question
What is meant by Utility?
answer
Satisfaction
question
What is meant by isoutility?
answer
Equal Satisfaction
question
Formula for Marginal Utility?
answer
change in total utility/ change in quantity
question
Formula for budget constraint if only two goods can be purchased?
answer
Px Qx + Py Qy
question
Slope of the budget constraint?
answer
Price x/ Price y
question
What is the slope of the isoutility curve?
answer
MRSxy= MUx/MUy (negative slopes)
question
Characteristics of an isoutility curve?
answer
1) Equal satisfaction
2) Can not cross
3) Higher curves are preferred to lower curves
4) Slopes are negative
5) Shape of curve refers to the law of diminishing utility
2) Can not cross
3) Higher curves are preferred to lower curves
4) Slopes are negative
5) Shape of curve refers to the law of diminishing utility
question
What is meant by intransitivity?
answer
when two indifference curves (or isoutility) cross
question
Formula for consumer equilibrium?
answer
MUx/Px=MUy/Py
question
Formula for producer equilibrium?
answer
MPL/PL=MPk/Pk (where MP= marginal product, L=
labor, K= capital)
labor, K= capital)
question
What happens to a budget constraint when the price of one good changes?
answer
The higher good "x" goes in price, the steeper the budget constraint.
Rotation of the budget constraint.
Rotation of the budget constraint.
question
What happens to a budget constraint when more income is received?
answer
When nominal income doubles, and
prices fall in half, both will cause a shift in the budget constraint to the right
(in real graph terms).
Parallel shift of the budget constraint.
prices fall in half, both will cause a shift in the budget constraint to the right
(in real graph terms).
Parallel shift of the budget constraint.
question
How are the vertical and horizontal intercepts of a budget constraint determined?
answer
Vertical: Income/Price of good y
Horizontal: Income/Price of good x
Horizontal: Income/Price of good x
question
How can an individual's demand curve for a good be determined using isoutility curves and budget constraints?
answer
The demand curve can be derived
from the indifference curves and budget constraints by changing the price of
the good. For example, if the price of pizza is $4, the quantity demanded of
pizza is two. If the price of pizza decreases, the budget constraint becomes
flatter and the consumer can purchase more pizza, say the price of pizza
drops to $2 and consumer purchases 4 units. If the price drops to $1.33, the quantity demanded increases to 5. Plotting each of the price and quantity
demanded points creates the demand curve for pizza.
from the indifference curves and budget constraints by changing the price of
the good. For example, if the price of pizza is $4, the quantity demanded of
pizza is two. If the price of pizza decreases, the budget constraint becomes
flatter and the consumer can purchase more pizza, say the price of pizza
drops to $2 and consumer purchases 4 units. If the price drops to $1.33, the quantity demanded increases to 5. Plotting each of the price and quantity
demanded points creates the demand curve for pizza.
question
What is meant by the law of demand?
answer
If the price of a good or service increases, demand will decrease, and vice versa.
question
What is meant by production?
answer
The processes and methods used to
transform tangible inputs (raw materials, semi-finished goods, subassemblies) and intangible inputs (ideas, information, knowledge) into outputs (goods or services).
transform tangible inputs (raw materials, semi-finished goods, subassemblies) and intangible inputs (ideas, information, knowledge) into outputs (goods or services).
question
What is the formula for a Cobb-Douglas Production Function?
answer
Q=f(K,L)
question
What is meant by returns to scale?
answer
When all inputs increase by a constant factor and outputs increase by the same proportional change that is constant returns to scale.
question
What is meant by the marginal product of labor (MPL)?
answer
The increase in the amount of output from an additional unit of labor.
question
What is meant by the marginal product of capital (MPK)?
answer
The increase in the amount of output from an additional unit of capital?
question
How can a Cobb-Douglas Production Function be used to calculate MPL & MPK?
answer
MPL=ΔQ/ΔL, MPK=ΔQ/ΔK
question
How does a short-run production function differ from a long-run production function (graphically)?
answer
?
question
What is meant by "isoquant"?
answer
Meaning equal quantity or equal output, is a
graph of all possible combinations of inputs that result in the production of a given level of output. Used in the study of microeconomics to measure the influence of inputs on the level of production or output that can be achieved.
graph of all possible combinations of inputs that result in the production of a given level of output. Used in the study of microeconomics to measure the influence of inputs on the level of production or output that can be achieved.
question
How does "isoquant" differ from "isoutility"?
answer
An isoquant shows the various combination of two inputs (capital and labor) on an equal output, while an isoutility curve shows the various combinations of two commodities; good x and good y.
