question
normal profit is best described as
answer
zero economic profit (accounting profit just covers implicit costs)
question
economic profit
answer
accounting profit + implicit profit
question
elastic demand
answer
percentage increase in price leads to a larger percentage decrease in quantity demanded
question
inelastic demand
answer
percentage increase in price leads to a smaller percentage decrease in quantity demanded
question
factors that influence elasticity of demand
answer
availability of substitutes, proportion of income spent on the item, time lapsed since previous price change
question
does slope of demand curve = price elasticity?
answer
no
question
cross-price elasticity of demand > 0
answer
substitute (coffee and tea)
question
cross-price elasticity of demand < 0
answer
complements (pizza and coke)
question
income elasticity
answer
% change in Qd/ % change in income
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substitution effect
answer
when the price of a good falls, consumers purchase more of that good and less of other good
question
income effect
answer
a decrease in the price of a good that a consumer purchases results in extra income if purchases remain the same
question
inc in income ...normal vs. inferior goods
answer
normal: inc consumption
inferior: dec consumption
inferior: dec consumption
question
normal good
answer
income effect: +
substitution effect: +
substitution effect: +
question
inferior good
answer
income effect: -
substitution effect: +
substitution effect: +
question
Giffen good
answer
inferior good; neg income effect > pos substitution effect
question
difference between ATC and AVC
answer
AFC
question
when to shut down SR and LR
answer
not covering ATC
question
The short-term shutdown point of production for a firm operating under perfect competition will most likely to occur when:
A.) price is equal to average total cost.
B.) marginal revenue is equal to marginal cost.
C.) marginal revenue is equal to average variable costs.
A.) price is equal to average total cost.
B.) marginal revenue is equal to marginal cost.
C.) marginal revenue is equal to average variable costs.
answer
C
question
economic cost definition
answer
total opportunity costs of all factors of production
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economic profit
answer
TR - total economic costs
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Total revenue (TR)
answer
Price x Quantity
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accounting profit
answer
TR - total accounting costs
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opportunity cost
answer
cost foregoing next best alternative
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maximum economic profit
answer
MR = MC with MC no falling
question
breakeven point
answer
TR = TC, price = ATC
question
short run
answer
quantity of some factors (eg scale) are fixed
question
long run
answer
all input quantities are variable
question
economies of scale
answer
labor specialization, discounts on inputs
question
diseconomies of scale most likely results from...
answer
bureaucracy (ex: overlap of business functions and product lines), rising input costs
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