Price Theory-ECON 309 - Assignment Essays

question

long run

answer

all inputs are variable

question

Short run

answer

one input is fixed, labor is normally variable, while capital is fixed

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Marginal product of labor

answer

the change in output from hiring one additional unit of labor

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Marginal product of capital

answer

the increase in output caused by the addition of one more unit of capital. The marginal product of capital diminishes as more and more capital is added

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marginal cost

answer

the cost of producing one more unit of a good

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diminishing marginal returns

answer

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

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short run marginal cost

answer

is increasing whenever there is diminishing marginal returns to labor

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iso-quant

answer

curve of production that shows all combinations of capital and labor that can produce the same level of output

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iso-cost

answer

all combinations of inputs that require the same total expenditure/cost

question

Marginal Rate of Technical Substitution

answer

-the rate at which a firm can substitute capital for labor and hold output constant
-is negative because isoquants slope downward
-always negative

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returns to scale

answer

rate at which output increases as inputs are increased proportionately

question

constant returns to scale

answer

doubling all inputs doubles output

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increasing returns to scale

answer

doubling input more than doubles output

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decreasing returns to scale

answer

doubling input less than doubles output

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economies of scale (increasing returns to scale)

answer

average cost decrease with outputs

question

constant economies of scale

answer

total cost rises at the same rate as output rises

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diseconomies of scale

answer

increases in cost per unit when output increases

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perfect competition of production

answer

when two goods are consumes proportionately

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price taker

answer

considers market price fixed and they cant change it

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economic profit

answer

marginal gain over the next least alternative

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positive economic profit results in

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entry to the market

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negative economic profit results in

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exit of the market

question

zero economic profit results in

answer

no entry or exit of the market

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accounting profit

answer

revenue - explicit costs

question

economic profit

answer

revenue - explicit costs - opportunity costs
- is zero in long run equilibrium

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shut down price

answer

firm is indifferent between shutting down and operating

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when prices fall below, the firm will

answer

shutdown

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when prices rise above, the firm will

answer

operate at the quantity where p=MC

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firms supply is

answer

its marginal cost above shut down price

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break even price

answer

when firms profits are zero

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break even price; price falls below

answer

the firm suffers economic loss

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break even price; price is above

answer

the firm has positive profit

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In the short run the firm can only

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shut down

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In the long run the firm can

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shut down or exit the market but they will only shut down if they cannot cover variable costs

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When a firm shuts down they can

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produce again if the market improves

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When a firm exits the market they can

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liquidate capital

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long run equllibrium

answer

no firms want to exit or enter the market results in zero economic profit

question

long run supply

answer

all combinations of price and industry create an output that result in zero economic profit

question

perfect substitutes of production

answer

when two goods are priced the same when they are consumes

question

the steeper an isoquant

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the greater is the marginal productivity of labor relative to that of capital

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isoquants are convex because

answer

MRTS falls as labor increases & capital decreases

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averages are increasing when

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marginal is above the average

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averages are decreasing when

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marginal Is below the average

1 of 43

question

long run

answer

all inputs are variable

question

Short run

answer

one input is fixed, labor is normally variable, while capital is fixed

question

Marginal product of labor

answer

the change in output from hiring one additional unit of labor

question

Marginal product of capital

answer

the increase in output caused by the addition of one more unit of capital. The marginal product of capital diminishes as more and more capital is added

question

marginal cost

answer

the cost of producing one more unit of a good

question

diminishing marginal returns

answer

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

question

short run marginal cost

answer

is increasing whenever there is diminishing marginal returns to labor

question

iso-quant

answer

curve of production that shows all combinations of capital and labor that can produce the same level of output

question

iso-cost

answer

all combinations of inputs that require the same total expenditure/cost

question

Marginal Rate of Technical Substitution

answer

-the rate at which a firm can substitute capital for labor and hold output constant
-is negative because isoquants slope downward
-always negative

question

returns to scale

answer

rate at which output increases as inputs are increased proportionately

question

constant returns to scale

answer

doubling all inputs doubles output

question

increasing returns to scale

answer

doubling input more than doubles output

question

decreasing returns to scale

answer

doubling input less than doubles output

question

economies of scale (increasing returns to scale)

answer

average cost decrease with outputs

question

constant economies of scale

answer

total cost rises at the same rate as output rises

question

diseconomies of scale

answer

increases in cost per unit when output increases

question

perfect competition of production

answer

when two goods are consumes proportionately

question

price taker

answer

considers market price fixed and they cant change it

question

economic profit

answer

marginal gain over the next least alternative

question

positive economic profit results in

answer

entry to the market

question

negative economic profit results in

answer

exit of the market

question

zero economic profit results in

answer

no entry or exit of the market

question

accounting profit

answer

revenue - explicit costs

question

economic profit

answer

revenue - explicit costs - opportunity costs
- is zero in long run equilibrium

question

shut down price

answer

firm is indifferent between shutting down and operating

question

when prices fall below, the firm will

answer

shutdown

question

when prices rise above, the firm will

answer

operate at the quantity where p=MC

question

firms supply is

answer

its marginal cost above shut down price

question

break even price

answer

when firms profits are zero

question

break even price; price falls below

answer

the firm suffers economic loss

question

break even price; price is above

answer

the firm has positive profit

question

In the short run the firm can only

answer

shut down

question

In the long run the firm can

answer

shut down or exit the market but they will only shut down if they cannot cover variable costs

question

When a firm shuts down they can

answer

produce again if the market improves

question

When a firm exits the market they can

answer

liquidate capital

question

long run equllibrium

answer

no firms want to exit or enter the market results in zero economic profit

question

long run supply

answer

all combinations of price and industry create an output that result in zero economic profit

question

perfect substitutes of production

answer

when two goods are priced the same when they are consumes

question

the steeper an isoquant

answer

the greater is the marginal productivity of labor relative to that of capital

question

isoquants are convex because

answer

MRTS falls as labor increases & capital decreases

question

averages are increasing when

answer

marginal is above the average

question

averages are decreasing when

answer

marginal Is below the average

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