Micro Midterm 2 (Ch 13-18) - Custom Scholars
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# Micro Midterm 2 (Ch 13-18)

question
explicit costs
costs that require an outlay of money by the firm
question
implicit costs
costs that do not require an outlay of money by the firm
question
fixed costs (FC)
costs that do not vary with the quantity of output produced
question
variable costs (VC)
costs that vary with the quantity of output produced
question
total cost (TC= FC + VC)
the market value of all the inputs that a firm uses in production
question
average fixed cost (AFC= FC/Q)
fixed cost divided by the quantity of output
question
average variable cost (AVC= VC/Q)
variable cost divided by the quantity of output
question
average total cost (ATC= TC/Q)
total cost divided by the quantity of output
question
marginal cost (MC= △TC/△Q)
the increase in total cost the arises from an extra unit of production
question
total revenue (TR= P x Q)
the amount a firm receives for the sale of its output
question
profit
total revenue minus total cost
question
economic profit
total revenue minus total cost, including both explicit and implicit costs
question
accounting profit
total revenue minus total explicit cost
question
production function
the relationship between the quantity of inputs used to make a good and the quantity off output of that good
question
marginal product
the increase in output that arises from an additional unit of input
question
diminishing marginal product
the property whereby the marginal product of an input declines as the quantity of the input increases
question
efficient scale
the quantity of output that minimized average total cost
question
relationship between marginal cost and average total cost
-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
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
the property whereby long-run average total cost falls as the quantity of output increases
question
diseconomies of scale
the property whereby long-run average cost rises as the quantity of output increases
question
constant returns to scale
the property whereby long-run average total cost stays the same as the quantity of output changes
question
competitive market
a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker
question
price takers
buyers and sellers must accept the price the market determines
question
average revenue (AR= TR/Q)
total revenue divided by the quantity sold
question
average revenue equals....
the price of the good
question
marginal revenue (MR= △TR/△Q)
the change in total revenue from an additional unit sold
question
change in profit
MR-MC
question
rules for profit maximization
-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?
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
a cost that has already been committed and cannot be recovered
question
When should a firm exit the market in the long run?
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
Profit = (P-ATC) x Q
question
firms after entry and exit that remain in the market should be....
making zero economic profit
question
when does the process of entry and exit end?
when price and average total cost are driven to equality
question
monopoly
a firm that is the sole seller of a product without any close substitutes
question
Barriers to entry in a monopoly
-monopoly resources
-government regulation
-the production process
question
natural monopoly
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.....
less than the price of its good
question
Two effects on total revenue when a monopoly increases the amount it sells
1. the output effect
2. the price effect
question
the output effect
more output is sold, so Q is higher, which tends to increase total revenue
question
the price effect
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......
the intersection of the marginal revenue curve and the marginal cost curve
question
price discrimination
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?
-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
a market structure in which only a few sellers offer similar or identical products
question
monopolistic competition
a market structure in which many firms sell products that are similar but not identical
question
attributes of a monopolistic competition
-many sellers
-product differentiation
-free entry and exit
question
four types of market structure
-perfect competition
-monopoly
-monopolistic competition
-oligopoly
question
characteristics of a monopolistically competitive market in the long run
-price exceeds marginal cost
-price equals average total cost
question
entry externalities under monopolistic competition
-the product variety externality (positive)
-the business stealing externality (negative)
question
game theory
the study of how people behave in strategic situations
question
collusion
an agreement among firms in a market about quantities to produce or prices to change
question
cartel
a group of firms acting in unison
question
nash equilibrium
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
-the output effect
-the price effect
question
prisoners' dilemma
a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial
question
dominant strategy
a strategy that is best for a player in a game regardless of the strategies chosen by the other players
question
factors of production
land, labor, capital
question
assumptions about a competitive profit maximizing firm
-competitive as a buyer and seller
-profit-maximizing
question
marginal product of labor (MPL= △Q/△L)
the increase in the amount of output from an additional unit of labor
question
value of the marginal product (VMPL= P x MPL)
the marginal product of an input times the price of the output
question
a competitive profit maximizing firm hires workers......
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....
the labor demand curve for a competitive profit maximizing firm
question
how are wages determined in competitive labor markets?
