Chp 6 econ review - Assignment Essays

question

Conditions of a perfectly comp market

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1) no buyer or seller in the market is big enough to influence market price
2) sellers in the market produce identical goods
3) there is free entry and exit in the market

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Goal of seller

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Maximize profit

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To achieve the goal of maximizing profit must solve three problems

answer

1) how to make the product
2) what is the cost of making the product
3) how much can the seller get for the product in the market

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Production

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Process by which the transformation of inputs and outputs occurs

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Physical capital

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Any good, including machines and buildings, used for production

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Short run

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Period of time when some of the firms inputs cannot be changed

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Long run

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Period of time when all of the firms inputs can be changed

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Variable factor of production

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Input that can be changed in a certain period of time and that changes if the level of output changes (labor/workers)

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fixed factor of production

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Input that cannot be changed in the short run and always stays the same regardless of how much input it produced

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Marginal product

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The change in total output associated with using one more unit of input

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Specialization

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Workers are more efficient when they specialize in production and work together to produce goods

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Law of diminishing returns

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At some point each additional worker contributes less output than the worker before

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Marginal product can be

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Negative, capital is fixed in short run. If more and more workers are added, they will get in each other's way and cause output to fall

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Total cost

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the sum of fixed and variable costs

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Variable cost (VC)

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The cost associated with the variable factors of production
- change as the level of output changes

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Fixed cost (FC)

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The cost associated with fixed factors of production
- don not change as output changes
- called overhead

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Average Total Cost (ATC)

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total costs divided by total quantity of output

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Average Variable Cost (AVC)

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total variable costs divided by quantity of output (VC/Q)

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Average Fixed Cost (AFC)

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total fixed costs divided by total quantity of output (FC/Q)

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Marginal cost (MC) is

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The change in total cost associated with producing on more unit of output
- (change in total cost)/(change in output)

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Revenue

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The amount of money a firm brings in from the scale of its product

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Total revenue

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Price x quantity sold

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Ina. Competitive market firms have

answer

No control over the price, therefore are price takers and can only decide the quantity produced

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Profit

answer

Total revenue- total costs

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Accounting profit

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total revenue - total explicit costs

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Economic profit

answer

total revenue - explicit costs - implicit costs
- includes implicit/opportunity costs while accounting does not

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Economic loss does not mean

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The firm also has accounting loss

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A firm should expand production until

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Marginal revenue= marginal cost
MC=MR=P

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How can we compute profits

answer

1) determine optimal quantity (Mr=MC)
2) determine ATC at optimal quanitity
3) Compare

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P> ATC

answer

Economic profits

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P<ATC

answer

Economic loss

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P=ATC

answer

We break even

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Profit is equal to

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(P-ATC) x Q

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Arc elasticity of supply

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(Q2-q1)/(q2 + q1/2) / (p2-p1)/(p2 + p1/2)

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Elastic supply

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Quanitity supplied is very responsive to price changes ( price elasticity >1)

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Inelastic supply

answer

Any percentage change in price causes a smaller percent change in quanitity supplied ( price elasticity <1)

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Unit elastic supply

answer

Change in prices leads to equal per event age change in quanitity (price elasticity =1)

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Perfectly eleastic

answer

Horizontal

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Perfectly inelastic

answer

Vertical

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Unit elastic

answer

Slope upward

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Elasticity of supply will be greater if

answer

The more inventory the firm has
The more easily the firm can hire workers
The longer the time horizon

question

Should we stay open or shut down

answer

If price (MR) isn't high enough to cover the variable cost, then we cannot function
Shut down in short run

question

Shutdown

answer

Decision to stop producing in the short run
Occurs if price falls below AVC
Short run decision to not produce anything during that specific period

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Fixed costs are sunk costs

answer

Special type of costs that, once have been committed, can never be recovered

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P>AVC I'm short run

answer

Do not shut down

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P < AVC (short run)

answer

Shut down

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Producer surplus

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The difference between the price the firm would be willing to accept and the market price
- area below price but above MC

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Short run

answer

Some of the factors of production are fixed

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Long run

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All factors and costs are variable