Isoquants can bend inward.
Isoquants can bend inward.
question
What is meant by the law of diminishing marginal utility?
answer
the marginal utility of a good or service declines as its available supply increases. That is, the additional satisfaction gained from consuming more of a product reduces as we consume more units of that product.
question
What is meant by the law of diminishing marginal product?
answer
?
question
How does the concept in #24 differ from that of #25 (above)?
answer
The law of diminishing marginal utility is related to a consumer. The law of diminishing
marginal productivity is related to a producer.
marginal productivity is related to a producer.
question
What are the three stages of production in a short-run production function?
answer
Increasing at an increasing rate
Increasing at a decreasing rate
decreasing
Increasing at a decreasing rate
decreasing
question
What is the formula for MPL?
answer
ΔQ/ΔL
question
Formula for Average Production Labor? APL
answer
Q/L
question
How do MPL and APL relate to the cost curves?
answer
When MPL is at its peak, MC curve is at its minimum. When APL is at its peak, AVC curve is at its minimum.
question
How does the Total Product curve relate to the cost curves?
answer
it curves in the opposite direction?
question
What ways can production be related to cost?
answer
?
question
What are meant by fixed costs?
answer
A fixed cost is a cost that does not change
with an increase or decrease in the amount of output produced.
with an increase or decrease in the amount of output produced.
question
What are meant by variable costs?
answer
Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production
decreases.
decreases.
question
What are the formulae for TC?
answer
TFC + TVC or ATC × Q
question
Formula for TFC?
answer
TC - TVC or AFC × Q
question
Formula for TVC?
answer
TC - TFC or AVC × Q
question
What are the formulae for ATC?
answer
AFC + AVC or TC/Q
question
Formula for AFC?
answer
ATC - AVC or TFC/Q
question
Formula for AVC?
answer
ATC - AFC or TVC/Q
question
What are the formulae for MC?
answer
ΔTVC/ΔQ or ΔTC/ΔQ
question
Formula for MR?
answer
ΔTR/ΔQ
question
What is the formula for profit maximization?
answer
MR=MC
question
What is the formula for cost-minimization of all inputs?
answer
MPK/PK= MPL/PL
question
What is known about TC and TFC when output is equal to zero? Why?
answer
When Q=0, TFC=TC
TVC=0
TVC=0
question
In terms of types of cost, what things are equal when output is equal to zero?
answer
TFC=TC
question
In terms of types of cost, what things are equal when output is equal to one?
answer
TFC=AFC, TVC=AVC=MC, TC=ATC.
question
What are the shapes of TC, TFC, and TVC?
answer
TC and TVC are shaped like waves while TFC is horizontal.
question
What are the shapes of ATC, AFC, and AVC?
answer
?
question
What is the shape of MC?
answer
?
question
How does MC relate to ATC and AVC?
answer
MC always intersects ATC and AVC at their minimum points. It leads them.
question
How does ATC relate to AVC (graphically)?
answer
ATC hits its minimum after AVC.
question
How does the MPL curve relate to MC?
answer
MPL is at its peak when MC is at its
minimum
minimum
question
How does the APL curve relate to AVC?
answer
APL is at its peak when AVC is at its
minimum
minimum
question
How is a long-run ATC curve derived?
answer
The long-run average total cost curve is
derived from the minimum points of tangency of each of the short-run ATC curves.
derived from the minimum points of tangency of each of the short-run ATC curves.
question
What is meant by "lumpy facilities"?
