WGU C211 Competency 3: Economic Decision Making by Firms and Consumers

question

Total Cost

answer

market value of the inputs firms used in production

question

Total Revenue

answer

amount a firm receives for the sale of its outputs

question

Profit

answer

total revenue minus total cost

question

Opportunity cost

answer

something what you give up for something

question

Ecplicit costs

answer

all input costs that require an outlay of money by the firm

question

implicit costs

answer

input costs that do not require outlay of money by the firm

question

Economic profits

answer

= TR - explicit - implicit

question

Accounting profit

answer

= TR - explicit

question

Production function

answer

relationship between quantity of inputs used to make a good and the quantity of output on that good

question

Marginal Product

answer

increase in output that arises from an additional unit of input

question

Diminishing Marginal Product

answer

marginal product of an input declines as the quantity of input increases

question

Production Function Curve

answer

very steep
increasing will decline output
(output on vertical axis)

question

Total Cost Curve

answer

Increase both output and input
(output on horizontal axis)

question

Two Different costs

answer

Fixed
Variable

question

Average Total Costs

answer

= total cost/quantity

question

Average fixed cost

answer

= fixed costs/quantity

question

Average variable costs

answer

= variable costs/quantity

question

Marginal cost

answer

= increase in total costs/extra unity of quantity

question

Efficient scale

answer

quantity of output that minimizes average total cost

question

Marginal cost is below the average total cost...

answer

average total cost is decreasing

question

Marginal cost is greater than the average total cost...

answer

average total cost increases

question

Economies of Scale

answer

long run average total costs decreases as the quantity of output increases

question

Diseconomies of scale

answer

long run average total costs
Quantity of output increases
average total cost also rises

question

Constant returns of scale

answer

long run average total cost stays the same as the quantity of output changes

question

total

answer

sum of adding up

question

average

answer

total divided by the number of units

question

marginal

answer

change in total divided by the change in the number of units

question

Utility

answer

measure of happiness

question

Utility Maximization

answer

idea that we all make choices to make ourselves the happiest we can be

question

Utility function

answer

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

answer

consume more of something
the added utility gets smaller

question

Budget Line

answer

line that shows the maximum I can afford

question

Indifference Curve

answer

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

answer

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

answer

change in answer shifts the whole budget constraint outward
Keeps the same slope because the prices have not change

question

Change in prices

answer

change in the answer of one of the goods changes the slope of the budget constraint

question

Substitution Effect

answer

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

answer

the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve

question

Demand Curve

answer

relationship between the quantity demanded and the price

question

Law of demand

answer

as price increases quantity demanded falls

question

Four types of market structure

answer

Monopoly
Oligopoly
Monopolistic competition
Perfect Competition

question

Perfect Competition (Competitive Market)

answer

Market with many buyers (consumers) and sellers (firms)
Homogeneous products traded
Buers and sellers are price-taker
easily enter/exit market

question

Goal of a firm

answer

to maximize

question

Profit

answer

= total revenue - total quantity

question

Total revenue

answer

price X quantity

question

Average Revenue

answer

= total revenue/quantity

question

Marginal Revenue

answer

%change in total revenue/%change in quantity

question

TR/TC Approach

answer

gap between TR and TC is largest

question

MR/MC Approach

answer

MR=MC

question

Shutdown

answer

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

answer

long run decision to leave the market (firms can avoid fixed costs)

question

Shutdown Rule

answer

TR<VC

question

TR/Q?

answer

<AVC

question

Shut Down Conclusion

answer

P<AVC

question

Market Exit Rule

answer

TR<TC

question

Shutdown Conclusion

answer

P<ATC

question

Monopoly

answer

Sole seller of a product/service
no close substitutes
price maker (in charge of quantity and price)
barriers to entry

question

Monopolistic Competition

answer

hybrid of perfect competition and monopoly
market described as imperfect competition
many sellers (firms)
Product differentiation (special)
free entry/exit to markets

question

Advertising

answer

Differentiated products and P>MC give strong incentive to product

question

Oligopoly

answer

small group of sellers
offer similar or identical products
tension between cooperation and self-interest
game theory

question

Duopoly

answer

price is determined by market demand

question

Nash Equilibrium

answer

each economic actor chooses best strategy
consideration of other actor decisions

question

Dominant Strategy

answer

best for a player in a game regardless of the strategies chosen by the other players

question

Prisoner's Dilemma

answer

particular game between two captured prisoners
each prisoner pursues own interest