-the wage adjusts to balance the supply and demand for labor
-the wage equals the value of the marginal product of labor
question
capital
the equipment and structures used to produce goods and services
1 of 66
question
explicit costs
costs that require an outlay of money by the firm
question
implicit costs
costs that do not require an outlay of money by the firm
question
fixed costs (FC)
costs that do not vary with the quantity of output produced
question
variable costs (VC)
costs that vary with the quantity of output produced
question
total cost (TC= FC + VC)
the market value of all the inputs that a firm uses in production
question
average fixed cost (AFC= FC/Q)
fixed cost divided by the quantity of output
question
average variable cost (AVC= VC/Q)
variable cost divided by the quantity of output
question
average total cost (ATC= TC/Q)
total cost divided by the quantity of output
question
marginal cost (MC= △TC/△Q)
the increase in total cost the arises from an extra unit of production
question
total revenue (TR= P x Q)
the amount a firm receives for the sale of its output
question
profit
total revenue minus total cost
question
economic profit
total revenue minus total cost, including both explicit and implicit costs
question
accounting profit
total revenue minus total explicit cost
question
production function
the relationship between the quantity of inputs used to make a good and the quantity off output of that good
question
marginal product
the increase in output that arises from an additional unit of input
question
diminishing marginal product
the property whereby the marginal product of an input declines as the quantity of the input increases
question
efficient scale
the quantity of output that minimized average total cost
question
relationship between marginal cost and average total cost
-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
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
the property whereby long-run average total cost falls as the quantity of output increases
question
diseconomies of scale
the property whereby long-run average cost rises as the quantity of output increases
question
constant returns to scale
the property whereby long-run average total cost stays the same as the quantity of output changes
question
competitive market
a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker
question
price takers
buyers and sellers must accept the price the market determines
question
average revenue (AR= TR/Q)
total revenue divided by the quantity sold
question
average revenue equals....
the price of the good
question
marginal revenue (MR= △TR/△Q)
the change in total revenue from an additional unit sold
question
change in profit
MR-MC
question
rules for profit maximization
-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?
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
a cost that has already been committed and cannot be recovered
question
When should a firm exit the market in the long run?
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
Profit = (P-ATC) x Q
question
firms after entry and exit that remain in the market should be....
making zero economic profit
question
when does the process of entry and exit end?
when price and average total cost are driven to equality
question
monopoly
a firm that is the sole seller of a product without any close substitutes
question
Barriers to entry in a monopoly
-monopoly resources
-government regulation
-the production process
question
natural monopoly
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.....
less than the price of its good
question
Two effects on total revenue when a monopoly increases the amount it sells
1. the output effect
2. the price effect
question
the output effect
more output is sold, so Q is higher, which tends to increase total revenue
question
the price effect
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......
the intersection of the marginal revenue curve and the marginal cost curve
question
price discrimination
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?
-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
a market structure in which only a few sellers offer similar or identical products
question
monopolistic competition
a market structure in which many firms sell products that are similar but not identical
question
attributes of a monopolistic competition
-many sellers
-product differentiation
-free entry and exit
question
four types of market structure
-perfect competition
-monopoly
-monopolistic competition
-oligopoly
question
characteristics of a monopolistically competitive market in the long run
-price exceeds marginal cost
-price equals average total cost
question
entry externalities under monopolistic competition
-the product variety externality (positive)
-the business stealing externality (negative)
question
game theory
the study of how people behave in strategic situations
question
collusion
an agreement among firms in a market about quantities to produce or prices to change
question
cartel
a group of firms acting in unison
question
nash equilibrium
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
-the output effect
-the price effect
question
prisoners' dilemma
a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial
question
dominant strategy
a strategy that is best for a player in a game regardless of the strategies chosen by the other players
question
factors of production
land, labor, capital
question
assumptions about a competitive profit maximizing firm
-competitive as a buyer and seller
-profit-maximizing
question
marginal product of labor (MPL= △Q/△L)
the increase in the amount of output from an additional unit of labor
question
value of the marginal product (VMPL= P x MPL)
the marginal product of an input times the price of the output
question
a competitive profit maximizing firm hires workers......
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....
the labor demand curve for a competitive profit maximizing firm
question
how are wages determined in competitive labor markets?
-the wage adjusts to balance the supply and demand for labor
-the wage equals the value of the marginal product of labor
question
capital
the equipment and structures used to produce goods and services

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