WGU C211 Competency 3: Economic Decision Making by Firms and Consumers - Custom Scholars
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# WGU C211 Competency 3: Economic Decision Making by Firms and Consumers

question
Total Cost
market value of the inputs firms used in production
question
Total Revenue
amount a firm receives for the sale of its outputs
question
Profit
total revenue minus total cost
question
Opportunity cost
something what you give up for something
question
Ecplicit costs
all input costs that require an outlay of money by the firm
question
implicit costs
input costs that do not require outlay of money by the firm
question
Economic profits
= TR - explicit - implicit
question
Accounting profit
= TR - explicit
question
Production function
relationship between quantity of inputs used to make a good and the quantity of output on that good
question
Marginal Product
increase in output that arises from an additional unit of input
question
Diminishing Marginal Product
marginal product of an input declines as the quantity of input increases
question
Production Function Curve
very steep
increasing will decline output
(output on vertical axis)
question
Total Cost Curve
Increase both output and input
(output on horizontal axis)
question
Two Different costs
Fixed
Variable
question
Average Total Costs
= total cost/quantity
question
Average fixed cost
= fixed costs/quantity
question
Average variable costs
= variable costs/quantity
question
Marginal cost
= increase in total costs/extra unity of quantity
question
Efficient scale
quantity of output that minimizes average total cost
question
Marginal cost is below the average total cost...
average total cost is decreasing
question
Marginal cost is greater than the average total cost...
average total cost increases
question
Economies of Scale
long run average total costs decreases as the quantity of output increases
question
Diseconomies of scale
long run average total costs
Quantity of output increases
average total cost also rises
question
Constant returns of scale
long run average total cost stays the same as the quantity of output changes
question
total
question
average
total divided by the number of units
question
marginal
change in total divided by the change in the number of units
question
Utility
measure of happiness
question
Utility Maximization
idea that we all make choices to make ourselves the happiest we can be
question
Utility function
equation that tells me how much your happiness goes up or down when you make different decisions or different things happen to you
question
Decreasing Marginal Utility
consume more of something
question
Budget Line
line that shows the maximum I can afford
question
Indifference Curve
line which all the combinations of goods which make you equally happy
slope of the marginal rate of substitution (MRS)
question
Four Properties of Indifference Curves
Higher indifference curves are preferred to lower ones
indifference curves are downward sloping
Indifference curves do not cross
Indifference curves are bowed inward
question
Change in income
change in answer shifts the whole budget constraint outward
Keeps the same slope because the prices have not change
question
Change in prices
change in the answer of one of the goods changes the slope of the budget constraint
question
Substitution Effect
Change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution
question
Income Effect
the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve
question
Demand Curve
relationship between the quantity demanded and the price
question
Law of demand
as price increases quantity demanded falls
question
Four types of market structure
Monopoly
Oligopoly
Monopolistic competition
Perfect Competition
question
Perfect Competition (Competitive Market)
Market with many buyers (consumers) and sellers (firms)
Buers and sellers are price-taker
easily enter/exit market
question
Goal of a firm
to maximize
question
Profit
= total revenue - total quantity
question
Total revenue
price X quantity
question
Average Revenue
= total revenue/quantity
question
Marginal Revenue
%change in total revenue/%change in quantity
question
TR/TC Approach
gap between TR and TC is largest
question
MR/MC Approach
MR=MC
question
Shutdown
short-run decision not to produce anything during a specific period of time because of current market conditions (firms cannot avoid fixed costs)
question
Exit
long run decision to leave the market (firms can avoid fixed costs)
question
Shutdown Rule
TR<VC
question
TR/Q?
