Unit 3 Econ test - Custom Scholars
Home » Flash Cards » Unit 3 Econ test

# Unit 3 Econ test

question
Law of Diminishing Marginal Returns
As variable resources (workers) are added to fixed resources (machinery, tool, etc.), the additional output produced from each new worker will eventually fall.
question
law of diminishing marginal utility
the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time
question
total physical product
the total output of goods or services produced
question
marginal product

the additional output generated by adding inputs (workers) (change in TP/change in inputs)

question
average product
output per unit of input (total product/units of labor)
question
Graphs

stage 1: increasing marginal returns (marginal and total product are increasing at an increasing rate)

stage 2: decreasing marginal returns (marginal product is falling and total product is decreasing at a decreasing rate)

stage 3: negative marginal returns (marginal product is negative ann total product is decreasing)

question
Short run
at least one input is fixed
question
Long run
all inputs are variable
question
Average fixed cost
fixed cost / quantity of output
question
fixed costs
costs that remain constant as output changes
question
variable costs
costs for variable resources that do change with the amount produced (ex: raw materials, labor)
question
average variable cost
variable cost/quantity of output
question
total cost
fixed costs plus variable costs
question
average total cost
total cost divided by the quantity of output
question
marginal cost
the cost of producing one more unit of a good
question
cost curves
ATC (average total cost), AFC (average fixed costs), AVC (average variable costs), MC (marginal cost)
question
Why is the MC curve U-shaped?
The MC curve falls and then rises because of diminishing marginal returns
question
Relationship between Production and Cost:
as more workers are hired, their marginal product increases and then eventually decreases because of the law of marginal returns. The additional costs (MC) of the units they produce fall when MP goes up, but eventually increase as additional workers produce less and less output. MP and MC are mirror images of each other.
question
Why does ATC go down then up?

when the MC is below the average, it pulls the average down but when the MC is above the average, it pulls the average up. MC intersects the ATC curve at ATC’s lowest point.

question
economies of scale
factors that cause a producer's average cost per unit to fall as output rises; can result from increasing returns to scale
question
increasing returns of scale
when long-run average total cost declines as output increases
question
diseconomies of scale
the situation in which a firm's long-run average costs rise as the firm increases output
question
decreasing returns to scale
when long-run average total cost increases as 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
Profit
total revenue minus total cost
question
accounting profit
total revenue - explicit costs
question
economic profit
total revenue - explicit costs - implicit costs (opportunity cost) Usually less than accounting profit due to taking into account opportunity cost (firm is experiencing a loss when economic profit is negative)
question
profit maximization
MR=MC
question
TR>AVC
firm stays open
question
TR<AVC
firm shuts down
question
perfect competition charactersitics

Many small firms

Low barrier entry

Identical products

Price takers- have to take the price set by the market

question
Why a perfect competitor is a price taker?

Each individual firm takes the price set by the market so the demand for the firm is perfectly elastic... Means that it is MR-D-AR-P

Perfectly Competitive firms are price takers because they have no control over the market price; A perfectly competitive firm is known as a price taker because the pressure of competing firms forces them to accept the prevailing equilibrium price in the market. If a firm in a perfectly competitive market raises the price of its product by so much as a penny, it will lose all of its sales to competitors.

question
allocative efficiency
the firm producing the amount society wants, where the price equals marginal cost (there is no DWL)
question
productive efficiency
the firm is producing at the lowest possible cost, where the ATC is minimized; the quantity they are making is at the lowest point of the ATC curve
question
Constant Cost industry
an industry that can expand or contract without affecting the long run per-unit cost of production; the long-run industry supply curve is horizontal
question
Increasing Cost Industry
an industry that faces higher per-unit production costs as industry output expands in the long run; the long run industry supply curve slopes upward
question
decreasing cost industry
An industry in which expansion through the entry of firms lowers the prices that firms in the industry must pay for resources and therefore decreases their production costs.
1 of 37
question
Law of Diminishing Marginal Returns
As variable resources (workers) are added to fixed resources (machinery, tool, etc.), the additional output produced from each new worker will eventually fall.
question
law of diminishing marginal utility
the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time
question
total physical product
the total output of goods or services produced
question
marginal product

