2.7-The concept of the margin Flashcards
What does ‘marginal’ refer to in economics?
Marginal refers to the additional or incremental change resulting from a decision.
True or False: Marginal cost is the cost of producing one additional unit of a good.
True
Fill in the blank: Marginal utility is the additional satisfaction gained from consuming _____ additional unit of a good.
one
What is the formula for calculating marginal cost (MC)?
MC = Change in Total Cost / Change in Quantity
What happens to marginal utility as consumption increases?
Marginal utility typically decreases as consumption increases, a concept known as diminishing marginal utility.
Multiple Choice: Which of the following is an example of marginal analysis? A) Calculating total revenue B) Deciding whether to produce one more unit of a product C) Assessing historical data
B) Deciding whether to produce one more unit of a product
What is the relationship between marginal cost and marginal revenue at equilibrium?
At equilibrium, marginal cost equals marginal revenue (MC = MR).
True or False: A firm should continue to produce as long as marginal revenue exceeds marginal cost.
True
Short Answer: What does the term ‘diminishing returns’ mean in the context of marginal analysis?
Diminishing returns refer to a decrease in the incremental output gained from additional units of input.
Fill in the blank: The _____ is the additional benefit received from consuming one more unit of a good.
marginal utility
Multiple Choice: Which of the following is NOT a decision based on marginal analysis? A) Choosing to study an extra hour B) Purchasing a new car C) Deciding on a vacation destination
B) Purchasing a new car
What is the significance of the marginal cost curve in production?
The marginal cost curve helps firms determine the optimal level of production.
True or False: Marginal analysis only applies to firms and not to individual consumers.
False
Short Answer: How do consumers use marginal utility in their purchasing decisions?
Consumers use marginal utility to decide whether the additional satisfaction from a good justifies its cost.
What is the marginal product of labor?
The marginal product of labor is the additional output produced by one more unit of labor.
Fill in the blank: When marginal cost is less than marginal revenue, a firm should _____ production.
increase
Multiple Choice: Which of the following best describes marginal cost? A) Total cost divided by total output B) The cost associated with the last unit produced C) The average cost of all units produced
B) The cost associated with the last unit produced
True or False: The law of diminishing marginal returns applies only to labor inputs.
False
Short Answer: Why is understanding the margin important for economic decision-making?
Understanding the margin helps individuals and firms make informed choices that maximize utility and profit.
What is the marginal rate of substitution?
The marginal rate of substitution is the rate at which a consumer is willing to give up one good in exchange for another while maintaining the same level of utility.
Fill in the blank: In a perfectly competitive market, firms maximize profit where _____ equals marginal cost.
marginal revenue
Multiple Choice: Which of the following illustrates the concept of diminishing marginal utility? A) Eating a second slice of pizza B) Buying a new shirt C) Increasing savings
A) Eating a second slice of pizza
True or False: Marginal analysis is irrelevant in long-term decision-making.
False
Short Answer: How can marginal analysis assist in resource allocation?
Marginal analysis helps determine the most efficient allocation of resources by comparing the benefits and costs of different options.