question

Policy Makers Responses

answer

Encourage firms in oligopoly to compete instead of cooperate

1 of 65

question

Total Cost

answer

market value of the inputs firms used in production

question

Total Revenue

answer

amount a firm receives for the sale of its outputs

question

Profit

answer

total revenue minus total cost

question

Opportunity cost

answer

something what you give up for something

question

Ecplicit costs

answer

all input costs that require an outlay of money by the firm

question

implicit costs

answer

input costs that do not require outlay of money by the firm

question

Economic profits

answer

= TR - explicit - implicit

question

Accounting profit

answer

= TR - explicit

question

Production function

answer

relationship between quantity of inputs used to make a good and the quantity of output on that good

question

Marginal Product

answer

increase in output that arises from an additional unit of input

question

Diminishing Marginal Product

answer

marginal product of an input declines as the quantity of input increases

question

Production Function Curve

answer

very steep
increasing will decline output
(output on vertical axis)

question

Total Cost Curve

answer

Increase both output and input
(output on horizontal axis)

question

Two Different costs

answer

Fixed
Variable

question

Average Total Costs

answer

= total cost/quantity

question

Average fixed cost

answer

= fixed costs/quantity

question

Average variable costs

answer

= variable costs/quantity

question

Marginal cost

answer

= increase in total costs/extra unity of quantity

question

Efficient scale

answer

quantity of output that minimizes average total cost

question

Marginal cost is below the average total cost...

answer

average total cost is decreasing

question

Marginal cost is greater than the average total cost...

answer

average total cost increases

question

Economies of Scale

answer

long run average total costs decreases as the quantity of output increases

question

Diseconomies of scale

answer

long run average total costs
Quantity of output increases
average total cost also rises

question

Constant returns of scale

answer

long run average total cost stays the same as the quantity of output changes

question

total

answer

sum of adding up

question

average

answer

total divided by the number of units

question

marginal

answer

change in total divided by the change in the number of units

question

Utility

answer

measure of happiness

question

Utility Maximization

answer

idea that we all make choices to make ourselves the happiest we can be

question

Utility function

answer

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

answer

consume more of something
the added utility gets smaller

question

Budget Line

answer

line that shows the maximum I can afford

question

Indifference Curve

answer

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

answer

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

answer

change in answer shifts the whole budget constraint outward
Keeps the same slope because the prices have not change

question

Change in prices

answer

change in the answer of one of the goods changes the slope of the budget constraint

question

Substitution Effect

answer

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

answer

the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve

question

Demand Curve

answer

relationship between the quantity demanded and the price

question

Law of demand

answer

as price increases quantity demanded falls

question

Four types of market structure

answer

Monopoly
Oligopoly
Monopolistic competition
Perfect Competition

question

Perfect Competition (Competitive Market)

answer

Market with many buyers (consumers) and sellers (firms)
Homogeneous products traded
Buers and sellers are price-taker
easily enter/exit market

question

Goal of a firm

answer

to maximize

question

Profit

answer

= total revenue - total quantity

question

Total revenue

answer

price X quantity

question

Average Revenue

answer

= total revenue/quantity

question

Marginal Revenue

answer

%change in total revenue/%change in quantity

question

TR/TC Approach

answer

gap between TR and TC is largest

question

MR/MC Approach

answer

MR=MC

question

Shutdown

answer

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

answer

long run decision to leave the market (firms can avoid fixed costs)

question

Shutdown Rule

answer

TR<VC

question

TR/Q?

answer

<AVC

question

Shut Down Conclusion

answer

P<AVC

question

Market Exit Rule

answer

TR<TC

question

Shutdown Conclusion

answer

P<ATC

question

Monopoly

answer

Sole seller of a product/service
no close substitutes
price maker (in charge of quantity and price)
barriers to entry

question

Monopolistic Competition

answer

hybrid of perfect competition and monopoly
market described as imperfect competition
many sellers (firms)
Product differentiation (special)
free entry/exit to markets

question

Advertising

answer

Differentiated products and P>MC give strong incentive to product

question

Oligopoly

answer

small group of sellers
offer similar or identical products
tension between cooperation and self-interest
game theory

question

Duopoly

answer

price is determined by market demand

question

Nash Equilibrium

answer

each economic actor chooses best strategy
consideration of other actor decisions

question

Dominant Strategy

answer

best for a player in a game regardless of the strategies chosen by the other players

question

Prisoner's Dilemma

answer

particular game between two captured prisoners
each prisoner pursues own interest

question

Policy Makers Responses

answer

Encourage firms in oligopoly to compete instead of cooperate

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WGU C211 Competency 3: Economic Decision Making by Firms and Consumers

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