midterm 3

question

Technology

answer

the process a firm uses to turn inputs into outputs

question

positive technological change

answer

the ability to produce more output using the same inputs or the same output using fewer inputs

question

negative technological

answer

using the same inputs, output declines

question

short run

answer

the period of time in which at least one input is fixed
-factory, store, or office fixed in SR
-labor (# of workers) is variable

question

long run

answer

the period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant

question

variable costs

answer

costs that change as output changes

Total Cost = Fixed Cost + Variable Cost

question

fixed costs

answer

costs that remain constant as output changes

question

explicit cost

answer

cost that involves spending money

question

implicit cost

answer

non monetary opportunity cost

is the opportunity cost equal to what a firm must give up in order to use a factor of production for which it already owns and thus does not pay rent

question

economic depreciation

answer

the difference between what you pay for capital (ex. a car) at the beginning of the year and what you would receive if you feel it at the end of the year

question

marginal product of labor (MPL)

answer

the additional output a firm produces as a result of hiring one more worker

question

law of diminishing returns

answer

adding more of a variable input (labor) to the same amount of a fixed input (ovens) will cause the marginal product of the variable input to decline

question

average product of labor

answer

the total output produced by a firm divided by the quantity of workers (APL = Q/L)

average of marginal products of labor (MPL)

question

average total cost (ATC)
average fixed cost (AFC)
average variable cost (AVC)

answer

TC/Q
FC/Q
VC/Q

ATC = AFC + AVC

question

marginal cost

answer

the change in a firms total cost from producing one more unit

MC = change in TC / change in Q

question

long-run average cost curve

answer

shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed

question

minimum efficient scale

answer

the lowest level of output at which all economies of scale are exhausted

question

diseconomies of scale

answer

LRAC increases as we increase Q

the firm gets too large to be managed effectively

question

constant returns to scale

answer

LRAC remains unchanged as we increase Q

question

economies of scale

answer

LRAC decreases as we increase Q

question

why a firm experiences economies of scale?

answer

1. firm's technology
2. workers can become more specialized
3. able to purchase inputs at lower prices
4. able to borrow money at lower interest rate

question

market structure

answer

how firms interact with buyers to sell their output

question

perfectly competitive market

answer

there are many firms and the product is identical, so a firm cannot influence the price (price takers)

a perfectly competitive firm faces a horizontal demand

question

How a Firm Maximizes Profit in a Perfectly Competitive Market

answer

Profit = Total Revenue - Total Cost

TR = P * Q

Average Revenue = TR/Q = PQ/Q = P

question

Marginal Revenue

answer

additional revenue from selling one more unit (Q)

MR = change in TR / change in Q = P
P = MR = Average Revenue

question

Profit Maximizing Level of Output

answer

choose Q where MR = MC
(or MR > MC if equal is not possible)

at profit maximization level of output is vertical distance is the longest

question

rules for profit maximization

answer

- If MR > MC, firm should increase output
- If MC > MR, firm should decrease output
- If MR = MC, profit-maximizing level of output

question

perfect competition

answer

1. many firms (horizontal demand curve for the individual firm)
2. identical product (^^^^^)
3. no barrier to entry (zero long run economic profit)

MR = P and MR = MC
so... P = MC

question

Profit: (P-ATC) * Q

(P-ATC) - height
Q - width

answer

P > ATC --- profits positive
P = ATC --- profits 0
P < ATC --- profits negative

question

monopolistic competition

answer

product is NOT identical

each firm that has the ability to affect the price will have a MR curve below its demand

question

profits in the long run

answer

1. SR positive economic profits
more firms enter the market
2. demand
shift left bc fewer coffees sold at each price
more elastic bc consumers have more substitutes

(up to the point where demand touches ATC)

question

excess capacity

answer

if the firm increases at its output, the firm could produce at a lower ATC

question

what makes a firm successful?

answer

1. differentiate its products
2. produce at a lower average cost
|
|
|
1. factors beyond a firms control
2. value created relative to competitors
3. chance events
|
|
|
PROFITABILITY

