Econ-E201 Exam 3

question

Economic Profit

answer

is equal to total revenue minus total cost, with total cost measured as the opportunity cost of production.
(TR-TC=?)

question

Implicit Rental Rate

answer

the firm's opportunity cost of using the capital it owns

question

Economic Depreciation

answer

the fall in the market value of a firm's capital over a given period.

question

Normal profit

answer

the profit an entrepreneur earns on average

question

technology

answer

any method of producing a good or service.
Includes: the detailed designs of machines and the layout of the workplace.

question

Technological efficiency

answer

occurs when the firm produces a given output by using the least amount of inputs.

question

Economic efficiency

answer

occurs when the firm produces a given output at the least cost.

question

command system

answer

a method of organizing production that uses a managerial hierarchy.
ex. the military

question

incentive system

answer

a method of organizing production that uses a market-like mechanism inside the firm.
ex. sales team

question

principal-agent problem

answer

the problem of devising compensation rules that induce an agent (manage) to act in the best interest of a principal (stock holder).

question

transaction costs

answer

the costs that arise from finding someone with whom to do business, of reaching an agreement about the price and other aspects of the exchange, and of ensuring that the terms of the agreement are fulfilled.

question

economies of scale

answer

when the cost of producing a unit of a good falls as it output increases

question

economies of scope

answer

when a firm uses specialized resources to produce a range of goods and services

question

long run

answer

a time frame in which the quantities of all factors of production can be varied.

question

total product

answer

the maximum output that a given quantity of labor can produce.

question

marginal product

answer

the increase in total product that results form a one-unit increase in the quantity of labor employed, with all the other inputs remaining the same.

question

average product

answer

equal to total product divided by the quantity of labor employed.
?=TP/Labor

question

diminishing marginal returns

answer

this occurs when the marginal product of an additional worker is less than the marginal product of the previous worker.

question

total cost (TC)

answer

the cost of all the factors of production the firm uses.

question

total fixed cost (TFC)

answer

the cost of the firm's fixed factors.

question

total variable cost (TVC)

answer

the cost of the firm's variable factors.

question

marginal cost

answer

the increase in total cost that results from a one-unit increase in output

question

long run average cost curve

answer

the relationship between the lowest attainable average total cost and output when the firm can change both the plant it uses and the quantity of labor it employs.

question

economies of scale

answer

features of a firm's technology that make average total cost fall as output increases. When present the LRAC curve slopes downward.

question

diseconomies of scale

answer

features of a firm's technology that make average total cost rise as output increases. When present the LRAC curve slopes upward.

question

minimum efficient scale

answer

the smalles output at which long run average cost reaches its lowest level

question

economic loss

answer

? = TFC + (AVC - P) * Q

question

external economies

answer

factors beyond the control of an individual firm that lower the firm's costs as the market output increases.

question

external diseconomies

answer

factors outside the control of the firm that raise the firm's costs as the market output increases.

question

single price monopoly

answer

a firm that must sell each unit of its output for the same price to all its customers.

question

price discrimination

answer

when a firm sells different units of a good or service for different prices.

question

economic rent

answer

any surplus - consumer surplus, producer surplus, or economic profit.

question

rent seeking

answer

the pursuit of wealth by capturing economic rent

question

perfect price discrimination

answer

occurs if a firm is able to sell each unit of output for the highest price anyone is willing to pay for it.

question

regulation

answer

rules administered by a government agency to influence prices, quantities, entry, and other aspects of economic activity in a firm or industry

question

deregulation

answer

the process of removing regulation of prices, quantities, entry, and other aspects of economic activity in a firm or industry

question

social interest theory

answer

political and regulatory process relentlessly seeks out inefficiency and introduces regulation that eliminates deadweight loss and allocates resources efficiently.

question

capture theory

answer

regulation serves the self interest of the producer, who captures the regulator and maximizes economic profit.

question

marginal cost pricing rule

answer

regulations that set a natural monopoly's price and marginal cost.

question

average cost pricing rule

answer

sets a monopoly's price equal to average total cost.

question

rate of return regulation

answer

a firm must justify its price by showing that its return on capital doesn't exceed a specified target rate.

question

price cap regulation

answer

a price ceiling - a rule that specifies the highest price the firm is permitted to set.