the additional output generated by adding inputs (workers) (change in TP/change in inputs)

question
average product
output per unit of input (total product/units of labor)
question
Graphs

stage 1: increasing marginal returns (marginal and total product are increasing at an increasing rate)

stage 2: decreasing marginal returns (marginal product is falling and total product is decreasing at a decreasing rate)

stage 3: negative marginal returns (marginal product is negative ann total product is decreasing)

question
Short run
at least one input is fixed
question
Long run
all inputs are variable
question
Average fixed cost
fixed cost / quantity of output
question
fixed costs
costs that remain constant as output changes
question
variable costs
costs for variable resources that do change with the amount produced (ex: raw materials, labor)
question
average variable cost
variable cost/quantity of output
question
total cost
fixed costs plus variable costs
question
average total cost
total cost divided by the quantity of output
question
marginal cost
the cost of producing one more unit of a good
question
cost curves
ATC (average total cost), AFC (average fixed costs), AVC (average variable costs), MC (marginal cost)
question
Why is the MC curve U-shaped?
The MC curve falls and then rises because of diminishing marginal returns
question
Relationship between Production and Cost:
as more workers are hired, their marginal product increases and then eventually decreases because of the law of marginal returns. The additional costs (MC) of the units they produce fall when MP goes up, but eventually increase as additional workers produce less and less output. MP and MC are mirror images of each other.
question
Why does ATC go down then up?

when the MC is below the average, it pulls the average down but when the MC is above the average, it pulls the average up. MC intersects the ATC curve at ATC’s lowest point.

question
economies of scale
factors that cause a producer's average cost per unit to fall as output rises; can result from increasing returns to scale
question
increasing returns of scale
when long-run average total cost declines as output increases
question
diseconomies of scale
the situation in which a firm's long-run average costs rise as the firm increases output
question
decreasing returns to scale
when long-run average total cost increases as 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
Profit
total revenue minus total cost
question
accounting profit
total revenue - explicit costs
question
economic profit
total revenue - explicit costs - implicit costs (opportunity cost) Usually less than accounting profit due to taking into account opportunity cost (firm is experiencing a loss when economic profit is negative)
question
profit maximization
MR=MC
question
TR>AVC
firm stays open
question
TR<AVC
firm shuts down
question
perfect competition charactersitics

Many small firms

Low barrier entry

Identical products

Price takers- have to take the price set by the market

question
Why a perfect competitor is a price taker?

Each individual firm takes the price set by the market so the demand for the firm is perfectly elastic... Means that it is MR-D-AR-P

Perfectly Competitive firms are price takers because they have no control over the market price; A perfectly competitive firm is known as a price taker because the pressure of competing firms forces them to accept the prevailing equilibrium price in the market. If a firm in a perfectly competitive market raises the price of its product by so much as a penny, it will lose all of its sales to competitors.

question
allocative efficiency
the firm producing the amount society wants, where the price equals marginal cost (there is no DWL)
question
productive efficiency
the firm is producing at the lowest possible cost, where the ATC is minimized; the quantity they are making is at the lowest point of the ATC curve
question
Constant Cost industry
an industry that can expand or contract without affecting the long run per-unit cost of production; the long-run industry supply curve is horizontal
question
Increasing Cost Industry
an industry that faces higher per-unit production costs as industry output expands in the long run; the long run industry supply curve slopes upward
question
decreasing cost industry
An industry in which expansion through the entry of firms lowers the prices that firms in the industry must pay for resources and therefore decreases their production costs.

## Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
\$26
The price is based on these factors:
Number of pages
Urgency
Basic features
• Free title page and bibliography
• Unlimited revisions
• Plagiarism-free guarantee
• Money-back guarantee
On-demand options
• Writer’s samples
• Part-by-part delivery
• Overnight delivery
• Copies of used sources
Paper format
• 275 words per page
• 12 pt Arial/Times New Roman
• Double line spacing
• Any citation style (APA, MLA, Chicago/Turabian, Harvard)

## Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

### Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

### Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

### Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.