1 of 33

question

Technology

answer

the process a firm uses to turn inputs into outputs

question

positive technological change

answer

the ability to produce more output using the same inputs or the same output using fewer inputs

question

negative technological

answer

using the same inputs, output declines

question

short run

answer

the period of time in which at least one input is fixed
-factory, store, or office fixed in SR
-labor (# of workers) is variable

question

long run

answer

the period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant

question

variable costs

answer

costs that change as output changes

Total Cost = Fixed Cost + Variable Cost

question

fixed costs

answer

costs that remain constant as output changes

question

explicit cost

answer

cost that involves spending money

question

implicit cost

answer

non monetary opportunity cost

is the opportunity cost equal to what a firm must give up in order to use a factor of production for which it already owns and thus does not pay rent

question

economic depreciation

answer

the difference between what you pay for capital (ex. a car) at the beginning of the year and what you would receive if you feel it at the end of the year

question

marginal product of labor (MPL)

answer

the additional output a firm produces as a result of hiring one more worker

question

law of diminishing returns

answer

adding more of a variable input (labor) to the same amount of a fixed input (ovens) will cause the marginal product of the variable input to decline

question

average product of labor

answer

the total output produced by a firm divided by the quantity of workers (APL = Q/L)

average of marginal products of labor (MPL)

question

average total cost (ATC)
average fixed cost (AFC)
average variable cost (AVC)

answer

TC/Q
FC/Q
VC/Q

ATC = AFC + AVC

question

marginal cost

answer

the change in a firms total cost from producing one more unit

MC = change in TC / change in Q

question

long-run average cost curve

answer

shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed

question

minimum efficient scale

answer

the lowest level of output at which all economies of scale are exhausted

question

diseconomies of scale

answer

LRAC increases as we increase Q

the firm gets too large to be managed effectively

question

constant returns to scale

answer

LRAC remains unchanged as we increase Q

question

economies of scale

answer

LRAC decreases as we increase Q

question

why a firm experiences economies of scale?

answer

1. firm's technology
2. workers can become more specialized
3. able to purchase inputs at lower prices
4. able to borrow money at lower interest rate

question

market structure

answer

how firms interact with buyers to sell their output

question

perfectly competitive market

answer

there are many firms and the product is identical, so a firm cannot influence the price (price takers)

a perfectly competitive firm faces a horizontal demand

question

How a Firm Maximizes Profit in a Perfectly Competitive Market

answer

Profit = Total Revenue - Total Cost

TR = P * Q

Average Revenue = TR/Q = PQ/Q = P

question

Marginal Revenue

answer

additional revenue from selling one more unit (Q)

MR = change in TR / change in Q = P
P = MR = Average Revenue

question

Profit Maximizing Level of Output

answer

choose Q where MR = MC
(or MR > MC if equal is not possible)

at profit maximization level of output is vertical distance is the longest

question

rules for profit maximization

answer

- If MR > MC, firm should increase output
- If MC > MR, firm should decrease output
- If MR = MC, profit-maximizing level of output

question

perfect competition

answer

1. many firms (horizontal demand curve for the individual firm)
2. identical product (^^^^^)
3. no barrier to entry (zero long run economic profit)

MR = P and MR = MC
so... P = MC

question

Profit: (P-ATC) * Q

(P-ATC) - height
Q - width

answer

P > ATC --- profits positive
P = ATC --- profits 0
P < ATC --- profits negative

question

monopolistic competition

answer

product is NOT identical

each firm that has the ability to affect the price will have a MR curve below its demand

question

profits in the long run

answer

question

excess capacity

answer

if the firm increases at its output, the firm could produce at a lower ATC

question

what makes a firm successful?

answer

1. differentiate its products
2. produce at a lower average cost
|
|
|
1. factors beyond a firms control
2. value created relative to competitors
3. chance events
|
|
|
PROFITABILITY

Continue to order Get a quote

midterm 3

Recent Posts

Recent Comments

Calculate the price of your order

Our guarantees

Money-back guarantee

Zero-plagiarism guarantee

Free-revision policy

Privacy policy

Fair-cooperation guarantee