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Economies of scale

answer

ATC falls as output increase
- left side of ATC curve

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Constant returns to scale

answer

ATC does not change as output increases
- bottom point of ATC curve

question

Diseconomies of scale

answer

ATC increases as output increases
- right side of ATC curve

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In the long run

answer

Firms can enter or exit an industry

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Free entry

answer

When entry is unaffected by any special legal or technical c barriers

question

If demand shifts left

answer

Firm exits, supply shifts left, market price decreases

question

Long run supply curve is

answer

Horizontal

question

Formula of marginal product

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Differnet in quanitity produced for one more worker

question

Fixed costs

answer

Fixed factors of production x price

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Variable costs

answer

Variable factors of production x price

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Total costs

answer

fixed costs + variable costs

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Change in total costs

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Differences in total cost for each additional widget

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Marginal costs

answer

Change in total costs/marginal product

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What do AFC, AVC, ATC, MC have in common

answer

Per unit costs

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Positive economic profits

answer

Other firms will enter

question

How much economic profit

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(MR-ATC) x Q

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Where is it more price elastic

answer

When point on MC is under ATC

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Do u consider sunk costs in long run

answer

question

If market price increase what happens to consumer and producer surplus

answer

Increase producer surplus
Decrease producer surplus

question

What makes up the long run ATC

answer

The lowest ATC possible on every possible short run ATC curve

question

Economic profit in the long run equals

answer

Zero

question

Firm

answer

A business entity that produces and sells good or services, all face decision of how to combine inputs to create outputs

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Cost of production

answer

What a firm must pay for its inputs

question

When MC curve is below ATC/AVC

answer

Must be falling or sloping downward

question

When MC is above ATC and AVC

answer

Must be rising and upward sloping

question

Marginal revenue curve

answer

The change in total revenue associated with producing one more unit of output was

question

Steeper supply curve

answer

Less sensitive to quanitity supplied will be to price changes

question

I'm the short run of the price is below the AVC

answer

Should shut down and

question

I'm the king run if price is below ATC

answer

Shut down

question

I'm the short run if price is still greater than AVC but below ATC

answer

Still produce

question

Short run supply curve

answer

Portion of MC curve that lies above AVC

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The long run ATC

answer

Lies below the short run ATC

question

Exit

answer

Long run decision to leave the market
Exit if price is less than ATC

1 of 82

question

Conditions of a perfectly comp market

answer

1) no buyer or seller in the market is big enough to influence market price
2) sellers in the market produce identical goods
3) there is free entry and exit in the market

question

Goal of seller

answer

Maximize profit

question

To achieve the goal of maximizing profit must solve three problems

answer

1) how to make the product
2) what is the cost of making the product
3) how much can the seller get for the product in the market

question

Production

answer

Process by which the transformation of inputs and outputs occurs

question

Physical capital

answer

Any good, including machines and buildings, used for production

question

Short run

answer

Period of time when some of the firms inputs cannot be changed

question

Long run

answer

Period of time when all of the firms inputs can be changed

question

Variable factor of production

answer

Input that can be changed in a certain period of time and that changes if the level of output changes (labor/workers)

question

fixed factor of production

answer

Input that cannot be changed in the short run and always stays the same regardless of how much input it produced

question

Marginal product

answer

The change in total output associated with using one more unit of input

question

Specialization

answer

Workers are more efficient when they specialize in production and work together to produce goods

question

Law of diminishing returns

answer

At some point each additional worker contributes less output than the worker before

question

Marginal product can be

answer

Negative, capital is fixed in short run. If more and more workers are added, they will get in each other's way and cause output to fall

question

Total cost

answer

the sum of fixed and variable costs

question

Variable cost (VC)

answer

The cost associated with the variable factors of production
- change as the level of output changes

question

Fixed cost (FC)

answer

The cost associated with fixed factors of production
- don not change as output changes
- called overhead

question

Average Total Cost (ATC)

answer

total costs divided by total quantity of output

question

Average Variable Cost (AVC)

answer

total variable costs divided by quantity of output (VC/Q)

question

Average Fixed Cost (AFC)

answer

total fixed costs divided by total quantity of output (FC/Q)

question

Marginal cost (MC) is

answer

The change in total cost associated with producing on more unit of output
- (change in total cost)/(change in output)

question

Revenue

answer

The amount of money a firm brings in from the scale of its product

question

Total revenue

answer

Price x quantity sold

question

Ina. Competitive market firms have

answer

No control over the price, therefore are price takers and can only decide the quantity produced

question

Profit

answer

Total revenue- total costs

question

Accounting profit

answer

total revenue - total explicit costs

question

Economic profit

answer

total revenue - explicit costs - implicit costs
- includes implicit/opportunity costs while accounting does not

