question
Finding budget constraints
answer
Y=PAQA+PBQB
(Y=Income)
(PA=Price of item A)
(QA= quantity of item A consumed)
(PB= Price of item B)
(QB= Quantity of item B consumed)
(Y=Income)
(PA=Price of item A)
(QA= quantity of item A consumed)
(PB= Price of item B)
(QB= Quantity of item B consumed)
question
Properties of indifference curves
answer
1. Indifference curves can never cross
2. The farther out an indifference curve lies, the higher the utility it indicates
3. Indifference curves always slope downward
4. Indifference curves are convex
2. The farther out an indifference curve lies, the higher the utility it indicates
3. Indifference curves always slope downward
4. Indifference curves are convex
question
utility maximization
answer
the consumer's marginal rate of substitution (the absolute value of the slope of the indifference curve) is equal to the price ratio of the two goods.
question
Finding normal or inferior goods
answer
1. If the quantity demanded of a product increases with increase in consumer income, the product is a normal good and if the quantity demanded decreases with increase in income, it is an inferior good.
2. Normal good is a good that experiences an increase in demand due to rise in consumers income.
2. Normal good is a good that experiences an increase in demand due to rise in consumers income.
question
Finding Demand
answer
y = mx + b, where
(y= is the price)
(m= is the slope)
(x= is the quantity sold)
(y= is the price)
(m= is the slope)
(x= is the quantity sold)
question
Income Effects
answer
the change in the consumption of goods based on income
question
Substitution Effects
answer
the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises
question
Production function
answer
Q = f(Capital, Land, Labour)
question
MPL
answer
marginal product of labor: company's increase in total production when one additional unit of labor is added
question
Diminishing MP
answer
Diminishing marginal productivity: using increasing amount of some inputs (variable inputs) during the production period while holding other inputs constant (fixed inputs) will eventually lead to decreasing productivity.
question
Explicit costs
answer
direct payment made to others in the course of running a business, such as wage, rent and materials.
question
Implicit costs
answer
(imputed cost, implied cost, or notional cost) 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
Accounting profit
answer
Net income for a company after all expenses and cost are taken out.
question
Economic profit
answer
is the difference between the revenue received from the sale of an output and the costs of all inputs, including opportunity
question
Fixed costs
answer
business costs, such as rent, that are constant whatever the quantity of goods or services produced.
question
Variable costs
answer
Variable costs are costs that change as the quantity of the good or service that a business produces changes.
question
Total costs
answer
the minimum dollar cost of producing some quantity of output. This is the total economic cost of production and is made up of variable cost
question
AFC
answer
the fixed costs of production (FC) divided by the quantity (Q) of output produced.
question
AVC
answer
a firm's variable costs (labour, electricity, etc.) divided by the quantity of output produced.
question
ATC
answer
total cost divided by the total quantity of output produced.
question
marginal cost
answer
the cost added by producing one additional unit of a product or service.
question
sort-run to long run costs
answer
Short run average costs vary in relation to the quantity of goods being produced. Long run average cost includes the variation of quantities used for all inputs necessary for production. When the average cost declines, the marginal cost is less than the average cost.
question
economies of scale
answer
economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced
question
constant returns to scale
answer
when the output increases in exactly the same proportion as the factors of production
question
diseconomies of scale
answer
the cost disadvantages that economic actors accrue due to an increase in organizational size or in output, resulting in production of goods and services at increased per-unit costs.
question
LRATC
answer
Long-run average total cost: is a business metric that represents the average cost per unit of output over the long run, where all inputs are considered to be variable and the scale of production is changeable.
question
characteristics of perfectly competitive market
answer
1. no company holds a substantial market share
2. the industry output is standardized
3. there is freedom of entry and exit
2. the industry output is standardized
3. there is freedom of entry and exit
question
profit maximization (MR=MC)
answer
Marginal Cost curve is rising, Marginal cost = Marginal revenue
question
efficiency? (MSB=MSC)
answer
marginal social = marginal social benefit
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