Microecon test 3 - Assignment Essays

question

Break even price(perfectly competitive)

answer

Minimum ATC

question

Shutdown

answer

Shortrun decision

Shutdown when AVC > P

question

Exit

answer

a long-run decision to leave the market

Exit when ATC > P

question

Difference between exit and shutdown

answer

If shut down in SR, must still pay FC.
If exit in LR, zero costs.

question

Sunk costs

answer

costs that have already been incurred and cannot be recovered, fixed costs, dont matter when shutting down

question

Firms enter in the long run when

answer

Market is profitable

P > ATC

question

Market supply assumptions (Perfectly competitive)

answer

All firms have identical costs

Firms costs dont change as firms enter/exit

Number of firms is fixed in the short run, variable in the long run

question

Number of firms in the long run do what

answer

Change due to entry/exit, new firms shift supply curve to the right

question

long run equilibrium

answer

the process of entry or exit is complete - remaining firms earn zero economic profit

question

What do economists assume?

answer

Its a firms goal to max profit

question

Profit formulas

answer

total revenue - total cost

(Price - ATC) x Q

question

Explicit costs

answer

costs that require a firm to spend money

question

Implicit costs

answer

Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur

question

Accounting profit

answer

total revenue - total explicit costs

question

Economic profit

answer

total revenue - total costs (explicit and implicit)

question

Normal economic profit

answer

0 economic profit

question

Account profit vs economic profit

answer

Accounting is always higher

question

Fixed costs

answer

costs that remain constant as output changes

question

Variable costs

answer

costs that vary with the quantity of output produced

question

Total costs

answer

fixed costs + variable costs

question

Marginal cost

answer

the increase in total cost from producing one more unit

question

Marginal cost formula

answer

change in total cost / change in quantity

question

Average variable cost

answer

variable cost divided by the quantity

question

Average fixed cost

answer

fixed cost divided by the quantity

question

Average total cost formulas

answer

TC/Q or AFC + AVC

question

MC and ATC curve

answer

MC should intersect bottom of the curve

question

MC < ATC

answer

ATC is falling

question

MC > ATC

answer

ATC is rising

question

perfectly competitive market characteristics

answer

Many buyers and sellers

Goods offered for sale mostly the same

Firms can freely enter/exit market

question

Total revenue

answer

Price x Quantity

question

average revenue

answer

TR/Q

question

marginal revenue

answer

the change in total revenue from an additional unit sold

question

Marginal revenue formula

answer

change in total revenue / change in quantity

question

Price taking

answer

A perfectly competitive firm can keep increasing its output without affecting market price

Must take the price that is given

question

perfectly competitive market MR

answer

MR = Price = Demand

question

Profit maxing quantity

answer

MR = MC

question

Increase quantity to raise profit when

answer

MR > MC

question

Decrease quantity to raise profit when

answer

MR < MC

question

Perfectly competitive long run

answer

Always maxes profit

question

Economies of scale

answer

ATC falls as Q increases

question

Constant returns to scale

answer

ATC stays the same as Q increases

question

Diseconomies of scale

answer

ATC rises as Q increases

question

Economies of scale caused by

answer

Increasing production which allows greater specialization(workers more efficient when focusing on a specific task)

question

Diseconomies of scale occur when

answer

Coordination problems in large organizations(more common when Q is high)

question

0 economic profit occurs when

answer

P = ATC

question

P = minimum ATC in

answer

The long run

question

Lump sum subsidies effect

answer

0 effect on profit maxing output(dont effect MR or MC)

Impacts ATC

question

Per unit subsidy effect

answer

Reduce MC

question

Lowest point to avoid shutdown is

answer

Minimum AVC curve point

question

Short run supply curve portion

answer

where AVC curve is greater than AVC

question

When graphing profit is shown when

answer

ATC is below MR

question

When graphing loss is shown when

answer

ATC is above MR, AVC above MR means shutdown otherwise no

question

When graphic the profit/loss is shown by

answer

Dropping from where MR and MC intersect to where ATC and MC intersect

1 of 53

question

Break even price(perfectly competitive)

answer

Minimum ATC

question

Shutdown

answer

Shortrun decision

Shutdown when AVC > P

question

Exit

answer

a long-run decision to leave the market

Exit when ATC > P

question

Difference between exit and shutdown

answer

If shut down in SR, must still pay FC.
If exit in LR, zero costs.