answer
Lumpy inputs are inputs whose quantity cannot be changed gradually as output increases, but rather must be adjusted in large jumps. Moreover, this category of inputs can exist in either the short run or the long run
question
What is meant by increasing returns to scale?
answer
When inputs are doubled up,
output more than doubles.
output more than doubles.
question
How does returns to scale differ from economies of scale?
answer
Returns to scale is the relationship between inputs and outputs in the long-run, while economies of scale is the relationship between cost and output (as Q↑ ATC↓in the long run).
question
What are the reasons for economies of scale?
answer
Geometric growth
Specialization of labor
Increased use of capital equipment
Managerial specialization
Specialization of labor
Increased use of capital equipment
Managerial specialization
question
What is meant by MES?
answer
Minimum Efficient Scale is the smallest amount of
production a company can achieve while still taking full advantage of economies of scale with regards to supplies and costs. In classical
economics, the minimum efficient scale is defined as the lowest production point at which long-run total average costs (LRATC) are minimized.
production a company can achieve while still taking full advantage of economies of scale with regards to supplies and costs. In classical
economics, the minimum efficient scale is defined as the lowest production point at which long-run total average costs (LRATC) are minimized.
question
What is meant by diseconomies of scale?
answer
Diseconomies of scale is an economic concept referring to a situation in which economies of scale no longer function for a firm. Rather than experiencing continued decreasing costs per increase in output, firms see an increase in marginal cost when output is increased.
question
What are the formulae for profit?
answer
TR-TC or Q×(P - ATC)
question
What is the formula for profit-maximization (i.e., a profit-maximizing condition)?
answer
MR=MC
question
What is meant by MR and MC?
answer
MARGINAL REVENUE is the increase in
revenue that results from the sale of one additional unit of output AND MARGINAL COST is the change in total cost that comes from making or
producing one additional item.
revenue that results from the sale of one additional unit of output AND MARGINAL COST is the change in total cost that comes from making or
producing one additional item.
question
What should a profit-maximizing firm do if MR>MC?
answer
The firm is producing
too little and can increase profit by increasing output
too little and can increase profit by increasing output
question
What should a profit-maximizing firm do if MR<MC?
answer
The firm is producing too much and can increase profit by decreasing output
question
What should a profit-maximizing firm do if MR=MC?
answer
?
question
What is the slope of TR?
answer
TR=MR
question
What is the slope of TC?
answer
TC=MC
question
What is meant by perfect competition?
answer
Perfect competition is a market
structure with an infinite number of firms in which the following five criteria
are met: 1) All firms sell an identical product; 2) All firms are price takers -
they cannot control the market price of their product; 3) All firms have a
relatively small market share; 4) Buyers have complete information about
the product being sold and the prices charged by each firm; and 5) The
industry is characterized by freedom of entry and exit. Perfect competition is
sometimes referred to as "pure competition".
structure with an infinite number of firms in which the following five criteria
are met: 1) All firms sell an identical product; 2) All firms are price takers -
they cannot control the market price of their product; 3) All firms have a
relatively small market share; 4) Buyers have complete information about
the product being sold and the prices charged by each firm; and 5) The
industry is characterized by freedom of entry and exit. Perfect competition is
sometimes referred to as "pure competition".
question
What are the ways in which a market structure can be characterized?
answer
Number of firms, type of product, degree of market power, ease of entry/exit
to/from firm, buzzwords/examples, graphs.
to/from firm, buzzwords/examples, graphs.
question
What is the formula for "economic profit"?
answer
P>ATC
question
Formula for normal profit?
answer
P=ATC
question
Formula for loss-minimization and shut down?
answer
P<ATC
P<AVC
P<AVC
question
What determines whether a firm should shut down or continue to operate at a loss?
answer
If P>AVC, keep operating at a loss.
question
In terms of high-fixed cost or low fixed cost firms, what types of firms are more likely to shut down?
answer
high
question
In terms of high-fixed cost or low fixed cost firms, what types of firms are more likely to operate at a loss?
answer
low
question
In the short run, a firm must be able to cover which type of cost in order for it to make sense for the firm to operate?
answer
variable
question
Be able to fill out a COST TABLE!
answer
Remember formula. Solve for TFC and AFC
first using any method you can find. When Q=0 TVC=0 therefore TFC=TC.
