer

the most desirable alternative given up as the result of a decision

question

sunk cost

answer

a past expenditure that cannot be recovered

question

fixed cost (F)

answer

a cost that doesn't vary with the level of output (eg. expenditures on land or production facilities)

question

variable cost (VC)

answer

cost that varies with the quantity produced

question

Cost/Total Cost (C or TC)

answer

the sum of a firm's variable cost and fixed cost (C = VC + F)

question

Marginal Cost (MC)

answer

the amount by which a firm's cost changes if it produces one more unit of output

question

dC/dq

answer

Marginal Cost equation

question

Average Fixed Cost (AFC)

answer

total fixed costs divided by quantity of output

question

F/q

answer

AFC equation

question

Average Variable Cost (AVC)

answer

total variable costs divided by quantity of output

question

VC/q

answer

AVC equation

question

Average Cost (AC or ATC)

answer

the total cost divided by units of output produced

question

C/q or AVC + AFC

answer

AC equations

question

C = wL + rK

answer

Cost identity function

question

MC = MR or p = MC

answer

how to find cost minimizing inputs (competition)

question

MPL/MPK = w/r

answer

how to find optimal amount of inputs (when given a production function, w and r)

question

capital (K)

answer

which input is constant in the short run but not in the long run?

question

F = 0 (C = VC)

answer

what are fixed costs equal to in the long run?

question

answer

what is profit equal to in the long run (competition)

question

isocost line

answer

combinations of labor and capital plotted here, which indicates all the combination of inputs that require the same (iso) total expenditure (cost)

question

Cost identity (C = wL + rK)

answer

equation for isocost line

question

expansion path

answer

the cost minimizing combination of labor and capital for each output level

question

K as a function of L (K(L))

answer

how is the function of the expansion path written?

question

long-run average curve

answer

a curve that shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed

question

perfect competition

answer

a market structure in which buyers and sellers are price takers

question

-firms are price takers
-horizontal demand curve (D=p=MC)
-large number of firms and consumers
-identical products
-full information
-negligible transaction costs
-free entry/exit

answer

properties of perfect competition

question

residual demand curve

answer

the market demand that is not met by other sellers at any given price

question

Dr(p) = D(p) - So(p)

Residual Demand = Market Demand - Supply of other firms

answer

equation for residual demand curve

question

Q = nq

answer

market supply equation (competition)

question

economic profit

answer

total revenue minus total cost, including both explicit and implicit costs

question

d𝜋/dq

answer

marginal profit equation

question

when marginal profit = 0 (d𝜋/dq = 0)

answer

when is profit maximized?

question

1) the firm sets its output where its profit is maximized
2) the firm sets its output where its marginal profit is zero
3) a firm sets its output where MC = MR

answer

Output Rules

question

Marginal Revenue (MR)

answer

the change in revenue a firm gains from selling one more unit of output (dR/dq)

question

1) a firm shuts down only if it can reduce its loss by doing so
2) a firm shuts down only if its revenue is less than its avoidable cost

answer

shutdown rules

question

R < VC
or
p < AVC

answer

shutdown rule 2 conditions

question

flatter; more elastic

answer

the more identical firms producing at a given price, the ______ the short-run market supply curve at that price

question

firms enter the market, S increases, p decreases

answer

what happens in a competitive market where firms are making a profit?

question

firms exit the market, S decreases, p increases

answer

what happens in a competitive market when firms are making a loss

question

increasing-cost market

answer

a market in which input prices rise with output

question

constant-cost market

answer

a market in which input prices remain constant as output increases

question

residual supply curve

answer

the quantity that the market supplies that is not consumed by other demanders at any given price

question

Sr(p) = S(p) - Do(p)

Residual Supply = Market Supply -Demand of other firms

answer

equation for residual supply curve

question

find C(q)

answer

how to find the LR cost function

question

economies of scale

answer

in this, as q increases, ATC decreases

question

diseconomies of scale

answer

in this, as q increases, ATC increases

question

U-shaped

answer

how are long run cost curves shaped?

