Microeconomics Exam #1 Prep Topic 3

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Posted on

March 14th, 2023

question

Minimum Efficient Scale

answer

Lowest output at which minimum LRATC is attained

question

Economies of Scale:

answer

As output rises, LRATC declines. (LRATC curve is downward sloping)

question

Constant Returns to Scale:

answer

As output rises, LRATC is unchanged. (LRATC curve is horizontal).

question

Diseconomies of Scale:

answer

As output rises, LRATC increases. (LRATC curve is upward sloping).

question

Opportunity Cost:

answer

The best alternative given up in choosing to do something else.

question

Profit equation

answer

Profit = Total Revenue - Total Cost
π = TR - TC

question

Firms output equation

answer

P x q - TC
q is firm's output.

question

Sunk Cost:

answer

Cost incurred in the past that cannot be recouped. (Not a true economic cost).

question

Reasons for Economies of Scale:

answer

1) Specialization 2) Pecuniary (pertaining to input prices) 3) Large setup costs 4) Other

question

Accounting Profit Equation

answer

π = TR - Explicit Costs

question

Economic Profit Equation

answer

π = TR - All Opportunity Costs
= TR - Explicit Costs - Implicit Costs

question

Normal Average Rate of Return

answer

Π = 0 Zero Economic Profit (Normal Profit)

question

Below average rate of return

answer

Π < 0 Negative Economic Profit (Economic Loss)

question

Above average rate of return

answer

Π > 0 Positive Economic Profit

question

Short-Run:

answer

Time interval during which amounts of some inputs can't be changed. (That is, there is a fixed input).

question

Long-run:

answer

Time interval in which a firm is able to vary all inputs. (That is, there are no fixed inputs).

question

Total Cost Equation

answer

Total Cost = Variable Cost + Fixed Cost
TC = VC + FC

question

Variable Costs:

answer

The component of Total Cost that increases as output is increased. (Tied to variable inputs).

question

Fixed Costs:

answer

The component of Total Cost that does not change as output changes. (Fixed costs are generally associated with the fixed inputs).

question

Marginal Cost:

answer

The change in cost resulting from a change in output. (Basically, it's the added cost of producing one more unit).

question

marginal cost equation

answer

change in TC/change in Q

question

Fixed cost equation

answer

ATC = AVC + AFC

question

Marginal (Physical) Product of Labor:

answer

The change in output resulting from a change in labor, holding other inputs fixed. ( added output resulting from adding another worker.)
MPL = ∆q/∆L

question

Law of Diminishing Marginal Returns:

answer

As more of a variable input (e.g., labor) is added to a fixed input (e.g., capital), eventually the marginal product of the variable input will decline.

question

Point of Diminishing Marginal Returns:

answer

Input (or output) level where the Law of D.M.R. first takes hold.

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question

Minimum Efficient Scale

answer

Lowest output at which minimum LRATC is attained

question

Economies of Scale:

answer

As output rises, LRATC declines. (LRATC curve is downward sloping)

question

Constant Returns to Scale:

answer

As output rises, LRATC is unchanged. (LRATC curve is horizontal).

question

Diseconomies of Scale:

answer

As output rises, LRATC increases. (LRATC curve is upward sloping).

question

Opportunity Cost:

answer

The best alternative given up in choosing to do something else.

question

Profit equation

answer

Profit = Total Revenue - Total Cost
π = TR - TC

question

Firms output equation

answer

P x q - TC
q is firm's output.

question

Sunk Cost:

answer

Cost incurred in the past that cannot be recouped. (Not a true economic cost).

question

Reasons for Economies of Scale:

answer

1) Specialization 2) Pecuniary (pertaining to input prices) 3) Large setup costs 4) Other

question

Accounting Profit Equation

answer

π = TR - Explicit Costs

question

Economic Profit Equation

answer

π = TR - All Opportunity Costs
= TR - Explicit Costs - Implicit Costs

question

Normal Average Rate of Return

answer

Π = 0 Zero Economic Profit (Normal Profit)

question

Below average rate of return

answer

Π < 0 Negative Economic Profit (Economic Loss)

question

Above average rate of return

answer

Π > 0 Positive Economic Profit

question

Short-Run:

answer

Time interval during which amounts of some inputs can't be changed. (That is, there is a fixed input).

question

Long-run:

answer

Time interval in which a firm is able to vary all inputs. (That is, there are no fixed inputs).

question

Total Cost Equation

answer

Total Cost = Variable Cost + Fixed Cost
TC = VC + FC

question

Variable Costs:

answer

The component of Total Cost that increases as output is increased. (Tied to variable inputs).

question

Fixed Costs:

answer

The component of Total Cost that does not change as output changes. (Fixed costs are generally associated with the fixed inputs).

question

Marginal Cost:

answer

The change in cost resulting from a change in output. (Basically, it's the added cost of producing one more unit).

question

marginal cost equation

answer

change in TC/change in Q

question

Fixed cost equation

answer

ATC = AVC + AFC

question

Marginal (Physical) Product of Labor:

answer

The change in output resulting from a change in labor, holding other inputs fixed. ( added output resulting from adding another worker.)
MPL = ∆q/∆L

question

Law of Diminishing Marginal Returns:

answer

As more of a variable input (e.g., labor) is added to a fixed input (e.g., capital), eventually the marginal product of the variable input will decline.

question

Point of Diminishing Marginal Returns:

answer

Input (or output) level where the Law of D.M.R. first takes hold.

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