630. Microneconomics. Cha 3-4.

Question 1

Average cost is irrelevant to ___.

Answer 1

an extent decision.

Question 2

How do average costs hide fixed costs?

Answer 2

by lumping fixed costs with variable costs.

Question 3

Fixed Cost Fallacy

Answer 3

using sunk costs in the decision process of future decisions

Question 4

Sunk Cost

Answer 4

sunk cost is a cost that has already been incurred and cannot be recovered.

Question 5

The relevant costs and benefits of a decision are …

Answer 5

…those that vary with the consequence of the decision.

Question 6

What cost is irrelevant to an extent decision?

Answer 6

AC - average cost

Question 7

What costs are relevant to extent decisions?

Answer 7

MC - marginal costs

Question 8

What is marginal cost with regard to extent decisions?

Answer 8

Should we make one more?

Question 9

What is marginal analysis?

Answer 9

break down the decision into small steps

compute costs&benefits of another step

if benefits are greater than costs, take another step

Question 10

Marginal Cost

Answer 10

The cost incurred by producing and selling one more unit

Question 11

Marginal Revenue

Answer 11

revenue gained by selling one more unit

Question 12

If MR is greater than MC then,

Answer 12

sell another unit

Question 13

If MR = MC then you are ___.

Answer 13

maximizing profit

Question 14

What is the typical relationship between marginal cost and revenue with each additional step?

Answer 14

marginal cost rises and marginal revenue falls

Question 15

After taking a step, you have to recompute what?

Answer 15

marginal cost and benefit

Question 16

Opportunity Cost

Answer 16

the forgone next most valuable opportunity lost as a result of the decision

Question 17

marginal analysis can tell you what but not what?

Answer 17

what direction but not how far

Question 18

how hard to work is an ____ decision

Answer 18

extent

Question 19

shirking

Answer 19

responding to the smaller marginal benefit of selling with less effort.

low hanging fruit

Question 20

to induce higher effort ___

Answer 20

use incentives that reduce marginal costs or increase marginal benefits

Question 21

fixed costs or benefits do not ___

Answer 21

change effort

Question 22

what is the difference between revenue and profit?

Answer 22

The short answer is that revenue is the total of all money that a company receives from people paying for its products or services, and profit is what is left over at the very end after the company has paid for the cost of goods sold, plus all of its expenses.