Microeconomics Final Exam Study Guide

question

accounting profit

answer

accountants measure a firm's profit to ensure that the firm pays the correct amount of tax and to show its investors how their funds are being used.

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economic profit

answer

economists measure a firm's profit to enable them to predict the firm's decisions, and the goal of these decisions is to maximize economic profit.

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accounting profit equation

answer

profit = total revenue - total cost

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economic profit equation

answer

profit = overall revenue - explicit costs - implicit costs

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Accounting cost

answer

accountants use internal revenue service rules based on standards established by the Financial Accounting Standards Board to calculate a firm's depreciation cost

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Opportuniy cost

answer

the value of the best alternative use of the resources that a firm uses in production. A firm's opportunity cost of production is the sum of the cost of using resources bought in the market, owned by the firm, supplied by the firm's owner.

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Bought in the market

answer

the firm incurs an opportunity cost when it buys resources in the market

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Resources owned by the firm

answer

if the firm owns capital and uses it to produce its output, then the firm incurs an opportunity cost

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Supplied by the firm's owner

answer

the firm implicitly rents the capital from itself. the firm's opportunity cost of using the capital it owns is called the implicit rental rate of capital

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Economic profit

answer

total revenue minus total cost, with total cost measured as the opportunity cost of production

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Normal profit

answer

the cost of entrepreneurship and is an opportunity cost of production

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Perfect competition

answer

-is a market structure with many firms and many buyers
-all firms sell an identical product
-no restrictions on entry of new firms to the industry
-both firms and buyers are well informed about the prices and products of all firms in the industry

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Perfect competition examples

answer

-world markets in wheat, corn, and other grains
-online purchases

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Monopolistic competition

answer

-is a market structure with many firms
-each firm produces similar but slightly different products
-each firm possesses an element of market power
-no restrictions on entry of new firms to the industry

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Monopolistic competition examples

answer

-restaurants
-hairdressers
-clothing
-t.v. programmers

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Oligopoly

answer

-is a market structure in which a small number of firms compete
-the firms might produce almost identical products or differentiated products
-barriers to entry limit entry into the market

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Oligopoly examples

answer

-cellular networks
-air transportation
-music industry
-funeral services

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Monopoly

answer

-is a market structure in which one firm produces the entire output of the industry
-there are no close substitutes for the product
-there are barriers to entry that protect the firm from competition by entering firms

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Monopoly examples

answer

-google
-facebook
-railways
-microsoft

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Total product (TP)

answer

the total output produced in a given period

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Total product formula

answer

total product = average product x labor

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Total product curve

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the change in total products that results from a one-unit increase in the quantity of labor employed, with all other inputs remaining the same

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Marginal product (MP)

answer

marginal product = change in input / change in output

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Marginal product formula

answer

is equal to total product divided by the quantity of labor employed

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Marginal product curve

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average product = total product / labor

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Average product (AP)

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when marginal product exceeds average product

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Average product formula

answer

when marginal product is below average product

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Average product curve

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when marginal product equals average product

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Average product increases

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the cost of the firm's fixed inputs; variable costs do not change with output

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Average product decreases

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TFC = TC - TVC

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Average product is at its maximum

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the cost of the firm's variable inputs; variable costs do not change with output

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Total Fixed Cost (TFC)

answer

TVC = variable cost per unit x quantity output

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Total Fixed Cost formula

answer

the cost of all resources used

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Total Fixed Cost curve

answer

TC = TFC + TVC

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Total Variable Cost (TVC)

answer

total fixed cost per unit of output

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Total Variable Cost formula

answer

AFC = TFC/Q (output)

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Total Variable Cost curve

answer

total variable cost per unit of output

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Total Cost (TC)

answer

AVC = TVC/Q (output)

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Total Cost Formula

answer

total costs per unit of output

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Total Cost curve

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ATC = TC/Q (output)

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Average Fixed Cost (AFC)

answer

the increase in total cost that results from a one-unit increase in total product

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Average Fixed Cost formula

answer

change in total cost / change in output

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Average Fixed Cost curve

answer

a level of production in which the marginal product of labor increases as the number of workers increases

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Average Variable Cost (AVC)

answer

as a firm uses more of a variable input with a given quantity of fixed inputs, the marginal product of the variable eventually diminishes

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Average Variable Cost formula

answer

the firm's cost curves are linked to its product curves

question

Average Variable Cost curve

answer

-technological change influences both the product curves and the cost curves
-an increase in productivity shifts the product curves upward and the cost curves downward

question

Average Total Cost (ATC)

answer

the relationship between the lowest attainable average total cost and output when both the plant and labor are varied (U-shaped)

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Average Total Cost formula

answer

is U-shaped with decreasing average costs at low levels of output and increasing average costs at high levels of output.