When Q=0 MC, ATC, AFC and AVC are not present because you can't divide
by 0. When Q=1 TFC=AFC, TVC=AVC=MC, TC=ATC. Remember graph. Use
averages and marginal to find totals. Use totals to find averages.
first using any method you can find. When Q=0 TVC=0 therefore TFC=TC.
When Q=0 MC, ATC, AFC and AVC are not present because you can't divide
by 0. When Q=1 TFC=AFC, TVC=AVC=MC, TC=ATC. Remember graph. Use
averages and marginal to find totals. Use totals to find averages.
question
What are the types of market structures?
answer
Monopoly, duopoly, oligopoly,
monopolistic competition, perfect competition.
monopolistic competition, perfect competition.
question
What is meant by monopoly?
answer
One firm
question
Duopoly?
answer
two firms
question
oligopoly?
answer
a few firms
question
monopolistic competition?
answer
many firms
question
What is meant by a price-taker?
answer
Firms cannot control the market price of
their product
their product
question
What is meant by a price maker?
answer
A price maker is a monopoly or a firm
within monopolistic competition that has the power to influence the price it
charges as the good it produces does not have perfect substitutes
within monopolistic competition that has the power to influence the price it
charges as the good it produces does not have perfect substitutes
question
How is the demand curve for a firm in perfect competition determined?
answer
It's determined by the market. The demand curve for the market, which includes all firms, is downward sloping, while the demand curve for the individual firm is flat or perfectly elastic.
question
What are the various things that the demand curve for a PC firm equals?
answer
D=AR=MR=P
question
What is one item which a PC firm controls in the marketplace?
answer
they can sell any quantity of the product at the market price
question
Graphically, what determines the level of output which a PC firm should produce?
answer
?
question
What are the various misperceptions regarding firms operating as a monopoly?
answer
Monopolies charge the highest price, Monopolists maximize unit profit (monopolists are interested in total profit not profit per unit, and want
to operate where marginal revenue = marginal cost), Monopolists always earn a profit
to operate where marginal revenue = marginal cost), Monopolists always earn a profit
question
How does one determine the level of output and price for a monopoly?
answer
TR=P×Q
question
How does one determine profit for a firm in monopoly?
answer
Profit = Total revenue
- Total Cost
- Total Cost
question
What is the formula for profit?
answer
TR-TC or Q×(P-ATC)
question
Graphically, how can the formula for profit be used in the case of monopoly?
answer
?
question
What is the MR curve for a PC firm?
answer
?
question
What is the MR curve for a monopoly?
answer
?
question
Why might one describe a monopoly as being "evil"?
answer
Monopolies are considered evil depending on how they are formed. If formed through
irrational political policies they are objectively evil.
irrational political policies they are objectively evil.
question
what is meant by a concentration ratio?
answer
?
question
how is a concentration ratio calculated?
answer
?
question
what is meant by Herfindahl-Hirschmann Index?
answer
?
question
How is the Herfindahl-Hirschman Index calculated?
answer
the sum of the percentages squared
(EX: %: 32, 13, 17, 10, 10, 10, 1, 1, 1, 5)
HHI= 32^2 + 13^2 + 17^2 + 10^2 + 10^2 + 10^2 + 1^2 + 1^2 + 1^2 + 5^2)
(EX: %: 32, 13, 17, 10, 10, 10, 1, 1, 1, 5)
HHI= 32^2 + 13^2 + 17^2 + 10^2 + 10^2 + 10^2 + 1^2 + 1^2 + 1^2 + 5^2)
question
What is the kinked demand curve model?
answer
?
question
Under what circumstances should the kinked demand curve be used?
answer
?
question
What is the dominant firm model?
answer
?
question
under what circumstances should the dominant firm model be used?
answer
?
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