Micro Midterm 2 (Ch 13-18)

question

explicit costs

answer

costs that require an outlay of money by the firm

question

implicit costs

answer

costs that do not require an outlay of money by the firm

question

fixed costs (FC)

answer

costs that do not vary with the quantity of output produced

question

variable costs (VC)

answer

costs that vary with the quantity of output produced

question

total cost (TC= FC + VC)

answer

the market value of all the inputs that a firm uses in production

question

average fixed cost (AFC= FC/Q)

answer

fixed cost divided by the quantity of output

question

average variable cost (AVC= VC/Q)

answer

variable cost divided by the quantity of output

question

average total cost (ATC= TC/Q)

answer

total cost divided by the quantity of output

question

marginal cost (MC= △TC/△Q)

answer

the increase in total cost the arises from an extra unit of production

question

total revenue (TR= P x Q)

answer

the amount a firm receives for the sale of its output

question

profit

answer

total revenue minus total cost

question

economic profit

answer

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

question

accounting profit

answer

total revenue minus total explicit cost

question

production function

answer

the relationship between the quantity of inputs used to make a good and the quantity off output of that good

question

marginal product

answer

the increase in output that arises from an additional unit of input

question

diminishing marginal product

answer

the property whereby the marginal product of an input declines as the quantity of the input increases

question

efficient scale

answer

the quantity of output that minimized average total cost

question

relationship between marginal cost and average total cost

answer

-whenever marginal cost is less that average total cost, average total cost is falling
-whenever marginal cost is greater than average total cost, average total cost is rising
-the marginal cost curve crosses the average total cost curve at its minimum

question

cost curve properties

answer

1. marginal cost eventually rises with the quantity of output
2. the average total cost curve is U-shaped
3. the marginal cost curve crosses the average total cost curve at the minimum of average total cost

question

economies of scale

answer

the property whereby long-run average total cost falls as the quantity of output increases

question

diseconomies of scale

answer

the property whereby long-run average cost rises as the quantity of output increases

question

constant returns to scale

answer

the property whereby long-run average total cost stays the same as the quantity of output changes

question

competitive market

answer

a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker

question

price takers

answer

buyers and sellers must accept the price the market determines

question

average revenue (AR= TR/Q)

answer

total revenue divided by the quantity sold

question

average revenue equals....

answer

the price of the good

question

marginal revenue (MR= △TR/△Q)

answer

the change in total revenue from an additional unit sold

question

change in profit

answer

MR-MC

question

rules for profit maximization

answer

-if marginal revenue is greater than marginal cost, the firm should increase its output
-if marginal cost is greater than marginal revenue, the firm should decrease its output
-at the profit maximizing level of output, marginal revenue and marginal cost are exactly equal

question

When should a firm shut down in the short run?

answer

if the revenue that it would earn from producing is less than its variable costs of production (TR < VC) or (P < AVC)

question

sunk cost

answer

a cost that has already been committed and cannot be recovered

question

When should a firm exit the market in the long run?

answer

if the revenue it would get from producing is less than its total cost (TR < TC) or (P < ATC)

question

another way to write profit

answer

Profit = (P-ATC) x Q

question

firms after entry and exit that remain in the market should be....

answer

making zero economic profit

question

when does the process of entry and exit end?

answer

when price and average total cost are driven to equality

question

monopoly

answer

a firm that is the sole seller of a product without any close substitutes

question

Barriers to entry in a monopoly

answer

-monopoly resources
-government regulation
-the production process

question

natural monopoly

answer

a type of monopoly that arises because a single firm can supply a good or services to an entire market at a lower cost than could two or more firms

question

a monopolist's marginal revenue is.....

answer

less than the price of its good

question

Two effects on total revenue when a monopoly increases the amount it sells

answer

1. the output effect
2. the price effect

question

the output effect

answer

more output is sold, so Q is higher, which tends to increase total revenue

question

the price effect

answer

the price falls, so P is lower, which tends to decrease total revenue

question

a monopolist's profit maximizing quantity of out is determined by......