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Average Total Cost curve

answer

-long run average cost curve allows all factors of production to change
-short run average cost curve allow only variable costs to change

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Marginal Cost (MC)

answer

are features of a firm's technology that lead to falling long-run average cost as output increases

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Marginal Cost formula

answer

features of a firm's technology that lead to rising long-run average cost as output increases

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Marginal Cost curve

answer

features of a firm's technology that lead to constant long-run average cost as output increases

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Increase Marginal Returns

answer

-many firms sell identical products to many buyers
-there are no restrictions on entry into the market
-established firms have no advantage over new ones
-sellers and buyers are well informed about prices

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The Law of Diminishing Marginal Returns

answer

-demand curve shows the relationship between the quantity of a product a single consumer is willing to buy and its price (slopes downward)
-market demand curve shows the relationship between the quantity of a product that all consumers in the market are willing to buy and its price (slopes downward)

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Production Curves & Cost Curves

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market value

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PC & CC technology

answer

economic depreciation

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Long Run Average Cost Curve

answer

include the cost of using resources owned by the firm

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Short Run Average Cost Curve

answer

There is not enough information to determine his economic profit, if any

question

Long Run Average Cost vs Short Run Average Cost

answer

$200,000 per year

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Economies of Scale

answer

$45,000

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Diseconomies of Scale

answer

economic depreciation and forgone interest

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Constant Returns to Sale

answer

economic profits

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Characteristics of Perfect Competition

answer

the entrepreneur is making only a normal profit

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Demand Curve versus Market Demand Curve

answer

at least one factor of production cannot be varied

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Over a given period, economic depreciation is the change in capital equipment's

answer

capital equipment

question

The difference between the market price of a new car used by a firm and the market price of the same car one year later is known as

answer

none of the above because all factors are variable in the long run

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A firm's opportunity costs ________.

answer

maximum output attainable for each quantity of labor employed

question

Joe quits his job as an insurance agent and opens his own sporting goods store. If his profits as measured by his accountant are greater than zero, then

answer

increase in the total product that results from hiring one more worker with all other inputs remaining the same

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Sheila's Sports Shop is a very popular sporting goods store, which has a yearly revenue of $600,000. Sheila runs the business herself. Her alternative employment options are to be a college swimming coach for $50,000 per year or a construction worker for $40,000 per year. Sheila spends $230,000 purchasing goods for resale to her customers. She also has four employees, who each earn $25,000 per year. Sheila owns the building that her Sports Shop is housed in and she could have rented it out for $20,000 per year. Sheila's economic profit is equal to

answer

increasing specialization of tasks

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An electrician quits her current job, which pays $40,000 per year. She can take a job with another firm for $45,000 per year or work for herself. The opportunity cost of working for herself is

answer

the capital resources used by the firm are fixed in the short run

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Which of the following are two components of the opportunity cost of using capital already owned by the firm?

answer

increasing marginal returns and then diminishing marginal returns

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Among the opportunity costs of a firm are all of the following EXCEPT

answer

short run; fall

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If economic profit is equal to zero, then

answer

When marginal product is less than average product, average product is decreasing

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Economists define the short run as a period of time so short that

answer

average product must be at its maximum value

question

An example of a short-run fixed factor of production is

answer

in the short run but not in the long run

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Which of the following factors is fixed in the long run?

answer

$400

question

When the total product curve is drawn in a figure that measures employment along the horizontal axis, it is a graph that shows the

answer

first decreases and then increases

question

The marginal product of labor is equal to the

answer

leaves marginal cost unchanged

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Increasing marginal returns to labor might occur at low levels of labor input because of

answer

always decreases

question

Diminishing marginal returns to labor occur because

answer

$9.44

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A firm's total product curve shows that at first it has

answer

$1000

question

The law of diminishing returns makes it clear that as more a variable input is employed, in the ________ the marginal product of the variable input eventually will ________.

answer

increases; does not change; increases

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Which of the following statements is TRUE?

answer

average variable cost

question

When the marginal and average products of labor are equal to each other, the

answer

average total cost increases as output increases

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A firm has fixed costs

answer

shifts both its MC curve and its ATC curve downward

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The table above gives costs at Jan's Bike Shop. Unfortunately, Jan's record keeping has been spotty. Each worker is paid $100 a day. Labor costs are the only variable costs of production. What is the total cost of producing 50 bikes?

answer

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Marginal cost ________ as the quantity produced is increased.

