Intermediate Microeconomics Final Review

Q: If price equals minimum AC, firm will make zero economic profits

If price falls below minimum AC, firms will shut down in the long run.

question

Production Functions Review

answer

...

question

Production Function (Definition): Q=f(x,y,z,...)

answer

describes how inputs are used to produce an output.

question

Single Input Review

answer

...

question

Marginal Product (MP):

answer

- equals (dq/dz) - the derivative of the production function.
- "additional output from increasing input."
- generally diminishing

question

Marginal Revenue (MR):

answer

equals the price of the output.

question

Multiple Inputs Review

answer

...

question

Isoquants (contour lines of production function)

answer

- represent different combinations of inputs that produce the save level of output.
- shape of curve depends on how substitutable inputs are.

question

Shapes of Isoquants:

answer

- Cobb-Douglas (downward sloping convex)
- Perfect substitutes (Linear "straight line")
- Perfect complements (L-Shaped)

question

Slope of Isoquant

answer

equals the Marginal Rate of Technical Substitution (MRTS).

question

Marginal Rate of Technical Substitution (MRTS), where z1 and z2 are inputs

answer

- equals the negative ratio of marginal products.
= -(dq/dz1)/(dq/dz2) <--- partial derivatives.

question

Optimal hiring (or purchasing) rule for multiple outputs

answer

MRTS = -(w1/w2)

question

Cost Functions Review

answer

...

question

Average Cost (AC) Curve has no vertical intercept.

answer

...

question

Marginal Cost (MC) cuts AC and Average Variable Cost (AVC) at their minimums.

answer

...

question

If price equals minimum AC, firm will make zero economic profits

answer

If price falls below minimum AC, firms will shut down in the long run.

question

In the short run, a firm will operate as long as it covers its variable cost.

answer

...

question

Calculating Cost Functions

answer

...

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Fixed Cost, if TC = 100 + 2q^2 + 3q

answer

= 100

question

Variable Cost, if TC = 100 + 2q^2 + 3q

answer

= 2q^2 + 3q

question

Marginal Cost, if TC = 100 + 2q^2 + 3q

answer

= (dTC/dq) = 4q + 3

question

Average Cost, if TC = 100 + 2q^2 + 3q

answer

= (TC/q) = (100/q) + 2q + 3

question

Average Variable Cost, if TC = 100 + 2q^2 + 3q

answer

= (VC/q) = 2q +3

question

Fixed Cost:

answer

the part of Total Cost that does not vary with output.

question

Variable Cost:

answer

the part of Total Cost that varies with output.

question

Marginal Cost:

answer

- the rate at which cost changes as output changes.
- "the slope of the cost function."

question

Average Cost:

answer

Total Cost divided by Total Quantity Produced.

question

Average Variable Cost:

answer

Variable Cost divided by Total Quantity Produced.

question

Cost Minimization Review

answer

...

question

Cost Minimization:

answer

the choice of factors that minimize production costs can be determined by finding the point on the isoquant that has the lowest associated isocost curve.

question

Cost Function: C(x,y,z,...):

answer

measures the minimum costs of producing a given level of output at given factor prices.

question

Sunk costs are not recoverable

answer

...

question

Cost Curves Review

answer

...

question

Average Cost Function:

answer

measures the cost per unit of output.

question

Average Variable Cost Function:

answer

measures the variable costs per unit of output.

question

Average Fixed Cost Function:

answer

measures the fixed costs per unit of output.

question

Marginal Cost Function:

answer

measures the CHANGE in costs for a given change in output.

question

Firm Supply Review

answer

...

question

Profit Maximization Condition:

answer

*****REMEMBER*****
- MR = MC
- P = MC
************************

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Profit (pi) = Total Revenue (TR) - Total Cost (TC)

answer

...

question

Average Profit:

answer

= Average Revenue (AR) - Average Cost (AC) = Price (pi) - Average Cost

question

Happy Firm:

answer

= P > AC

question

Unhappy Firm:

answer

= P < AC

question

Firms in the Short Run:

answer

- to stay in business: P > AVC
- shut down point: P < AVC

question

Profit Per Unit

answer

= P - AC

question

Industry Supply Review

answer

...

question

Industry Supply:

answer

= the sum of firm supply curves.

question

Price Taker:

answer

- "n" is fixed in the short run.
- "n" is variable in the long run.

question

Monopoly Review

answer

...

question

A firm with market power faces a downward sloping demand curve.

answer

to sell more units, it must cut its price.

question

Game Theory and Oligopoly Review

answer

...

question

Nash Equilibrium:

answer

- "a best response to a best response."
- there may be another option with higher payoffs for both players, but it is not the equilibrium.

