question
What is the definition of utility?
answer
The want-satisfying power of a good or service; the satis- faction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services)
question
How do you calculate marginal utility?
answer
= ΔTU/ΔQ
change in total utility/change in quantity consumed
it is the extra utility a consumer obtains from the consumption of 1 additional unit of a good or service; equal to the change in total utility divided by the change in the quantity consumed.
change in total utility/change in quantity consumed
it is the extra utility a consumer obtains from the consumption of 1 additional unit of a good or service; equal to the change in total utility divided by the change in the quantity consumed.
question
What does the law of diminishing marginal utility?
answer
added satisfaction declines as a consumer acquires additional units of a given product
question
Law of Diminishing Marginal Utility definition
answer
The principle that as a consumer increases the consumption of a good or service, the marginal utility obtained from each additional unit of the good or service decreases.
question
How do you determine if a consumer should buy more or less of a product to maximize utility?
answer
graph the quantity of units (x axis) and total utility (y axis)
If its below the maximum, they should keep buying
If its at the maximum, they should buy less
If its past the maximum (concave down curve), they should buy less
If its below the maximum, they should keep buying
If its at the maximum, they should buy less
If its past the maximum (concave down curve), they should buy less
question
Marginal utility per dollar
answer
MU/price of one unit of product X
question
economic cost
answer
A payment that must be made to obtain and retain the services of a resource
question
How do you calculate economic cost?
answer
= Explicit Costs + Implicit Costs
question
accounting profit
answer
= total revenue-explicit costs
question
economic profit
answer
= revenue-explicit costs-implicit costs
OR
= accounting profit-implicit costs
OR
= accounting profit-implicit costs
question
What is the difference between accounting profit and economic profit?
answer
accounting profit is the number that accountants calculate by subtracting total explicit costs from total sales revenue. It's the profit (or "net income") that would appear on your accounting statement and that you would report to the government for tax purposes.
AP=revenue-explicit costs
economic profit is the result from subtracting ALL ECONOMIC COSTS FROM REVENUE
EP=revenue-explicit costs-implicit costs
AP=revenue-explicit costs
economic profit is the result from subtracting ALL ECONOMIC COSTS FROM REVENUE
EP=revenue-explicit costs-implicit costs
question
Short run
answer
has fixed input, fixed variable
- there are some variable inputs ex. materials, insurance, etc.
- fixed plant ex. your building
the only way to adjust to increased demand is to increase variable inputs like overtime, hire more workers, etc.
- there are some variable inputs ex. materials, insurance, etc.
- fixed plant ex. your building
the only way to adjust to increased demand is to increase variable inputs like overtime, hire more workers, etc.
question
long run
answer
all inputs are variable, firms can adjust plant size as well as enter and exit industry
question
What is the difference between the short run and the long run?
answer
A business cannot adjust in the short run there is not enough time, but in the long run they can adjust
question
Long run ATC
answer
Different short run ATCs (because you change plant size)
Cost curves are u shaped (more plants, ATCs go down, but not forever they go up again eventually)
Long run cost curves
Go from ATC 1 to 3, all cost curves are u shaped.
Cost curves are u shaped (more plants, ATCs go down, but not forever they go up again eventually)
Long run cost curves
Go from ATC 1 to 3, all cost curves are u shaped.
question
Economies of Scale
answer
the property whereby long-run average total cost falls as the quantity of output increases
-Labor specialization
-Managerial specialization -diff. managers specialize in different areas/factories
-Efficient capital
-Other factors
Constant returns to scale (larger production, less cost per units) - only in large industries ATC Declines, stays constant for a while, then ATC increases (telecommunication industry is one of those)
-Labor specialization
-Managerial specialization -diff. managers specialize in different areas/factories
-Efficient capital
-Other factors
Constant returns to scale (larger production, less cost per units) - only in large industries ATC Declines, stays constant for a while, then ATC increases (telecommunication industry is one of those)
question
Diseconomies of scale
answer
- is when the ATC curve goes up after staying constant for a while
-Control and coordination problems
-Communication problems
-Worker alienation
-Shirking
-Control and coordination problems
-Communication problems
-Worker alienation
-Shirking
question
What are the four basic market structures?
answer
pure competition, monopolistic competition, oligopoly, pure monopoly
question
What are the characteristics of a pure competition market?
answer
very large number of firms
standardized type of product
no control over price
very easy entry, no obstacles
none nonprice competition
Examples: agriculture
standardized type of product
no control over price
very easy entry, no obstacles
none nonprice competition
Examples: agriculture
question
What are the characteristics of a monopolistic competition market?
answer
many firms
differentiated type of product
some control over price, but within narrow limits
relatively easy conditions of entry
nonprice competition - emphasis on advertising, brand names, trademarks
Examples: retail trade, dresses, shoes
differentiated type of product
some control over price, but within narrow limits
relatively easy conditions of entry
nonprice competition - emphasis on advertising, brand names, trademarks
Examples: retail trade, dresses, shoes
question
What are the characteristics of an oligopoly market?
answer
-few number of firms
-standardized or differentiated type of product
-control over price is limited by mutual interdependence, considerable with collusion
-conditions of entry: significant obstacles
-nonprice competition: typically a great deal, particularly with product differentiation
Example: Steel, automobiles, farm implements, many household appliances
-standardized or differentiated type of product
-control over price is limited by mutual interdependence, considerable with collusion
-conditions of entry: significant obstacles
-nonprice competition: typically a great deal, particularly with product differentiation
Example: Steel, automobiles, farm implements, many household appliances
question
What are the characteristics of pure monopoly market?
answer
only one firm dominates market
type of product is unique, no close substitutes
considerable control over price
blocked conditions of entry
Nonprice competition: mostly public relations advertising
Examples: local utilities
type of product is unique, no close substitutes
considerable control over price
blocked conditions of entry
Nonprice competition: mostly public relations advertising
Examples: local utilities
question
Why does a firm in a pure competition model face a perfectly elastic demand curve?
answer
the firm in a pure competition model example is a price taker since the price in a pure competition model is determined by the market. IT MUST accept the price determined by the market.
they can't obtain a higher price by restricting its output or lower its price to increase its sales volume because the firm's output represents a small fraction of its industry's total output.
IT IS A STRAIGHT HORIZONTAL LINE
they can't obtain a higher price by restricting its output or lower its price to increase its sales volume because the firm's output represents a small fraction of its industry's total output.
IT IS A STRAIGHT HORIZONTAL LINE
question
Where is the shutdown point under pure competition?
answer
The shutdown point is where MC=P or MC=MR
(MR=P)
(MR=P)
question
profit maximization
answer
TR-TC or MR-MC
question
relationship between p and MC
answer
p=MC
question
loss minimization
answer
still profitable to produce as long as MR>MC
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
