Microeconomic Exam @

question

Economics of Scale:

answer

A feature of the firm's technology that causes the long run average cost to DECREASE

question

Cube Square Rule:

answer

Doubling size does not double cost

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Invisibilities of Capital:

answer

The cost of unused capacity is spread over more units

question

Technological Tradeoffs:

answer

Some technologies are only cost minimizing @ larger quantities

question

Diseconomies of Scale:

answer

A feature of the firm's technology that causes the long run average cost cure to INCREASE

question

Communication Costs:

answer

Arrogating more information from more people is more costly

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Monitoring Costs:

answer

More resources must be used to keep workers on task as more workers are hired

question

Constant Return to Scale:

answer

A feature of the firm's technology that causes the long run average cost to stay the same

question

Cartel:

answer

A group of firm's cooperating together instead of competing

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OPEC:

answer

Organization of Petroleum Exporting Countries

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Marginal Revenue:

answer

The additional revenue earned from producing the next unit of output

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Firm Supply Curve:

answer

The quantity a firm decides to produce @ EVERY price level

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Market Supply Curve:

answer

The summarization of output produced by each firm @ EVERY price level

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Substitutes in Production:

answer

Multiple products can be produced using the SAME INPUT (Substitute 1 product for another... Ketchup or hot sauce on eggs)

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Complements in Production:

answer

The SAME INPUT in the production process produces multiple DIFFERENT products (2 products used together... milk and cookies)

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Equilibrium:

answer

No economic agent has the incentive to change their behavior

question

Economic Agent:

answer

The decision-makers in an economic model (consumers and firms)

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Market Equilibrium:

answer

The quantity demanded= the quantity supplied (Qd=Qs)

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Centeris Paribus:

answer

All equals All

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Endogenous:

answer

Determined INSIDE the model

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Exogeneous:

answer

Determined OUTSIDE the model

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Comparative Statistic:

answer

A comparison between 2 different outcomes in a model BEFOR & AFTER an exogeneous variable has changed

question

Long Run Supply Curve:

answer

The summation of output produced by each firm at every price level at which firms earn 0 proft

question

Constant Cost Industry:

answer

Firms entering and exiting the market DO NOT affect resource prices

question

Increasing Cost Industry:

answer

Firms ENTERING the market INCREASES resources prices, and Firms Exiting the market DECREASES resource Prices

question

Decreasing Cost Industry:

answer

Firms ENTERING the market DECREASES resources prices, and Firms Exiting the market INCREASES resource Prices

question

Inferior Good:

answer

Demand DECREASES when a consumers income rises

question

Normal Good:

answer

Demand INCREASES when consumer income rises

question

Pure Competition Requirements:

answer

· Many Firms
· Firm's sell the same product
· Homogeneous product
· MC=P

question

Monopoly Requirements:

answer

· 1 Firm
· Controls the price of its product
· Homogeneous product

question

Oligopoly Requirements:

answer

· A few firms
· Firms sell the same product
· Cartel

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Monopolistic Competition Requirements:

answer

· Product is differentiated

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Pure Competition Assumptions:

answer

1. Large # of firms
-small minimum efficient scale
-1 firm isn't able to influence price
2. Firms are price takers
-Individual firm
-Relationship to the market
3. Homogeneous product
-Each firm produces the exact same product
4. Perfect Information
-All firms know their cost/price/actions of other firms
5. Free entry and exit
-Large capital Requirements
-Specialized Knowledge
-Government License
6. Goal of Firm-> Maximize Profits

question

Causes for Diseconomics of Scale:

answer

· Communication Costs
· Monitoring Costs

question

Causes for Economics of Scale

answer

· Labor Specialization
· Indivisibilities of K
· Technological Tradeoffs
· Cube Square Rule

question

Profit Maximization Point:

answer

P=MC
MR=MC
P=MR

question

Assumptions In the Long Run:

answer

· Firms can freely enter and exit the market
· Firms have identical cost curves

question

Shut down when

answer

π> TFC IN NEGATIVE PROFIT

question

Determinants of Supply:

answer

· Change in Resource price
· Change in Technology
· Change in the # of firms
· Change in the price of a related good

question

Determinants of Demand:

answer

· Change in consumer income
· Change in price of related good in consumption # of consumers
· Change in Consumer information

question

Firms Earn a Positive Profit In the Long Run->

answer

- Entrepreneurs will start business in industry (firms)
- Supply increases due to firms entering the market
- Equilibrium prices decrease
- Profit decreases
- Firms stop entering market once profit is not (-)

question

Firms have a negative profit in the long run->

answer

- Firms will exit the market
- Supply increases due to firms exiting the market
- Equilibrium prices increase
- Firms stop exiting market after P is no longer (-)

