question
implicit cost
answer
value of resources used, no payment is made
- opportunity costs
- opportunity costs
question
explicit costs
answer
payment made for the use of a resource
- wages, lease payments, utilities
- wages, lease payments, utilities
question
Fixed cost
answer
does not change with quantity
question
Variable cost
answer
does change with quantity
question
What is the long run?
answer
all inputs are variable
question
What is the short run?
answer
some inputs are fixed
question
What is an example of a fixed input in the short run that would become variable in the long run?
answer
rent- when your lease is up it becomes variable because you can change where you live
question
Is rent a FC, VC, or MC?
answer
Fixed
question
Is the cost of pepperoni for a pizza shop a FC, VC, or MC?
answer
Variable
question
Is the cost for producing another pizza a FC, VC, or MC?
answer
Marginal
question
Is the cost of employee wages a FC, VC, or MC?
answer
Fixed
question
Is the cost of a pizza oven a FC, VC, or MC?
answer
Fixed
question
If fixed cost at Q= 100 is $230, then FC at Q=200 is $__________?
answer
460
question
What is the difference between explicit and implicit costs?
answer
Implicit costs are opportunity costs and explicit costs are not.
question
Andrea's Apple pays $50,000 in wages, $10,000 in utilities, and $13,000 in mortgage. If she could be making $40,000 a year working at another orchard calculate her: Accounting Cost
answer
$73,000 (all expenses)
question
Andrea's Apple pays $50,000 in wages, $10,000 in utilities, and $13,000 in mortgage. If she could be making $40,000 a year working at another orchard calculate her: Economic Cost
answer
$113,000 (all expenses+income)
question
Accounting costs are __________ than economic costs and accounting profits are _________ than economic profit.
answer
less; greater
question
If revenue is $120,000, explicit costs=$80,000, and implicit costs= $50,000, calculate: Accounting profit
answer
$40,000 (revenue-explicit costs)
question
If revenue is $120,000, explicit costs=$80,000, and implicit costs= $50,000, calculate: Economic profit
answer
$-10,000 (revenue-(explicit+implicit costs))
question
A firm produces 400 units of output at a total cost of $1,200. If fixed costs are $200, then AVC is...
answer
$2.5 (total cost-fixed cost/units)
question
If the cost of Sally's next seashell is less than the price she can sell it for, Sally should __________ output of seashells. If the cost of the next seashell is more than the price she can sell it for, Sally should _________ output of seashells.
answer
Increase; decrease
question
When a perfectly competitive firm is maximizing profits, what will be equal?
answer
MC=MR=Price
question
Is large barriers to entry a characteristic of a perfectly competitive market?
answer
NO
question
For a certain firm, the 100th unit of output the firm produces has a marginal revenue of $7 and a marginal cost of $10. Is the firm producing over, under, or at maximum quantity?
answer
The firm is producing over its maximum quantity
question
T or F: A firm that minimizes costs will experience maximum profits
answer
False
question
A book company sells their books for $17 each and sells 100 books per month. These are the costs: ATC=$20, AVC=$15, and AFC=$5. Should this company shut down?
answer
No, even though they are making a loss.
question
Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should
answer
Continue to operate in the short run but shut down in the long run.
question
When should a firm shut down in the short run?
answer
If the price falls below the minimum point of average variable cost
question
If price at least covers the _________ costs, a profit maximizing firm produces where Marginal Revenue equals Marginal cost
answer
variable
question
How do you find MC?
answer
Change in total cost/change in quantity
question
T or F: If a firm shuts down in the short run, then their total cost is 0.
answer
False (TC=FC)
question
What draws new firms into the market?
answer
Economic profit
question
When firms are making a profit, more firms will _________ enter and drive the price ________.
answer
enter; down
(and vice versa)
(and vice versa)
question
long run equilibrium
answer
the process of entry or exit is complete - remaining firms earn zero economic profit
question
long run equilibrium in perfect competition is characterized by ________ economic profit.
answer
0
question
A perfectly competitive firm's Demand curve is the same as:
answer
- Marginal Revenue curve
- Average revenue curve
- price curve
- Average revenue curve
- price curve
question
A perfectly competitive firm's short-run supply curve is...
answer
the portion of MC above AVC
question
If MU/P of good A is less than MU/P of Good B, then which good sold should you consume next?
answer
Good B
question
You can either buy a Baby Yoda plush for $12 and gain 60 utils, or you can get a Baby Groot plush for $10 and gain 45 utils. Which purchase will give you more utils/dollar?
answer
Baby Yoda
question
T or F: If a firm is making a negative profit, they should shut down in the short run.
answer
False
question
What happens in economies of scale?
answer
When a company lowers their average costs by increasing their quantity produced.
question
When should a perfectly competitive firm choose to shut down in the short run?
answer
P<AVC
question
A "normal" economic profit is defined as ____________ economic profit.
answer
zero
question
Marginal cost Formula
answer
change in total cost/change in Q= change in TVC/change in Q
question
Total cost formula
answer
TFC+TVC
question
ATC formula
answer
TC/Q therefore TC=ATC(Q)
question
AFC formula
answer
TFC/Q therefore TFC=AFC(Q)
question
AVC formula
answer
TVC/Q therefore TVC=AVC(Q)
question
ATC formula 2
answer
AFC+AVC
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