ECON 312 CQ3 Review - Custom Scholars
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# ECON 312 CQ3 Review

question
explicit costs
direct, out-of-pocket payments for inputs to its production process within a given period
question
implicit costs
costs that reflect a forgone opportunity rather than an explicit expenditure
question
economic cost
the value of all resources used to produce a good or service; opportunity cost (implicit costs + explicit costs)
question
opportunity cost
the most desirable alternative given up as the result of a decision
question
sunk cost
a past expenditure that cannot be recovered
question
fixed cost (F)
a cost that doesn't vary with the level of output (eg. expenditures on land or production facilities)
question
variable cost (VC)
cost that varies with the quantity produced
question
Cost/Total Cost (C or TC)
the sum of a firm's variable cost and fixed cost (C = VC + F)
question
Marginal Cost (MC)
the amount by which a firm's cost changes if it produces one more unit of output
question
dC/dq
Marginal Cost equation
question
Average Fixed Cost (AFC)
total fixed costs divided by quantity of output
question
F/q
AFC equation
question
Average Variable Cost (AVC)
total variable costs divided by quantity of output
question
VC/q
AVC equation
question
Average Cost (AC or ATC)
the total cost divided by units of output produced
question
C/q or AVC + AFC
AC equations
question
C = wL + rK
Cost identity function
question
MC = MR or p = MC
how to find cost minimizing inputs (competition)
question
MPL/MPK = w/r
how to find optimal amount of inputs (when given a production function, w and r)
question
capital (K)
which input is constant in the short run but not in the long run?
question
F = 0 (C = VC)
what are fixed costs equal to in the long run?
question
0
what is profit equal to in the long run (competition)
question
isocost line
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)
equation for isocost line
question
expansion path
the cost minimizing combination of labor and capital for each output level
question
K as a function of L (K(L))
how is the function of the expansion path written?
question
long-run average curve
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
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
properties of perfect competition
question
residual demand curve
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
equation for residual demand curve
question
Q = nq
market supply equation (competition)
question
economic profit
total revenue minus total cost, including both explicit and implicit costs
question
d𝜋/dq
marginal profit equation
question
when marginal profit = 0 (d𝜋/dq = 0)
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
Output Rules
question
Marginal Revenue (MR)
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
shutdown rules
question
R < VC
or
p < AVC
shutdown rule 2 conditions
question
flatter; more elastic
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
what happens in a competitive market where firms are making a profit?
question
firms exit the market, S decreases, p increases
what happens in a competitive market when firms are making a loss
question
increasing-cost market
a market in which input prices rise with output
question
constant-cost market
a market in which input prices remain constant as output increases
question
residual supply curve
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
equation for residual supply curve
question
find C(q)
how to find the LR cost function
question
economies of scale
in this, as q increases, ATC decreases
question
diseconomies of scale
in this, as q increases, ATC increases
question
U-shaped
how are long run cost curves shaped?
1 of 50
question
explicit costs
direct, out-of-pocket payments for inputs to its production process within a given period
question
implicit costs
costs that reflect a forgone opportunity rather than an explicit expenditure
question
economic cost
the value of all resources used to produce a good or service; opportunity cost (implicit costs + explicit costs)
question
opportunity cost
the most desirable alternative given up as the result of a decision
question
sunk cost
a past expenditure that cannot be recovered
question
fixed cost (F)
a cost that doesn't vary with the level of output (eg. expenditures on land or production facilities)
question
variable cost (VC)
cost that varies with the quantity produced
question
Cost/Total Cost (C or TC)
the sum of a firm's variable cost and fixed cost (C = VC + F)
question
Marginal Cost (MC)
the amount by which a firm's cost changes if it produces one more unit of output
question
dC/dq
Marginal Cost equation
question
Average Fixed Cost (AFC)
total fixed costs divided by quantity of output
question
F/q
AFC equation
question
Average Variable Cost (AVC)
total variable costs divided by quantity of output
question
VC/q
AVC equation
question
Average Cost (AC or ATC)
the total cost divided by units of output produced
question
C/q or AVC + AFC
AC equations
question
C = wL + rK
Cost identity function
question
MC = MR or p = MC
how to find cost minimizing inputs (competition)
question
MPL/MPK = w/r
how to find optimal amount of inputs (when given a production function, w and r)
question
capital (K)
which input is constant in the short run but not in the long run?
question
F = 0 (C = VC)
what are fixed costs equal to in the long run?
question
0
what is profit equal to in the long run (competition)
question
isocost line
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)
equation for isocost line
question
expansion path
the cost minimizing combination of labor and capital for each output level
question
K as a function of L (K(L))
how is the function of the expansion path written?
question
long-run average curve
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
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
properties of perfect competition
question
residual demand curve
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
equation for residual demand curve
question
Q = nq
market supply equation (competition)
question
economic profit
total revenue minus total cost, including both explicit and implicit costs
question
d𝜋/dq
marginal profit equation
question
when marginal profit = 0 (d𝜋/dq = 0)
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
Output Rules
question
Marginal Revenue (MR)
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
shutdown rules
question
R < VC
or
p < AVC
shutdown rule 2 conditions
question
flatter; more elastic
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
what happens in a competitive market where firms are making a profit?
question
firms exit the market, S decreases, p increases
what happens in a competitive market when firms are making a loss
question
increasing-cost market
a market in which input prices rise with output
question
constant-cost market
a market in which input prices remain constant as output increases
question
residual supply curve
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
equation for residual supply curve
question
find C(q)
how to find the LR cost function
question
economies of scale
in this, as q increases, ATC decreases
question
diseconomies of scale
in this, as q increases, ATC increases
question
U-shaped
how are long run cost curves shaped?

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