1 of 42

question

Economics of Scale:

answer

A feature of the firm's technology that causes the long run average cost to DECREASE

question

Cube Square Rule:

answer

Doubling size does not double cost

question

Invisibilities of Capital:

answer

The cost of unused capacity is spread over more units

question

Technological Tradeoffs:

answer

Some technologies are only cost minimizing @ larger quantities

question

Diseconomies of Scale:

answer

A feature of the firm's technology that causes the long run average cost cure to INCREASE

question

Communication Costs:

answer

Arrogating more information from more people is more costly

question

Monitoring Costs:

answer

More resources must be used to keep workers on task as more workers are hired

question

Constant Return to Scale:

answer

A feature of the firm's technology that causes the long run average cost to stay the same

question

Cartel:

answer

A group of firm's cooperating together instead of competing

question

OPEC:

answer

Organization of Petroleum Exporting Countries

question

Marginal Revenue:

answer

The additional revenue earned from producing the next unit of output

question

Firm Supply Curve:

answer

The quantity a firm decides to produce @ EVERY price level

question

Market Supply Curve:

answer

The summarization of output produced by each firm @ EVERY price level

question

Substitutes in Production:

answer

Multiple products can be produced using the SAME INPUT (Substitute 1 product for another... Ketchup or hot sauce on eggs)

question

Complements in Production:

answer

The SAME INPUT in the production process produces multiple DIFFERENT products (2 products used together... milk and cookies)

question

Equilibrium:

answer

No economic agent has the incentive to change their behavior

question

Economic Agent:

answer

The decision-makers in an economic model (consumers and firms)

question

Market Equilibrium:

answer

The quantity demanded= the quantity supplied (Qd=Qs)

question

Centeris Paribus:

answer

All equals All

question

Endogenous:

answer

Determined INSIDE the model

question

Exogeneous:

answer

Determined OUTSIDE the model

question

Comparative Statistic:

answer

A comparison between 2 different outcomes in a model BEFOR & AFTER an exogeneous variable has changed

question

Long Run Supply Curve:

answer

The summation of output produced by each firm at every price level at which firms earn 0 proft

question

Constant Cost Industry:

answer

Firms entering and exiting the market DO NOT affect resource prices

question

Increasing Cost Industry:

answer

Firms ENTERING the market INCREASES resources prices, and Firms Exiting the market DECREASES resource Prices

question

Decreasing Cost Industry:

answer

Firms ENTERING the market DECREASES resources prices, and Firms Exiting the market INCREASES resource Prices

question

Inferior Good:

answer

Demand DECREASES when a consumers income rises

question

Normal Good:

answer

Demand INCREASES when consumer income rises

question

Pure Competition Requirements:

answer

· Many Firms
· Firm's sell the same product
· Homogeneous product
· MC=P

question

Monopoly Requirements:

answer

· 1 Firm
· Controls the price of its product
· Homogeneous product

question

Oligopoly Requirements:

answer

· A few firms
· Firms sell the same product
· Cartel

question

Monopolistic Competition Requirements:

answer

· Product is differentiated

question

Pure Competition Assumptions:

answer

question

Causes for Diseconomics of Scale:

answer

· Communication Costs
· Monitoring Costs

question

Causes for Economics of Scale

answer

· Labor Specialization
· Indivisibilities of K
· Technological Tradeoffs
· Cube Square Rule

question

Profit Maximization Point:

answer

P=MC
MR=MC
P=MR

question

Assumptions In the Long Run:

answer

· Firms can freely enter and exit the market
· Firms have identical cost curves

question

Shut down when

answer

π> TFC IN NEGATIVE PROFIT

question

Determinants of Supply:

answer

· Change in Resource price
· Change in Technology
· Change in the # of firms
· Change in the price of a related good

question

Determinants of Demand:

answer

· Change in consumer income
· Change in price of related good in consumption # of consumers
· Change in Consumer information

question

Firms Earn a Positive Profit In the Long Run->

answer

question

Firms have a negative profit in the long run->

answer

- Firms will exit the market
- Supply increases due to firms exiting the market
- Equilibrium prices increase
- Firms stop exiting market after P is no longer (-)

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