answer

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A decrease in the price of a fixed factor of production decreases total cost and

answer

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As output increases, average fixed cost

answer

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Sandra's Sweaters' production function is shown in the above table. Sandra rents three knitting machines for $30 a day each and hires workers at a wage rate of $40 a day. If Sandra produces 18 sweaters per day, what is her average total cost?

answer

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The above table gives some production and cost information for Flaming Fernando's, a restaurant that sells Fiery Frijoles. What is the total fixed cost of producing 4,500 frijoles?

answer

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question

As output increases, total cost ________, total fixed cost ________, and total variable cost ________.

answer

undefined

question

In the figure above, curve C is the ________ curve.

answer

undefined

question

When marginal cost is greater than average total cost, the

answer

undefined

question

Sticky Cakes is a bakery. A decrease in the wage rate that Sticky Cakes pays its workers

answer

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1 of 95

question

accounting profit

answer

accountants measure a firm's profit to ensure that the firm pays the correct amount of tax and to show its investors how their funds are being used.

question

economic profit

answer

economists measure a firm's profit to enable them to predict the firm's decisions, and the goal of these decisions is to maximize economic profit.

question

accounting profit equation

answer

profit = total revenue - total cost

question

economic profit equation

answer

profit = overall revenue - explicit costs - implicit costs

question

Accounting cost

answer

accountants use internal revenue service rules based on standards established by the Financial Accounting Standards Board to calculate a firm's depreciation cost

question

Opportuniy cost

answer

question

Bought in the market

answer

the firm incurs an opportunity cost when it buys resources in the market

question

Resources owned by the firm

answer

if the firm owns capital and uses it to produce its output, then the firm incurs an opportunity cost

question

Supplied by the firm's owner

answer

the firm implicitly rents the capital from itself. the firm's opportunity cost of using the capital it owns is called the implicit rental rate of capital

question

Economic profit

answer

total revenue minus total cost, with total cost measured as the opportunity cost of production

question

Normal profit

answer

the cost of entrepreneurship and is an opportunity cost of production

question

Perfect competition

answer

question

Perfect competition examples

answer

-world markets in wheat, corn, and other grains
-online purchases

question

Monopolistic competition

answer

question

Monopolistic competition examples

answer

-restaurants
-hairdressers
-clothing
-t.v. programmers

question

Oligopoly

answer

-is a market structure in which a small number of firms compete
-the firms might produce almost identical products or differentiated products
-barriers to entry limit entry into the market

question

Oligopoly examples

answer

-cellular networks
-air transportation
-music industry
-funeral services

question

Monopoly

answer

question

Monopoly examples

answer

-google
-facebook
-railways
-microsoft

question

Total product (TP)

answer

the total output produced in a given period

question

Total product formula

answer

total product = average product x labor

question

Total product curve

answer

the change in total products that results from a one-unit increase in the quantity of labor employed, with all other inputs remaining the same

question

Marginal product (MP)

answer

marginal product = change in input / change in output

question

Marginal product formula

answer

is equal to total product divided by the quantity of labor employed

question

Marginal product curve

answer

average product = total product / labor

question

Average product (AP)

answer

when marginal product exceeds average product

question

Average product formula

answer

when marginal product is below average product

question

Average product curve

answer

when marginal product equals average product

question

Average product increases

answer

the cost of the firm's fixed inputs; variable costs do not change with output

question

Average product decreases

answer

TFC = TC - TVC

question

Average product is at its maximum

answer

the cost of the firm's variable inputs; variable costs do not change with output

question

Total Fixed Cost (TFC)

answer

TVC = variable cost per unit x quantity output

question

Total Fixed Cost formula

answer

the cost of all resources used

question

Total Fixed Cost curve

answer

TC = TFC + TVC

question

Total Variable Cost (TVC)

answer

total fixed cost per unit of output

question

Total Variable Cost formula

answer

AFC = TFC/Q (output)

question

Total Variable Cost curve

answer

total variable cost per unit of output

question

Total Cost (TC)

answer

AVC = TVC/Q (output)

question

Total Cost Formula

answer

total costs per unit of output

question

Total Cost curve

answer

ATC = TC/Q (output)

question

Average Fixed Cost (AFC)

answer

the increase in total cost that results from a one-unit increase in total product

question

Average Fixed Cost formula

answer

change in total cost / change in output

question

Average Fixed Cost curve

answer

a level of production in which the marginal product of labor increases as the number of workers increases

question

Average Variable Cost (AVC)

answer

as a firm uses more of a variable input with a given quantity of fixed inputs, the marginal product of the variable eventually diminishes

question

Average Variable Cost formula

answer

the firm's cost curves are linked to its product curves

question

Average Variable Cost curve

answer

-technological change influences both the product curves and the cost curves
-an increase in productivity shifts the product curves upward and the cost curves downward

question

Average Total Cost (ATC)

answer

the relationship between the lowest attainable average total cost and output when both the plant and labor are varied (U-shaped)

question

Average Total Cost formula

answer

is U-shaped with decreasing average costs at low levels of output and increasing average costs at high levels of output.

