question

Budget Lines

answer

Line describing the limits to consumtion possibilities

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Budget line equation

answer

Income= (price of good x)(quantity of good x) + (price of good y)(quantity of good y)

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Utility

answer

Unit of happiness

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Marginal utility

answer

Additional utility of one more unit

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Marginal utility equation

answer

(Change in utility)/(change in quantity)

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Consumer equilibrium

answer

Maximizes utility

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Consumer equilibrium equation

answer

(Mu of x)/(P of x= (Mu of y)/(P of y) (big chart w q, u, mu, etc)

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Which is more valuable of water or diamonds?

answer

Total utility of water is greater than total utility of diamonds BUT marginal utility of water is greater than marginal utility of diamonds

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Indifference curve

answer

Curve of a combination of goods amount which a consumer is indifferent (tangent to budget line)

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Marginal Rate of Substitution

answer

Rate at which a consumer is willing to give up good x for an additional unity of y (|slope|)

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Marginal Rate of Substitution equation

answer

Relative price of a good at the best alt point

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Substitution effect

answer

Focuses on the change in slope from changes in relative prices

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Income effect

answer

Focuses on the decrease in purchasing power from higher prices that encourages the customer to purchase less of a normal good

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Inferior good

answer

higher amount of income reduces quantity demanded BUT the decrease in price actually INCREASES the quantity on the x-axis consumption

SUBS EFFECT > INCOME EFFECT

SUBS EFFECT > INCOME EFFECT

question

Giffen good

answer

Higher amount of income reduces quantity demanded BUT the decrease in price actually DECREASES consumption of the good on the x-axis

SUBS EFFECT < INCOME EFFECT

SUBS EFFECT < INCOME EFFECT

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Economic profit equation

answer

Revenues - opp cost

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Short run

answer

Any period of time when at least one input is fixed

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Long run

answer

Any period of time where all inputs are variable

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Marginal Product of Labor

answer

Additional output produced by one more unit of labor

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Marginal Product of Labor equation

answer

(Change in Q)/(Change in L)

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Law of Diminishing Return

answer

Marginal Product of Labor eventually falls as labor increases

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Average Product of Labor equation

answer

Q/L

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Variable cost equation

answer

Wage*labor

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Total Cost equation

answer

FC+VC

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Average Fixed Cost Equation

answer

FC/Q

question

Average variable cost equation

answer

VC/Q OR wage*APL

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Average Total Cost Equation

answer

TC/Q OR AFC+AVC

question

Marginal Cost Equation

answer

(Change in TC/Change in Q) OR (Change in VC/Change in Q) OR wage/MPL

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Total Revenue Equation

answer

P*Q

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Marginal Revenue Equation

answer

(Change in TC) / (change in quantity)

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Profit equation

answer

TR-TC OR q(p-ATC)

question

TR>VC

answer

Stay in business

question

P>AVC

answer

Stay in business

question

TR<VC

answer

Shut down

question

P<AVC

answer

shut down

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TR=VC

answer

Shut down point (indifference)

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P=AVC

answer

Shut down point (indifference)

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Long Run Average Cost Curve

answer

Lots of ATC curves

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economies of scale

answer

the property whereby long-run average total cost falls as the quantity of output increases

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Diseconomies of scale

answer

the property whereby long-run average total cost falls as the quantity of output increases

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Concentration ratio

answer

Top 4 percents of firms added up

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HHI

answer

sum of squared market shares (first 50)

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HHI<1500

answer

unconcentrated

question

1500<HHI<2500

answer

Moderately concentrated

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2500>HHI

answer

Concentrated

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Perfect Competition 3 Traits

answer

Lots of firms

Products identical (perfectly elastic)

No barriers to entry

Products identical (perfectly elastic)

No barriers to entry

question

Monopoly three traits

answer

One firm

No close substitutes

Barriers to entry

No close substitutes

Barriers to entry

question

Monopolistic Competition three traits

answer

Lots of firms

Differentiated products

No barriers to entry

Differentiated products

No barriers to entry

question

Perfect competition long run profit is

answer

Equal to zero

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Monopoly long run profit is

answer

Able to be positive

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Monopolistic Competition long run profit it

answer

Equal to zero

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Perfect Competition maximizing profit

answer

MR (same as P*)= MC

question

Monopoly maximize profit

answer

MR=MC

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Monopolistic Competition maximizing profit

answer

MR=MC

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Perfect Competition production efficiency

answer

Minimum of LRAC

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Monopoly production efficiency

answer

NO

question

Monopolistic Competition Production Efficiency

answer

NO

question

Perfect Competition allocative efficiency

answer

MB=MC

question

Monopoly allocative efficiency

answer

NO

question

Monopolistic Competition allocative efficiency

answer

NO

question

Rent Seeking Behavior

answer

Act of obtaining special treatment to create or maintain monopoly profit

question

Rent

answer

Any payment to resource above the opportunity cost

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Perfect Competition CS/PS

answer

Normal just like last exam

question

Monopoly CS/PS

answer

CS is smaller triangle on top, PS is the rest minus the triangle to the left of where D and MC curve are equal

question

Regulation of Natural Monopolies

answer

1) MC pricing: change price equal to MC (profit is less than 0)

2) Avg cost pricing: charge price equal to Avg cost (profit is greater than 0)

2) Avg cost pricing: charge price equal to Avg cost (profit is greater than 0)

question

Perfect Price Discrimination

answer

Charge price based on willingness to pay

TR DOES NOT EQUAL P*Q IT EQUALS ALL DIFF PRICES ADDED UP

MR=Price

TR DOES NOT EQUAL P*Q IT EQUALS ALL DIFF PRICES ADDED UP

MR=Price

question

Charge different prices for different quantities

answer

Buy one get one half iff

question

Charge different prices to different groups

answer

Student discount