managerial econ exam 2

Q: cross-price elasticity

= %ΔQ/%ΔP - complements + substitutes 0 unrelated goods

Q: income elasticity

= %ΔQ/%Δm + normal - inferior

question

price elasticity of demand (E)

answer

the percentage in quantity demanded, divided by the percentage change in price
E is always negative because P and Q are inversely related

question

point elasticity

answer

a measurement of demand elasticity calculated at a point on a demand curve rather than over an interval

question

interval (arc) elasticity

answer

price elasticity calculated over an interval of a demand curve
E = ΔQ/ΔP x Avg. P/Avg. Q

question

elastic

answer

|E| < -1

question

inelastic

answer

-1 < |E| < 0

question

unitary elastic

answer

|E| = -1

question

cross-price elasticity

answer

= %ΔQ/%ΔP
- complements
+ substitutes
0 unrelated goods

question

income elasticity

answer

= %ΔQ/%Δm
+ normal
- inferior

question

production function

answer

Q = f(L, K)

question

fixed-proportions production function

answer

inputs -> perfect complements

question

variable-proportions production function

answer

inputs -> substitutes

question

marginal revenue (mr)

answer

=ΔTR/ΔQ
the additional to total revenue attributable to selling one additional unit of output

question

average product of labor (APL)

answer

= Q/L

question

marginal product of labor (MPL)

answer

=ΔQ/ΔL

question

technical efficiency

answer

producing the maximum output for any given combination of inputs and existing technology
getting the most outputs from our inputs

question

economic efficiency

answer

producing a given level of output at the lowest possible total cost
having the best mix of inputs

question

total fixed cost (TFC)

answer

= r * K
the total amount paid for fixed inputs
total fixed cost does not vary with output

question

total variable cost (TVC)

answer

= w * L
the amount paid for variable inputs
total variable cost increases with increases in output

question

total cost (TC)

answer

total cost increases with increases in output
= TFC + TVC

question

average fixed cost (AFC)

answer

= TFC/Q

question

average variable cost (AVC)

answer

= TVC/Q = w/APL

question

average total cost (ATC)

answer

= TC/Q = AFC+AVC

question

marginal cost (MC)

answer

= w/MPL

question

marginal rate of technical substitution (MRTS)

answer

the rate at which one output is substituted for another along an isoquant
MRTS = -ΔK/ΔL = MPL/MPK

question

isoquant

answer

a CURVE showing all possible combination of inputs physically capable of producing a given fixed level of output

question

isocost

answer

LINES that show the various combinations of inputs that may be purchased for a given level of expenditure at given input prices

question

cost-minimizing point (tangent)

answer

-MPL/MPK = -w/r
------>
MPL/w = MPK/r

question

long-run average cost (LAC)

answer

= LTC/Q

question

long-run marginal cost (LMC)

answer

= ΔLTC/ΔQ

question

economies of scale

answer

occurs when LAC falls as output increases

question

diseconomies of scale

answer

occurs when LAC rises as input increases

question

economies of scope

answer

exists when the join cost of producing two or more goods is less than the sum of the separate costs of producing the goods

question

downsizing

answer

"restructuring"
permanently lays off a sizable fraction of their work force
eliminating low MPL positions
efficient, cut waste

question

dumbsizing

answer

making across-the-board cuts in their labor force that don't deliver the cost savings needed
occurs when a manager lays off the wrong workers or too many workers
eliminating jobs to save $ without consideration of MPL

question

perfect competition

answer

homogeneous (fills the same purpose) products ex. dish soap
no barriers to entry/exit
lots of firms: no firm is large enough to affect market price

question

entropy

answer

lack of order or predictability
disorder of things and how it affects outputs

1 of 36

question

price elasticity of demand (E)

answer

the percentage in quantity demanded, divided by the percentage change in price
E is always negative because P and Q are inversely related

question

point elasticity

answer

a measurement of demand elasticity calculated at a point on a demand curve rather than over an interval

question

interval (arc) elasticity

answer

price elasticity calculated over an interval of a demand curve
E = ΔQ/ΔP x Avg. P/Avg. Q

question

elastic

answer

|E| < -1

question

inelastic

answer

-1 < |E| < 0

question

unitary elastic

answer

|E| = -1

question

cross-price elasticity

answer

= %ΔQ/%ΔP
- complements
+ substitutes
0 unrelated goods

question

income elasticity

answer

= %ΔQ/%Δm
+ normal
- inferior

question

production function

answer

Q = f(L, K)

question

fixed-proportions production function

answer

inputs -> perfect complements

question

variable-proportions production function

answer

inputs -> substitutes

question

marginal revenue (mr)

answer

=ΔTR/ΔQ
the additional to total revenue attributable to selling one additional unit of output

question

average product of labor (APL)

answer

= Q/L

question

marginal product of labor (MPL)

answer

=ΔQ/ΔL

question

technical efficiency

answer

producing the maximum output for any given combination of inputs and existing technology
getting the most outputs from our inputs

question

economic efficiency

answer

producing a given level of output at the lowest possible total cost
having the best mix of inputs

question

total fixed cost (TFC)

answer

= r * K
the total amount paid for fixed inputs
total fixed cost does not vary with output

question

total variable cost (TVC)

answer

= w * L
the amount paid for variable inputs
total variable cost increases with increases in output

question

total cost (TC)

answer

total cost increases with increases in output
= TFC + TVC

question

average fixed cost (AFC)

answer

= TFC/Q

question

average variable cost (AVC)

answer

= TVC/Q = w/APL

question

average total cost (ATC)

answer

= TC/Q = AFC+AVC

question

marginal cost (MC)

answer

= w/MPL

question

marginal rate of technical substitution (MRTS)

answer

the rate at which one output is substituted for another along an isoquant
MRTS = -ΔK/ΔL = MPL/MPK

question

isoquant

answer

a CURVE showing all possible combination of inputs physically capable of producing a given fixed level of output

question

isocost

answer

LINES that show the various combinations of inputs that may be purchased for a given level of expenditure at given input prices

question

cost-minimizing point (tangent)

answer

-MPL/MPK = -w/r
------>
MPL/w = MPK/r

question

long-run average cost (LAC)

answer

= LTC/Q

question

long-run marginal cost (LMC)

answer

= ΔLTC/ΔQ

question

economies of scale

answer

occurs when LAC falls as output increases

question

diseconomies of scale

answer

occurs when LAC rises as input increases

question

economies of scope

answer

exists when the join cost of producing two or more goods is less than the sum of the separate costs of producing the goods

question

downsizing

answer

"restructuring"
permanently lays off a sizable fraction of their work force
eliminating low MPL positions
efficient, cut waste

question

dumbsizing

answer

question

perfect competition

answer

homogeneous (fills the same purpose) products ex. dish soap
no barriers to entry/exit
lots of firms: no firm is large enough to affect market price

question

entropy

answer

lack of order or predictability
disorder of things and how it affects outputs

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managerial econ exam 2

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