CH 7-9 Microeconomics - Assignment Essays

question

explicit cost

answer

actual cash payments for resources; wages, rent, interest,insurance, etc.

question

implicit costs

answer

opportunity costs of using resources owned by the firm or provided by the firms owners. (ex: use of building, use of company funds)

question

recording costs

answer

explicit costs have a cash payment and accounting entry. Implicit has neither

question

accounting profit

answer

total revenue minus explicit costs

question

economic profit

answer

total revenue minus all (explicit and implicit) costs

question

variable resources

answer

can be varied in the short run to change output rate (ex. number of employees)

question

fixed resources

answer

cannot be altered easily (ex: size of a building)

question

short run

answer

at least one resource is fixed

question

long run

answer

no resource is fixed

question

production function

answer

relationship between resources employed and a firm's total product

question

marginal product

answer

change in total product when a particular resource increases by 1 unit

question

law of diminishing marginal returns

answer

as more of a variable resource is added to a given amount of other resources, marginal product eventually declines and could become negative.
-most important in the short run

question

fixed cost

answer

any production cost that is independent of the firms rate of output

question

variable cost

answer

the cost of variable factors of production, which change along with a firm's output

question

total cost

answer

sum of fixed and variable costs

question

marginal cost

answer

change in total cost divided by change in quantity
-tells us if its worth to hire/produce another unit

question

graphing in the short term

answer

-Variable cost begins at origin
-total cost curve is the variable cost curve shifted vertically by the fixed cost
-slope of the TC equals the MC
-average cost is u shaped

question

average fixed cost

answer

distance between average variable cost and ATC curve

question

long run costs

answer

all inputs are variable, no fixed costs

question

firms plan for the ___, but produce in the ___

answer

long run, short run

question

economies of scale

answer

long run AC falls as the scale of the firm expands; there are capital substitutes for labor and complex machines

question

diseconomies of scale

answer

may eventually take over as a firm expands its plant size. As the workforce grows, additional layers of management are needed, but it can lower efficiency

question

long run average cost curve

answer

aka planning curve connects portions of the 3 short-run average cost curves that are lowest for each output rate
-each short-run average cost curve is tangent to LRACC
-points of tangency represent the least-cost way of producing each particular rate of output given resource prices and the technology

question

constant long run average cost

answer

when average cost remains constant with changes to firm size

question

minimum efficient scale

answer

lowest rate of output at which long-run average cost is at a minimum

question

plant level

answer

a particular location

question

firm level

answer

collection of plants

question

opportunity costs

answer

all resources have opportunity costs because they all have second-best uses

question

A firm will continue its operation as long as:

answer

its economic profit is positive

question

chapter 8

answer

Chapter 8

question

market structure

answer

describes the important features of a market

question

Four Market Structures

answer

perfect competition, monopolistic competition, oligopoly, monopoly

question

perfect competition

answer

a perfectly competitive market with many buyers and sellers, a homogeneous product, buyers/sellers have full information on the market, and firms are price takers

question

perfect competition and firm demand

answer

has a horizontal demand curve drawn at the prevailing market price; perfectly elastic demand curve

question

Golden Rule of Profit Maximization

answer

A profit-maximizing firm produces the quantity of output where Marginal Revenue = Marginal Cost

question

Shutting Down in the Short-Run

answer

If the average variable cost of production is greater than the price at all rates of output, the firm should stop producing in the short-run, not the same as going out of business

question

Market Equilibrium

answer

intersection between the market supply (sum of individual MC curves) and market demand.

question

If a firm fails to minimize its average cost

answer

it will not survive in the long run

question

productive efficiency

answer

firms produce output at the lowest possible cost per unit in the long run

question

allocative efficiency

answer

firms produce the goods and services that consumers value the most

question

chapter 9

answer

ch 9

question

monopoly

answer

sole supplier of a product that has no close substitutes

question

barriers to entry of monopoly

answer

legal restrictions, economies of scale, control of essential resources

question

natural monopoly

answer

when a single firm can supply the entire market at a lower cost than two or more firms (ex: electricity producer)

question

Which type of monopolies is the most common?

answer

Local monopolies; long lasting ones are rare because of new competitors and new technology reduce barriers

question

monopolist demand curve

answer

downward sloping

question

Price taker

answer

a monopolist may set the price of his good, which will determine how much they will supply; must find profit maximizing price

question

short run losses as monopolist

answer

a monopolist should continue producing output as long as the price of the good covers the AVC of producing the good

question

Monopolist supply curve

answer

get pranked: it doesn't exist, use the marginal cost curve instead

question

price discrimination

answer

the practice of selling the same good at different prices to different customers

question

price discrimination affect on monopolies

answer

allows them to increase profit

question

The long-run average cost curve of a firm is often horizontal over a particular output range. Over this range, the firm experiences

answer

constant average cost

question

The short-run variable costs of a law firm include

answer

the commission given to the lawyers

question

A firm is said to experience economies of scale when

answer

average cost falls as a firm expands its plant size

question

A firm experiences diseconomies of scale when

answer

its long-run average cost increases as output increases

question

The minimum efficient scale refers to the

answer

lowest rate of output at which a firm takes full advantage of economies of scale

question

A firm experiences increasing marginal returns when

answer

its total product increases at an increasing rate

question

Given resource prices and technology, a firm can minimize its cost of producing a particular rate of output in the long run by operating along the points of tangency between

answer

the short-run average cost curve and the long-run average cost curve

question

The slope of the total cost curve at each rate of output equals

answer

the marginal cost at that rate of output

question

the average revenue of a firm is equal to

answer

the market price of its product

question

consumer surplus

answer

above the equilibrium point

question

producer surplus

answer

below the equilibrium point

1 of 62

question

explicit cost

answer

actual cash payments for resources; wages, rent, interest,insurance, etc.

