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# MICRO ECON EXAM 3

question
The equilibrium rent on office space has just increased by \$500/month. Determine the effects on accounting profit and economic profit if you rent your office space
Both the accounting and economic profits would fall when renting your office space.
question
The equilibrium rent on office space has just increased by \$500/month. Determine the effects on accounting profit and economic profit if you own your office space
The economic profit would fall when owning your own office space due to implicit costs
question
What is the most competitive market structure
Perfect competition
question
Profit =
Total Revenue (TR) - Total Cost (TC)
question
Total revenue
the amount a firm receives from the sale of its output
question
Total cost
The market value of the inputs a firm uses in production
question
Explicit costs
require an outlay of money
ex. paying wages to workers
question
implicit costs
do not require a cash outlay,
e.g., the opportunity cost of the owner's time.
question
accounting profit
total revenue minus total explicit cost
question
economic profit
total revenue minus total cost, including both explicit and implicit costs
question
Which profit is bigger economic or accounting
Accounting profit ignores implicit costs, so its higher than economic profit
question
production function
the relationship between quantity of inputs used to make a good and the quantity of output of that good
question
Examples of production function
Farmer Jack grows wheat.
He has 5 acres of land.
He can hire as many workers as he wants.
question
marginal product
the increase in output arising from an additional unit of that input, holding all other inputs constant
question
marginal product of labor
change in output / change in labor
question
Why is MPL important?
Rational people think at the margin
question
diminishing marginal product
the marginal product of an input declines as the quantity of the input increases
question
marginal cost
the increase in total cost that arises from an extra unit of production
question
marginal cost formula
MC = change in total cost / change in quantity
question
Fixed costs (FC)
Do not vary with the quantity of output produced

Ex. Equipment, loans, rent
question
Variable costs (VC)
vary with the quantity produced
ex: cost of materials
question
Total cost (TC) =
FC + VC
question
When MC < ATC
ATC is falling
question
When MC > ATC
ATC is rising
question
The MC curve crosses the ATC curve at
the ATC curve's minimum
question
Costs in the Short Run
Some inputs are fixed (e.g., factories, land). The costs of these inputs are FC.
question
Costs in the Long Run
all inputs are variable (firms can build more factories or sell existing ones)
question
economics of scale
ATC falls as Q increases
question
Constant returns to scale
ATC stays the same as Q increases
question
Diseconomics of Scale
ATC rises as Q increases
1 of 30
question
The equilibrium rent on office space has just increased by \$500/month. Determine the effects on accounting profit and economic profit if you rent your office space
Both the accounting and economic profits would fall when renting your office space.
question
The equilibrium rent on office space has just increased by \$500/month. Determine the effects on accounting profit and economic profit if you own your office space
The economic profit would fall when owning your own office space due to implicit costs
question
What is the most competitive market structure
Perfect competition
question
Profit =
Total Revenue (TR) - Total Cost (TC)
question
Total revenue
the amount a firm receives from the sale of its output
question
Total cost
The market value of the inputs a firm uses in production
question
Explicit costs
require an outlay of money
ex. paying wages to workers
question
implicit costs
do not require a cash outlay,
e.g., the opportunity cost of the owner's time.
question
accounting profit
total revenue minus total explicit cost
question
economic profit
total revenue minus total cost, including both explicit and implicit costs
question
Which profit is bigger economic or accounting
Accounting profit ignores implicit costs, so its higher than economic profit
question
production function
the relationship between quantity of inputs used to make a good and the quantity of output of that good
question
Examples of production function
Farmer Jack grows wheat.
He has 5 acres of land.
He can hire as many workers as he wants.
question
marginal product
the increase in output arising from an additional unit of that input, holding all other inputs constant
question
marginal product of labor
change in output / change in labor
question
Why is MPL important?
Rational people think at the margin
question
diminishing marginal product
the marginal product of an input declines as the quantity of the input increases
question
marginal cost
the increase in total cost that arises from an extra unit of production
question
marginal cost formula
MC = change in total cost / change in quantity
question
Fixed costs (FC)
Do not vary with the quantity of output produced

Ex. Equipment, loans, rent
question
Variable costs (VC)
vary with the quantity produced
ex: cost of materials
question
Total cost (TC) =
FC + VC
question
When MC < ATC
ATC is falling
question
When MC > ATC
ATC is rising
question
The MC curve crosses the ATC curve at
the ATC curve's minimum
question
Costs in the Short Run
Some inputs are fixed (e.g., factories, land). The costs of these inputs are FC.
question
Costs in the Long Run
all inputs are variable (firms can build more factories or sell existing ones)
question
economics of scale
ATC falls as Q increases
question
Constant returns to scale
ATC stays the same as Q increases
question
Diseconomics of Scale
ATC rises as Q increases

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