1 of 42

question

Economic Profit

answer

is equal to total revenue minus total cost, with total cost measured as the opportunity cost of production.
(TR-TC=?)

question

Implicit Rental Rate

answer

the firm's opportunity cost of using the capital it owns

question

Economic Depreciation

answer

the fall in the market value of a firm's capital over a given period.

question

Normal profit

answer

the profit an entrepreneur earns on average

question

technology

answer

any method of producing a good or service.
Includes: the detailed designs of machines and the layout of the workplace.

question

Technological efficiency

answer

occurs when the firm produces a given output by using the least amount of inputs.

question

Economic efficiency

answer

occurs when the firm produces a given output at the least cost.

question

command system

answer

a method of organizing production that uses a managerial hierarchy.
ex. the military

question

incentive system

answer

a method of organizing production that uses a market-like mechanism inside the firm.
ex. sales team

question

principal-agent problem

answer

the problem of devising compensation rules that induce an agent (manage) to act in the best interest of a principal (stock holder).

question

transaction costs

answer

question

economies of scale

answer

when the cost of producing a unit of a good falls as it output increases

question

economies of scope

answer

when a firm uses specialized resources to produce a range of goods and services

question

long run

answer

a time frame in which the quantities of all factors of production can be varied.

question

total product

answer

the maximum output that a given quantity of labor can produce.

question

marginal product

answer

the increase in total product that results form a one-unit increase in the quantity of labor employed, with all the other inputs remaining the same.

question

average product

answer

equal to total product divided by the quantity of labor employed.
?=TP/Labor

question

diminishing marginal returns

answer

this occurs when the marginal product of an additional worker is less than the marginal product of the previous worker.

question

total cost (TC)

answer

the cost of all the factors of production the firm uses.

question

total fixed cost (TFC)

answer

the cost of the firm's fixed factors.

question

total variable cost (TVC)

answer

the cost of the firm's variable factors.

question

marginal cost

answer

the increase in total cost that results from a one-unit increase in output

question

long run average cost curve

answer

the relationship between the lowest attainable average total cost and output when the firm can change both the plant it uses and the quantity of labor it employs.

question

economies of scale

answer

features of a firm's technology that make average total cost fall as output increases. When present the LRAC curve slopes downward.

question

diseconomies of scale

answer

features of a firm's technology that make average total cost rise as output increases. When present the LRAC curve slopes upward.

question

minimum efficient scale

answer

the smalles output at which long run average cost reaches its lowest level

question

economic loss

answer

? = TFC + (AVC - P) * Q

question

external economies

answer

factors beyond the control of an individual firm that lower the firm's costs as the market output increases.

question

external diseconomies

answer

factors outside the control of the firm that raise the firm's costs as the market output increases.

question

single price monopoly

answer

a firm that must sell each unit of its output for the same price to all its customers.

question

price discrimination

answer

when a firm sells different units of a good or service for different prices.

question

economic rent

answer

any surplus - consumer surplus, producer surplus, or economic profit.

question

rent seeking

answer

the pursuit of wealth by capturing economic rent

question

perfect price discrimination

answer

occurs if a firm is able to sell each unit of output for the highest price anyone is willing to pay for it.

question

regulation

answer

rules administered by a government agency to influence prices, quantities, entry, and other aspects of economic activity in a firm or industry

question

deregulation

answer

the process of removing regulation of prices, quantities, entry, and other aspects of economic activity in a firm or industry

question

social interest theory

answer

political and regulatory process relentlessly seeks out inefficiency and introduces regulation that eliminates deadweight loss and allocates resources efficiently.

question

capture theory

answer

regulation serves the self interest of the producer, who captures the regulator and maximizes economic profit.

question

marginal cost pricing rule

answer

regulations that set a natural monopoly's price and marginal cost.

question

average cost pricing rule

answer

sets a monopoly's price equal to average total cost.

question

rate of return regulation

answer

a firm must justify its price by showing that its return on capital doesn't exceed a specified target rate.

question

price cap regulation

answer

a price ceiling - a rule that specifies the highest price the firm is permitted to set.

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Econ-E201 Exam 3

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