question

Economic loss does not mean

answer

The firm also has accounting loss

question

A firm should expand production until

answer

Marginal revenue= marginal cost
MC=MR=P

question

How can we compute profits

answer

1) determine optimal quantity (Mr=MC)
2) determine ATC at optimal quanitity
3) Compare

question

P> ATC

answer

Economic profits

question

P<ATC

answer

Economic loss

question

P=ATC

answer

We break even

question

Profit is equal to

answer

(P-ATC) x Q

question

Arc elasticity of supply

answer

(Q2-q1)/(q2 + q1/2) / (p2-p1)/(p2 + p1/2)

question

Elastic supply

answer

Quanitity supplied is very responsive to price changes ( price elasticity >1)

question

Inelastic supply

answer

Any percentage change in price causes a smaller percent change in quanitity supplied ( price elasticity <1)

question

Unit elastic supply

answer

Change in prices leads to equal per event age change in quanitity (price elasticity =1)

question

Perfectly eleastic

answer

Horizontal

question

Perfectly inelastic

answer

Vertical

question

Unit elastic

answer

Slope upward

question

Elasticity of supply will be greater if

answer

The more inventory the firm has
The more easily the firm can hire workers
The longer the time horizon

question

Should we stay open or shut down

answer

If price (MR) isn't high enough to cover the variable cost, then we cannot function
Shut down in short run

question

Shutdown

answer

Decision to stop producing in the short run
Occurs if price falls below AVC
Short run decision to not produce anything during that specific period

question

Fixed costs are sunk costs

answer

Special type of costs that, once have been committed, can never be recovered

question

P>AVC I'm short run

answer

Do not shut down

question

P < AVC (short run)

answer

Shut down

question

Producer surplus

answer

The difference between the price the firm would be willing to accept and the market price
- area below price but above MC

question

Short run

answer

Some of the factors of production are fixed

question

Long run

answer

All factors and costs are variable

question

Economies of scale

answer

ATC falls as output increase
- left side of ATC curve

question

Constant returns to scale

answer

ATC does not change as output increases
- bottom point of ATC curve

question

Diseconomies of scale

answer

ATC increases as output increases
- right side of ATC curve

question

In the long run

answer

Firms can enter or exit an industry

question

Free entry

answer

When entry is unaffected by any special legal or technical c barriers

question

If demand shifts left

answer

Firm exits, supply shifts left, market price decreases

question

Long run supply curve is

answer

Horizontal

question

Formula of marginal product

answer

Differnet in quanitity produced for one more worker

question

Fixed costs

answer

Fixed factors of production x price

question

Variable costs

answer

Variable factors of production x price

question

Total costs

answer

fixed costs + variable costs

question

Change in total costs

answer

Differences in total cost for each additional widget

question

Marginal costs

answer

Change in total costs/marginal product

question

What do AFC, AVC, ATC, MC have in common

answer

Per unit costs

question

Positive economic profits

answer

Other firms will enter

question

How much economic profit

answer

(MR-ATC) x Q

question

Where is it more price elastic

answer

When point on MC is under ATC

question

Do u consider sunk costs in long run

answer

question

If market price increase what happens to consumer and producer surplus

answer

Increase producer surplus
Decrease producer surplus

question

What makes up the long run ATC

answer

The lowest ATC possible on every possible short run ATC curve

question

Economic profit in the long run equals

answer

Zero

question

Firm

answer

A business entity that produces and sells good or services, all face decision of how to combine inputs to create outputs

question

Cost of production

answer

What a firm must pay for its inputs

question

When MC curve is below ATC/AVC

answer

Must be falling or sloping downward

question

When MC is above ATC and AVC

answer

Must be rising and upward sloping

question

Marginal revenue curve

answer

The change in total revenue associated with producing one more unit of output was

question

Steeper supply curve

answer

Less sensitive to quanitity supplied will be to price changes

question

I'm the short run of the price is below the AVC

answer

Should shut down and

question

I'm the king run if price is below ATC

answer

Shut down

question

I'm the short run if price is still greater than AVC but below ATC

answer

Still produce

question

Short run supply curve

answer

Portion of MC curve that lies above AVC

question

The long run ATC

answer

Lies below the short run ATC

question

Exit

answer

Long run decision to leave the market
Exit if price is less than ATC

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