question

Average Total Cost curve

answer

-long run average cost curve allows all factors of production to change
-short run average cost curve allow only variable costs to change

question

Marginal Cost (MC)

answer

are features of a firm's technology that lead to falling long-run average cost as output increases

question

Marginal Cost formula

answer

features of a firm's technology that lead to rising long-run average cost as output increases

question

Marginal Cost curve

answer

features of a firm's technology that lead to constant long-run average cost as output increases

question

Increase Marginal Returns

answer

question

The Law of Diminishing Marginal Returns

answer

question

Production Curves & Cost Curves

answer

market value

question

PC & CC technology

answer

economic depreciation

question

Long Run Average Cost Curve

answer

include the cost of using resources owned by the firm

question

Short Run Average Cost Curve

answer

There is not enough information to determine his economic profit, if any

question

Long Run Average Cost vs Short Run Average Cost

answer

$200,000 per year

question

Economies of Scale

answer

$45,000

question

Diseconomies of Scale

answer

economic depreciation and forgone interest

question

Constant Returns to Sale

answer

economic profits

question

Characteristics of Perfect Competition

answer

the entrepreneur is making only a normal profit

question

Demand Curve versus Market Demand Curve

answer

at least one factor of production cannot be varied

question

Over a given period, economic depreciation is the change in capital equipment's

answer

capital equipment

question

The difference between the market price of a new car used by a firm and the market price of the same car one year later is known as

answer

none of the above because all factors are variable in the long run

question

A firm's opportunity costs ________.

answer

maximum output attainable for each quantity of labor employed

question

Joe quits his job as an insurance agent and opens his own sporting goods store. If his profits as measured by his accountant are greater than zero, then

answer

increase in the total product that results from hiring one more worker with all other inputs remaining the same

question

answer

increasing specialization of tasks

question

An electrician quits her current job, which pays $40,000 per year. She can take a job with another firm for $45,000 per year or work for herself. The opportunity cost of working for herself is

answer

the capital resources used by the firm are fixed in the short run

question

Which of the following are two components of the opportunity cost of using capital already owned by the firm?

answer

increasing marginal returns and then diminishing marginal returns

question

Among the opportunity costs of a firm are all of the following EXCEPT

answer

short run; fall

question

If economic profit is equal to zero, then

answer

When marginal product is less than average product, average product is decreasing

question

Economists define the short run as a period of time so short that

answer

average product must be at its maximum value

question

An example of a short-run fixed factor of production is

answer

in the short run but not in the long run

question

Which of the following factors is fixed in the long run?

answer

$400

question

When the total product curve is drawn in a figure that measures employment along the horizontal axis, it is a graph that shows the

answer

first decreases and then increases

question

The marginal product of labor is equal to the

answer

leaves marginal cost unchanged

question

Increasing marginal returns to labor might occur at low levels of labor input because of

answer

always decreases

question

Diminishing marginal returns to labor occur because

answer

$9.44

question

A firm's total product curve shows that at first it has

answer

$1000

question

The law of diminishing returns makes it clear that as more a variable input is employed, in the ________ the marginal product of the variable input eventually will ________.

answer

increases; does not change; increases

question

Which of the following statements is TRUE?

answer

average variable cost

question

When the marginal and average products of labor are equal to each other, the

answer

average total cost increases as output increases

question

A firm has fixed costs

answer

shifts both its MC curve and its ATC curve downward

question

answer

undefined

question

Marginal cost ________ as the quantity produced is increased.

answer

undefined

question

A decrease in the price of a fixed factor of production decreases total cost and

answer

undefined

question

As output increases, average fixed cost

answer

undefined

question

answer

undefined

question

The above table gives some production and cost information for Flaming Fernando's, a restaurant that sells Fiery Frijoles. What is the total fixed cost of producing 4,500 frijoles?

answer

undefined

question

As output increases, total cost ________, total fixed cost ________, and total variable cost ________.

answer

undefined

question

In the figure above, curve C is the ________ curve.

answer

undefined

question

When marginal cost is greater than average total cost, the

answer

undefined

question

Sticky Cakes is a bakery. A decrease in the wage rate that Sticky Cakes pays its workers

answer

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