1 of 51

question

Production Functions Review

answer

...

question

Production Function (Definition): Q=f(x,y,z,...)

answer

describes how inputs are used to produce an output.

question

Single Input Review

answer

...

question

Marginal Product (MP):

answer

- equals (dq/dz) - the derivative of the production function.
- "additional output from increasing input."
- generally diminishing

question

Marginal Revenue (MR):

answer

equals the price of the output.

question

Multiple Inputs Review

answer

...

question

Isoquants (contour lines of production function)

answer

- represent different combinations of inputs that produce the save level of output.
- shape of curve depends on how substitutable inputs are.

question

Shapes of Isoquants:

answer

- Cobb-Douglas (downward sloping convex)
- Perfect substitutes (Linear "straight line")
- Perfect complements (L-Shaped)

question

Slope of Isoquant

answer

equals the Marginal Rate of Technical Substitution (MRTS).

question

Marginal Rate of Technical Substitution (MRTS), where z1 and z2 are inputs

answer

- equals the negative ratio of marginal products.
= -(dq/dz1)/(dq/dz2) <--- partial derivatives.

question

Optimal hiring (or purchasing) rule for multiple outputs

answer

MRTS = -(w1/w2)

question

Cost Functions Review

answer

...

question

Average Cost (AC) Curve has no vertical intercept.

answer

...

question

Marginal Cost (MC) cuts AC and Average Variable Cost (AVC) at their minimums.

answer

...

question

If price equals minimum AC, firm will make zero economic profits

answer

If price falls below minimum AC, firms will shut down in the long run.

question

In the short run, a firm will operate as long as it covers its variable cost.

answer

...

question

Calculating Cost Functions

answer

...

question

Fixed Cost, if TC = 100 + 2q^2 + 3q

answer

= 100

question

Variable Cost, if TC = 100 + 2q^2 + 3q

answer

= 2q^2 + 3q

question

Marginal Cost, if TC = 100 + 2q^2 + 3q

answer

= (dTC/dq) = 4q + 3

question

Average Cost, if TC = 100 + 2q^2 + 3q

answer

= (TC/q) = (100/q) + 2q + 3

question

Average Variable Cost, if TC = 100 + 2q^2 + 3q

answer

= (VC/q) = 2q +3

question

Fixed Cost:

answer

the part of Total Cost that does not vary with output.

question

Variable Cost:

answer

the part of Total Cost that varies with output.

question

Marginal Cost:

answer

- the rate at which cost changes as output changes.
- "the slope of the cost function."

question

Average Cost:

answer

Total Cost divided by Total Quantity Produced.

question

Average Variable Cost:

answer

Variable Cost divided by Total Quantity Produced.

question

Cost Minimization Review

answer

...

question

Cost Minimization:

answer

the choice of factors that minimize production costs can be determined by finding the point on the isoquant that has the lowest associated isocost curve.

question

Cost Function: C(x,y,z,...):

answer

measures the minimum costs of producing a given level of output at given factor prices.

question

Sunk costs are not recoverable

answer

...

question

Cost Curves Review

answer

...

question

Average Cost Function:

answer

measures the cost per unit of output.

question

Average Variable Cost Function:

answer

measures the variable costs per unit of output.

question

Average Fixed Cost Function:

answer

measures the fixed costs per unit of output.

question

Marginal Cost Function:

answer

measures the CHANGE in costs for a given change in output.

question

Firm Supply Review

answer

...

question

Profit Maximization Condition:

answer

*****REMEMBER*****
- MR = MC
- P = MC
************************

question

Profit (pi) = Total Revenue (TR) - Total Cost (TC)

answer

...

question

Average Profit:

answer

= Average Revenue (AR) - Average Cost (AC) = Price (pi) - Average Cost

question

Happy Firm:

answer

= P > AC

question

Unhappy Firm:

answer

= P < AC

question

Firms in the Short Run:

answer

- to stay in business: P > AVC
- shut down point: P < AVC

question

Profit Per Unit

answer

= P - AC

question

Industry Supply Review

answer

...

question

Industry Supply:

answer

= the sum of firm supply curves.

question

Price Taker:

answer

- "n" is fixed in the short run.
- "n" is variable in the long run.

question

Monopoly Review

answer

...

question

A firm with market power faces a downward sloping demand curve.

answer

to sell more units, it must cut its price.

question

Game Theory and Oligopoly Review

answer

...

question

Nash Equilibrium:

answer

- "a best response to a best response."
- there may be another option with higher payoffs for both players, but it is not the equilibrium.

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