question

implicit costs

answer

opportunity costs of using resources owned by the firm or provided by the firms owners. (ex: use of building, use of company funds)

question

recording costs

answer

explicit costs have a cash payment and accounting entry. Implicit has neither

question

accounting profit

answer

total revenue minus explicit costs

question

economic profit

answer

total revenue minus all (explicit and implicit) costs

question

variable resources

answer

can be varied in the short run to change output rate (ex. number of employees)

question

fixed resources

answer

cannot be altered easily (ex: size of a building)

question

short run

answer

at least one resource is fixed

question

long run

answer

no resource is fixed

question

production function

answer

relationship between resources employed and a firm's total product

question

marginal product

answer

change in total product when a particular resource increases by 1 unit

question

law of diminishing marginal returns

answer

as more of a variable resource is added to a given amount of other resources, marginal product eventually declines and could become negative.
-most important in the short run

question

fixed cost

answer

any production cost that is independent of the firms rate of output

question

variable cost

answer

the cost of variable factors of production, which change along with a firm's output

question

total cost

answer

sum of fixed and variable costs

question

marginal cost

answer

change in total cost divided by change in quantity
-tells us if its worth to hire/produce another unit

question

graphing in the short term

answer

-Variable cost begins at origin
-total cost curve is the variable cost curve shifted vertically by the fixed cost
-slope of the TC equals the MC
-average cost is u shaped

question

average fixed cost

answer

distance between average variable cost and ATC curve

question

long run costs

answer

all inputs are variable, no fixed costs

question

firms plan for the ___, but produce in the ___

answer

long run, short run

question

economies of scale

answer

long run AC falls as the scale of the firm expands; there are capital substitutes for labor and complex machines

question

diseconomies of scale

answer

may eventually take over as a firm expands its plant size. As the workforce grows, additional layers of management are needed, but it can lower efficiency

question

long run average cost curve

answer

question

constant long run average cost

answer

when average cost remains constant with changes to firm size

question

minimum efficient scale

answer

lowest rate of output at which long-run average cost is at a minimum

question

plant level

answer

a particular location

question

firm level

answer

collection of plants

question

opportunity costs

answer

all resources have opportunity costs because they all have second-best uses

question

A firm will continue its operation as long as:

answer

its economic profit is positive

question

chapter 8

answer

Chapter 8

question

market structure

answer

describes the important features of a market

question

Four Market Structures

answer

perfect competition, monopolistic competition, oligopoly, monopoly

question

perfect competition

answer

a perfectly competitive market with many buyers and sellers, a homogeneous product, buyers/sellers have full information on the market, and firms are price takers

question

perfect competition and firm demand

answer

has a horizontal demand curve drawn at the prevailing market price; perfectly elastic demand curve

question

Golden Rule of Profit Maximization

answer

A profit-maximizing firm produces the quantity of output where Marginal Revenue = Marginal Cost

question

Shutting Down in the Short-Run

answer

If the average variable cost of production is greater than the price at all rates of output, the firm should stop producing in the short-run, not the same as going out of business

question

Market Equilibrium

answer

intersection between the market supply (sum of individual MC curves) and market demand.

question

If a firm fails to minimize its average cost

answer

it will not survive in the long run

question

productive efficiency

answer

firms produce output at the lowest possible cost per unit in the long run

question

allocative efficiency

answer

firms produce the goods and services that consumers value the most

question

chapter 9

answer

ch 9

question

monopoly

answer

sole supplier of a product that has no close substitutes

question

barriers to entry of monopoly

answer

legal restrictions, economies of scale, control of essential resources

question

natural monopoly

answer

when a single firm can supply the entire market at a lower cost than two or more firms (ex: electricity producer)

question

Which type of monopolies is the most common?

answer

Local monopolies; long lasting ones are rare because of new competitors and new technology reduce barriers

question

monopolist demand curve

answer

downward sloping

question

Price taker

answer

a monopolist may set the price of his good, which will determine how much they will supply; must find profit maximizing price

question

short run losses as monopolist

answer

a monopolist should continue producing output as long as the price of the good covers the AVC of producing the good

question

Monopolist supply curve

answer

get pranked: it doesn't exist, use the marginal cost curve instead

question

price discrimination

answer

the practice of selling the same good at different prices to different customers

question

price discrimination affect on monopolies

answer

allows them to increase profit

question

The long-run average cost curve of a firm is often horizontal over a particular output range. Over this range, the firm experiences

answer

constant average cost

question

The short-run variable costs of a law firm include

answer

the commission given to the lawyers

question

A firm is said to experience economies of scale when

answer

average cost falls as a firm expands its plant size

question

A firm experiences diseconomies of scale when

answer

its long-run average cost increases as output increases

question

The minimum efficient scale refers to the

answer

lowest rate of output at which a firm takes full advantage of economies of scale

question

A firm experiences increasing marginal returns when

answer

its total product increases at an increasing rate

question

Given resource prices and technology, a firm can minimize its cost of producing a particular rate of output in the long run by operating along the points of tangency between

answer

the short-run average cost curve and the long-run average cost curve

question

The slope of the total cost curve at each rate of output equals

answer

the marginal cost at that rate of output

question

the average revenue of a firm is equal to

answer

the market price of its product

question

consumer surplus

answer

above the equilibrium point

question

producer surplus

answer

below the equilibrium point

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