<AVC
question
Shut Down Conclusion
P<AVC
question
Market Exit Rule
TR<TC
question
Shutdown Conclusion
P<ATC
question
Monopoly
Sole seller of a product/service
no close substitutes
price maker (in charge of quantity and price)
barriers to entry
question
Monopolistic Competition
hybrid of perfect competition and monopoly
market described as imperfect competition
many sellers (firms)
Product differentiation (special)
free entry/exit to markets
question
Differentiated products and P>MC give strong incentive to product
question
Oligopoly
small group of sellers
offer similar or identical products
tension between cooperation and self-interest
game theory
question
Duopoly
price is determined by market demand
question
Nash Equilibrium
each economic actor chooses best strategy
consideration of other actor decisions
question
Dominant Strategy
best for a player in a game regardless of the strategies chosen by the other players
question
Prisoner's Dilemma
particular game between two captured prisoners
each prisoner pursues own interest
question
Policy Makers Responses
Encourage firms in oligopoly to compete instead of cooperate
1 of 65
question
Total Cost
market value of the inputs firms used in production
question
Total Revenue
amount a firm receives for the sale of its outputs
question
Profit
total revenue minus total cost
question
Opportunity cost
something what you give up for something
question
Ecplicit costs
all input costs that require an outlay of money by the firm
question
implicit costs
input costs that do not require outlay of money by the firm
question
Economic profits
= TR - explicit - implicit
question
Accounting profit
= TR - explicit
question
Production function
relationship between quantity of inputs used to make a good and the quantity of output on that good
question
Marginal Product
increase in output that arises from an additional unit of input
question
Diminishing Marginal Product
marginal product of an input declines as the quantity of input increases
question
Production Function Curve
very steep
increasing will decline output
(output on vertical axis)
question
Total Cost Curve
Increase both output and input
(output on horizontal axis)
question
Two Different costs
Fixed
Variable
question
Average Total Costs
= total cost/quantity
question
Average fixed cost
= fixed costs/quantity
question
Average variable costs
= variable costs/quantity
question
Marginal cost
= increase in total costs/extra unity of quantity
question
Efficient scale
quantity of output that minimizes average total cost
question
Marginal cost is below the average total cost...
average total cost is decreasing
question
Marginal cost is greater than the average total cost...
average total cost increases
question
Economies of Scale
long run average total costs decreases as the quantity of output increases
question
Diseconomies of scale
long run average total costs
Quantity of output increases
average total cost also rises
question
Constant returns of scale
long run average total cost stays the same as the quantity of output changes
question
total
question
average
total divided by the number of units
question
marginal
change in total divided by the change in the number of units
question
Utility
measure of happiness
question
Utility Maximization
idea that we all make choices to make ourselves the happiest we can be
question
Utility function
equation that tells me how much your happiness goes up or down when you make different decisions or different things happen to you
question
Decreasing Marginal Utility
consume more of something
question
Budget Line
line that shows the maximum I can afford
question
Indifference Curve
line which all the combinations of goods which make you equally happy
slope of the marginal rate of substitution (MRS)
question
Four Properties of Indifference Curves
Higher indifference curves are preferred to lower ones
indifference curves are downward sloping
Indifference curves do not cross
Indifference curves are bowed inward
question
Change in income
change in answer shifts the whole budget constraint outward
Keeps the same slope because the prices have not change
question
Change in prices
change in the answer of one of the goods changes the slope of the budget constraint
question
Substitution Effect
Change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution
question
Income Effect
the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve
question
Demand Curve
relationship between the quantity demanded and the price
question
Law of demand
as price increases quantity demanded falls
question
Four types of market structure
Monopoly
Oligopoly
Monopolistic competition
Perfect Competition
question
Perfect Competition (Competitive Market)
Market with many buyers (consumers) and sellers (firms)
Buers and sellers are price-taker
easily enter/exit market
question
Goal of a firm
to maximize
question
Profit
= total revenue - total quantity
question
Total revenue
price X quantity
question
Average Revenue
= total revenue/quantity
question
Marginal Revenue
%change in total revenue/%change in quantity
question
TR/TC Approach
gap between TR and TC is largest
question
MR/MC Approach
MR=MC
question
Shutdown
short-run decision not to produce anything during a specific period of time because of current market conditions (firms cannot avoid fixed costs)
question
Exit
long run decision to leave the market (firms can avoid fixed costs)
question
Shutdown Rule
TR<VC
question
TR/Q?
<AVC
question
Shut Down Conclusion
P<AVC
question
Market Exit Rule
TR<TC
question
Shutdown Conclusion
P<ATC
question
Monopoly
Sole seller of a product/service
no close substitutes
price maker (in charge of quantity and price)
barriers to entry
question
Monopolistic Competition
hybrid of perfect competition and monopoly
market described as imperfect competition
many sellers (firms)
Product differentiation (special)
free entry/exit to markets
question
Differentiated products and P>MC give strong incentive to product
question
Oligopoly
small group of sellers
offer similar or identical products
tension between cooperation and self-interest
game theory
question
Duopoly
price is determined by market demand
question
Nash Equilibrium
each economic actor chooses best strategy
consideration of other actor decisions
question
Dominant Strategy
best for a player in a game regardless of the strategies chosen by the other players
question
Prisoner's Dilemma
particular game between two captured prisoners
each prisoner pursues own interest
question
Policy Makers Responses
Encourage firms in oligopoly to compete instead of cooperate

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