question

Sunk costs

answer

costs that have already been incurred and cannot be recovered, fixed costs, dont matter when shutting down

question

Firms enter in the long run when

answer

Market is profitable

P > ATC

question

Market supply assumptions (Perfectly competitive)

answer

All firms have identical costs

Firms costs dont change as firms enter/exit

Number of firms is fixed in the short run, variable in the long run

question

Number of firms in the long run do what

answer

Change due to entry/exit, new firms shift supply curve to the right

question

long run equilibrium

answer

the process of entry or exit is complete - remaining firms earn zero economic profit

question

What do economists assume?

answer

Its a firms goal to max profit

question

Profit formulas

answer

total revenue - total cost

(Price - ATC) x Q

question

Explicit costs

answer

costs that require a firm to spend money

question

Implicit costs

answer

Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur

question

Accounting profit

answer

total revenue - total explicit costs

question

Economic profit

answer

total revenue - total costs (explicit and implicit)

question

Normal economic profit

answer

0 economic profit

question

Account profit vs economic profit

answer

Accounting is always higher

question

Fixed costs

answer

costs that remain constant as output changes

question

Variable costs

answer

costs that vary with the quantity of output produced

question

Total costs

answer

fixed costs + variable costs

question

Marginal cost

answer

the increase in total cost from producing one more unit

question

Marginal cost formula

answer

change in total cost / change in quantity

question

Average variable cost

answer

variable cost divided by the quantity

question

Average fixed cost

answer

fixed cost divided by the quantity

question

Average total cost formulas

answer

TC/Q or AFC + AVC

question

MC and ATC curve

answer

MC should intersect bottom of the curve

question

MC < ATC

answer

ATC is falling

question

MC > ATC

answer

ATC is rising

question

perfectly competitive market characteristics

answer

Many buyers and sellers

Goods offered for sale mostly the same

Firms can freely enter/exit market

question

Total revenue

answer

Price x Quantity

question

average revenue

answer

TR/Q

question

marginal revenue

answer

the change in total revenue from an additional unit sold

question

Marginal revenue formula

answer

change in total revenue / change in quantity

question

Price taking

answer

A perfectly competitive firm can keep increasing its output without affecting market price

Must take the price that is given

question

perfectly competitive market MR

answer

MR = Price = Demand

question

Profit maxing quantity

answer

MR = MC

question

Increase quantity to raise profit when

answer

MR > MC

question

Decrease quantity to raise profit when

answer

MR < MC

question

Perfectly competitive long run

answer

Always maxes profit

question

Economies of scale

answer

ATC falls as Q increases

question

Constant returns to scale

answer

ATC stays the same as Q increases

question

Diseconomies of scale

answer

ATC rises as Q increases

question

Economies of scale caused by

answer

Increasing production which allows greater specialization(workers more efficient when focusing on a specific task)

question

Diseconomies of scale occur when

answer

Coordination problems in large organizations(more common when Q is high)

question

0 economic profit occurs when

answer

P = ATC

question

P = minimum ATC in

answer

The long run

question

Lump sum subsidies effect

answer

0 effect on profit maxing output(dont effect MR or MC)

Impacts ATC

question

Per unit subsidy effect

answer

Reduce MC

question

Lowest point to avoid shutdown is

answer

Minimum AVC curve point

question

Short run supply curve portion

answer

where AVC curve is greater than AVC

question

When graphing profit is shown when

answer

ATC is below MR

question

When graphing loss is shown when

answer

ATC is above MR, AVC above MR means shutdown otherwise no

question

When graphic the profit/loss is shown by

answer

Dropping from where MR and MC intersect to where ATC and MC intersect

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