question
MC < ATC
answer
decrease ATC
question
MC > ATC
answer
increase ATC
question
MC > AVC
answer
increase AVC
question
increase in AVC
answer
increase ATC
question
TC =
answer
VC + FC;
ATC * Q
ATC * Q
question
ATC =
answer
AFC + AVC
TC/Q
TC/Q
question
AVC =
answer
VC/Q
question
AFC =
answer
FC/Q
ATC-AVC
gets closer and closer to zero
ATC-AVC
gets closer and closer to zero
question
increase MP
answer
decrease MC
question
Δ FC
answer
Δ AFC, Δ ATC
question
Δ VC
answer
Δ MC, Δ ATC, Δ AVC, ΔQ
question
MC does not equal AVC
answer
it does equal VC from good A to good B (not average)
question
VC
answer
MC + MC + MC (add all MC depending on # of outputs)
question
AFC always ...
answer
decreases (approaches asymptote at y = 0)
question
Law of diminishing marginal returns
answer
MP will initially rise, subsequently fall, and finally go negative; MC curve will always go down, then up
question
MC curve is directly inverse (mirrored) to ___
answer
MP curve
question
MC curve intersects ATC curve at ___
answer
ATC's lowest point
question
Constant return to scale
answer
ATC is the same
(If you double your inputs, your output doubles)
(If you double your inputs, your output doubles)
question
Increasing returns to scale
answer
economies of scale, decrease ↓ ATC
(if you double your inputs, your output more than doubles)
(if you double your inputs, your output more than doubles)
question
Decreasing returns to scale
answer
diseconomies of scale, increase ↑ ATC
(If you double your inputs, your output less than doubles)
(If you double your inputs, your output less than doubles)
question
profit max rule
answer
MC = MR
question
Shut down rule
answer
continue producing if P > AVC (the minimum of the AVC);shutdownif total revenue is less than total variable cost;if the firm has normal profit, it will not shut down.
question
increase price
answer
increase Q
question
short run supply curve =
answer
MC curve above the AVC curve
question
Profit/loss =
answer
TR - TC
P > ATC --> profit
P < ATC --> loss
P > ATC --> profit
P < ATC --> loss
question
If there is an economic profit ...
answer
more firms will enter the market.
question
Normal profit
answer
zero economic profit
question
In the long run ...
answer
economic profits are always 0; ATC and D and MC all converge at the same point; at Q, ATC = MC = D
question
If economic profits = 0 ...
answer
P > AVC
question
In perfect competition model:
answer
demand = perfectly elastic.
MR = D = AR = P
Low barriers to entry
No advertising
Firms have no control over price
Perfect substitutes
MR = D = AR = P
Low barriers to entry
No advertising
Firms have no control over price
Perfect substitutes
question
P < ATC
answer
loss
question
P > ATC
answer
profit
question
A firm is in long-run equilibrium ...
answer
1) There is zero economic profit.
2) TR = TC
3) MR = ATC = MC = P
2) TR = TC
3) MR = ATC = MC = P
question
short-run means ...
answer
at least one variable is fixed
question
long-run means ...
answer
all resources are variable
question
How to draw profit/loss box on the graph ...
answer
Q hits ATC hits D
- Quantity governs the length of the box
- Distance bt Demand and ATC governs height
- Quantity governs the length of the box
- Distance bt Demand and ATC governs height
question
Constant cost industry
answer
new firms entering market does not increase cost for the good; supply curve is horizontal in the long-run
question
When you go from the short-run to the long-run ...
answer
everything goes back to zero economic profit (Q, P, etc); all of the three curves (ATC, D, MC) will end up converging at the same point again; this happens because profit/loss encourages new firms to enter/leave the market
question
How to draw equilibrium ...
answer
MR = MC
question
three stages of returns
answer
increasing marginal returns, decreasing marginal returns, negative returns
question
When do firms enter the market
answer
economic profit
question
per-unit tax affects ...
answer
MC, AVC, ATC, Q
question
lump-sum tax affects ...
answer
AFC, ATC
question
productive efficiency
answer
producing at the lowest possible cost;
P = minimum of ATC
P = minimum of ATC
question
Allocative efficiency
answer
producing at the amount most desired by society;
P = MC // MR = MC
P = MC // MR = MC
question
In the long-run, perfectly competitive firms are ... (efficiency)
answer
allocatively and productively efficient
question
In the short-run, perfectly competitive firms are ... (efficiency)
answer
allocatively efficient, NOT productively efficient
question
When a perfectly competitive firm sells additional units of output, its total revenue will
answer
increase at a constant rate
question
If MC exceeds MR ...
answer
decrease production
question
When TP is at its maximum ...
answer
MP is zero
question
economies of scale refers to ...
answer
the relationship between long-run average total cost and the size of the firm.
question
Increasing returns to scale refers to ...
answer
the relationship between inputs and output.
question
If MR exceeds MC ...
answer
increase production
question
Diminishing returns means ...
answer
marginal costs rise
question
Cost of resource increases ...
answer
marginal costs rise
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