answer

the intersection of the marginal revenue curve and the marginal cost curve

question

price discrimination

answer

the business practice of selling the same good at different prices to different customers

question

how can the government respond to the problem of monopolies?

answer

-by trying to make monopolized industries more competitive
-by regulating the behavior of the monopolies
-by turning some private monopolies into public enterprises
-by doing nothing

question

oligopoly

answer

a market structure in which only a few sellers offer similar or identical products

question

monopolistic competition

answer

a market structure in which many firms sell products that are similar but not identical

question

attributes of a monopolistic competition

answer

-many sellers
-product differentiation
-free entry and exit

question

four types of market structure

answer

-perfect competition
-monopoly
-monopolistic competition
-oligopoly

question

characteristics of a monopolistically competitive market in the long run

answer

-price exceeds marginal cost
-price equals average total cost

question

entry externalities under monopolistic competition

answer

-the product variety externality (positive)
-the business stealing externality (negative)

question

game theory

answer

the study of how people behave in strategic situations

question

collusion

answer

an agreement among firms in a market about quantities to produce or prices to change

question

cartel

answer

a group of firms acting in unison

question

nash equilibrium

answer

a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen

question

two effects an oligopolists must consider

answer

-the output effect
-the price effect

question

prisoners' dilemma

answer

a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial

question

dominant strategy

answer

a strategy that is best for a player in a game regardless of the strategies chosen by the other players

question

factors of production

answer

land, labor, capital

question

assumptions about a competitive profit maximizing firm

answer

-competitive as a buyer and seller
-profit-maximizing

question

marginal product of labor (MPL= △Q/△L)

answer

the increase in the amount of output from an additional unit of labor

question

value of the marginal product (VMPL= P x MPL)

answer

the marginal product of an input times the price of the output

question

a competitive profit maximizing firm hires workers......

answer

up to the point at which the value of the marginal product of labor equals the wage

question

the value of marginal product curve is....

answer

the labor demand curve for a competitive profit maximizing firm

question

how are wages determined in competitive labor markets?

answer

-the wage adjusts to balance the supply and demand for labor
-the wage equals the value of the marginal product of labor

question

capital

answer

the equipment and structures used to produce goods and services

1 of 66

question

explicit costs

answer

costs that require an outlay of money by the firm

question

implicit costs

answer

costs that do not require an outlay of money by the firm

question

fixed costs (FC)

answer

costs that do not vary with the quantity of output produced

question

variable costs (VC)

answer

costs that vary with the quantity of output produced

question

total cost (TC= FC + VC)

answer

the market value of all the inputs that a firm uses in production

question

average fixed cost (AFC= FC/Q)

answer

fixed cost divided by the quantity of output

question

average variable cost (AVC= VC/Q)

answer

variable cost divided by the quantity of output

question

average total cost (ATC= TC/Q)

answer

total cost divided by the quantity of output

question

marginal cost (MC= △TC/△Q)

answer

the increase in total cost the arises from an extra unit of production

question

total revenue (TR= P x Q)

answer

the amount a firm receives for the sale of its output

question

profit

answer

total revenue minus total cost

question

economic profit

answer

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

question

accounting profit

answer

total revenue minus total explicit cost

question

production function

answer

the relationship between the quantity of inputs used to make a good and the quantity off output of that good

question

marginal product

answer

the increase in output that arises from an additional unit of input

question

diminishing marginal product

answer

the property whereby the marginal product of an input declines as the quantity of the input increases

question

efficient scale

answer

the quantity of output that minimized average total cost

question

relationship between marginal cost and average total cost

answer

question

cost curve properties

answer

question

economies of scale

answer

the property whereby long-run average total cost falls as the quantity of output increases

question

diseconomies of scale

answer

the property whereby long-run average cost rises as the quantity of output increases

question

constant returns to scale

answer

the property whereby long-run average total cost stays the same as the quantity of output changes

question

competitive market

answer

a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker

question

price takers

answer

buyers and sellers must accept the price the market determines

question

average revenue (AR= TR/Q)

answer

total revenue divided by the quantity sold

question

average revenue equals....