1 of 50

question

explicit costs

answer

direct, out-of-pocket payments for inputs to its production process within a given period

question

implicit costs

answer

costs that reflect a forgone opportunity rather than an explicit expenditure

question

economic cost

answer

the value of all resources used to produce a good or service; opportunity cost (implicit costs + explicit costs)

question

opportunity cost

answer

the most desirable alternative given up as the result of a decision

question

sunk cost

answer

a past expenditure that cannot be recovered

question

fixed cost (F)

answer

a cost that doesn't vary with the level of output (eg. expenditures on land or production facilities)

question

variable cost (VC)

answer

cost that varies with the quantity produced

question

Cost/Total Cost (C or TC)

answer

the sum of a firm's variable cost and fixed cost (C = VC + F)

question

Marginal Cost (MC)

answer

the amount by which a firm's cost changes if it produces one more unit of output

question

dC/dq

answer

Marginal Cost equation

question

Average Fixed Cost (AFC)

answer

total fixed costs divided by quantity of output

question

F/q

answer

AFC equation

question

Average Variable Cost (AVC)

answer

total variable costs divided by quantity of output

question

VC/q

answer

AVC equation

question

Average Cost (AC or ATC)

answer

the total cost divided by units of output produced

question

C/q or AVC + AFC

answer

AC equations

question

C = wL + rK

answer

Cost identity function

question

MC = MR or p = MC

answer

how to find cost minimizing inputs (competition)

question

MPL/MPK = w/r

answer

how to find optimal amount of inputs (when given a production function, w and r)

question

capital (K)

answer

which input is constant in the short run but not in the long run?

question

F = 0 (C = VC)

answer

what are fixed costs equal to in the long run?

question

answer

what is profit equal to in the long run (competition)

question

isocost line

answer

combinations of labor and capital plotted here, which indicates all the combination of inputs that require the same (iso) total expenditure (cost)

question

Cost identity (C = wL + rK)

answer

equation for isocost line

question

expansion path

answer

the cost minimizing combination of labor and capital for each output level

question

K as a function of L (K(L))

answer

how is the function of the expansion path written?

question

long-run average curve

answer

a curve that shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed

question

perfect competition

answer

a market structure in which buyers and sellers are price takers

question

-firms are price takers
-horizontal demand curve (D=p=MC)
-large number of firms and consumers
-identical products
-full information
-negligible transaction costs
-free entry/exit

answer

properties of perfect competition

question

residual demand curve

answer

the market demand that is not met by other sellers at any given price

question

Dr(p) = D(p) - So(p)

Residual Demand = Market Demand - Supply of other firms

answer

equation for residual demand curve

question

Q = nq

answer

market supply equation (competition)

question

economic profit

answer

total revenue minus total cost, including both explicit and implicit costs

question

d𝜋/dq

answer

marginal profit equation

question

when marginal profit = 0 (d𝜋/dq = 0)

answer

when is profit maximized?

question

1) the firm sets its output where its profit is maximized
2) the firm sets its output where its marginal profit is zero
3) a firm sets its output where MC = MR

answer

Output Rules

question

Marginal Revenue (MR)

answer

the change in revenue a firm gains from selling one more unit of output (dR/dq)

question

1) a firm shuts down only if it can reduce its loss by doing so
2) a firm shuts down only if its revenue is less than its avoidable cost

answer

shutdown rules

question

R < VC
or
p < AVC

answer

shutdown rule 2 conditions

question

flatter; more elastic

answer

the more identical firms producing at a given price, the ______ the short-run market supply curve at that price

question

firms enter the market, S increases, p decreases

answer

what happens in a competitive market where firms are making a profit?

question

firms exit the market, S decreases, p increases

answer

what happens in a competitive market when firms are making a loss

question

increasing-cost market

answer

a market in which input prices rise with output

question

constant-cost market

answer

a market in which input prices remain constant as output increases

question

residual supply curve

answer

the quantity that the market supplies that is not consumed by other demanders at any given price

question

Sr(p) = S(p) - Do(p)

Residual Supply = Market Supply -Demand of other firms

answer

equation for residual supply curve

question

find C(q)

answer

how to find the LR cost function

question

economies of scale

answer

in this, as q increases, ATC decreases

question

diseconomies of scale

answer

in this, as q increases, ATC increases

question

U-shaped

answer

how are long run cost curves shaped?

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