answer

the price of the good

question

marginal revenue (MR= △TR/△Q)

answer

the change in total revenue from an additional unit sold

question

change in profit

answer

MR-MC

question

rules for profit maximization

answer

question

When should a firm shut down in the short run?

answer

if the revenue that it would earn from producing is less than its variable costs of production (TR < VC) or (P < AVC)

question

sunk cost

answer

a cost that has already been committed and cannot be recovered

question

When should a firm exit the market in the long run?

answer

if the revenue it would get from producing is less than its total cost (TR < TC) or (P < ATC)

question

another way to write profit

answer

Profit = (P-ATC) x Q

question

firms after entry and exit that remain in the market should be....

answer

making zero economic profit

question

when does the process of entry and exit end?

answer

when price and average total cost are driven to equality

question

monopoly

answer

a firm that is the sole seller of a product without any close substitutes

question

Barriers to entry in a monopoly

answer

-monopoly resources
-government regulation
-the production process

question

natural monopoly

answer

a type of monopoly that arises because a single firm can supply a good or services to an entire market at a lower cost than could two or more firms

question

a monopolist's marginal revenue is.....

answer

less than the price of its good

question

Two effects on total revenue when a monopoly increases the amount it sells

answer

1. the output effect
2. the price effect

question

the output effect

answer

more output is sold, so Q is higher, which tends to increase total revenue

question

the price effect

answer

the price falls, so P is lower, which tends to decrease total revenue

question

a monopolist's profit maximizing quantity of out is determined by......

answer

the intersection of the marginal revenue curve and the marginal cost curve

question

price discrimination

answer

the business practice of selling the same good at different prices to different customers

question

how can the government respond to the problem of monopolies?

answer

-by trying to make monopolized industries more competitive
-by regulating the behavior of the monopolies
-by turning some private monopolies into public enterprises
-by doing nothing

question

oligopoly

answer

a market structure in which only a few sellers offer similar or identical products

question

monopolistic competition

answer

a market structure in which many firms sell products that are similar but not identical

question

attributes of a monopolistic competition

answer

-many sellers
-product differentiation
-free entry and exit

question

four types of market structure

answer

-perfect competition
-monopoly
-monopolistic competition
-oligopoly

question

characteristics of a monopolistically competitive market in the long run

answer

-price exceeds marginal cost
-price equals average total cost

question

entry externalities under monopolistic competition

answer

-the product variety externality (positive)
-the business stealing externality (negative)

question

game theory

answer

the study of how people behave in strategic situations

question

collusion

answer

an agreement among firms in a market about quantities to produce or prices to change

question

cartel

answer

a group of firms acting in unison

question

nash equilibrium

answer

a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen

question

two effects an oligopolists must consider

answer

-the output effect
-the price effect

question

prisoners' dilemma

answer

a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial

question

dominant strategy

answer

a strategy that is best for a player in a game regardless of the strategies chosen by the other players

question

factors of production

answer

land, labor, capital

question

assumptions about a competitive profit maximizing firm

answer

-competitive as a buyer and seller
-profit-maximizing

question

marginal product of labor (MPL= △Q/△L)

answer

the increase in the amount of output from an additional unit of labor

question

value of the marginal product (VMPL= P x MPL)

answer

the marginal product of an input times the price of the output

question

a competitive profit maximizing firm hires workers......

answer

up to the point at which the value of the marginal product of labor equals the wage

question

the value of marginal product curve is....

answer

the labor demand curve for a competitive profit maximizing firm

question

how are wages determined in competitive labor markets?

answer

-the wage adjusts to balance the supply and demand for labor
-the wage equals the value of the marginal product of labor

question

capital

answer

the equipment and structures used to produce goods and services

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Micro Midterm 2 (Ch 13-18)

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