Economics Primer

Question 1

What equals a firms profit

Answer 1

Revenues minus the cost

Question 2

What does the total cost function show?

Answer 2

The total cost a firm would incur for a level of output

Question 3

What is the definition of fixed cost

Answer 3

Costs that remain constant as output increases

Question 4

What is an example of fixed cost

Answer 4

Administrative expenses and property taxes

Question 5

What is the definition of semi-fixed cost

Answer 5

Costs that are fixed over certain ranges of output but variable over other ranges

Question 6

What is an example of semi fixed cost

Answer 6

When you are ramping up production to the point that one truck for deliveries is not enough so you will get an get a second one, within these intervals the cost is fixed, but variable between them.

Question 7

What is the definition of average cost

Answer 7

Costs that vary per output of the firm

Question 8

What is the definition of marginal cost

Answer 8

Costs that refers to the rate of change of total cost with respect to output

Question 9

When average cost is decreasing marginal cost is….

Answer 9

less than the average cost

Question 10

When average cost is increasing marginal cost is….

Answer 10

greater than average cost

Question 11

When average cost is neither increases or decreases because it is constant, marginal cost is….

Answer 11

equal to average cost

Question 12

A short run cost function is

Answer 12

When a firm cannot adjust the size of its production facilities

Question 13

What is the definition of sunk cost

Answer 13

Costs that must be incurred no matter what the decision is and thus cannot be avoided

Question 14

What is the definition of avoidable costs

Answer 14

These costs can be avoided if certain choices are made

Question 15

What are accounting costs

Answer 15

Costs that emphasize historical costs (explicit)

Question 16

What are the use of Accounting statements (related to accounting costs)

Answer 16

These are designed to serve an audience outside the firm, for example lenders and equity investors

Question 17

What are economic costs and their purpose

Answer 17

Economic costs or better said opportunity costs look at the potential of taking one decision over the other (Implicit)

Question 18

How do you calculate accounting profit

Answer 18

Accounting profit = sales revenue - accounting cost

Question 19

How do you calculate economic profit

Answer 19

Economic profit = sales revenue - economic cost
= Accounting profit - (economic cost - accounting cost)

Question 20

What does the demand curve show

Answer 20

The demand curve describes the relationship between the quantity of that the firm is able to sell and the variables that influence that quantity

Question 21

What are the variables of the demand curve

There are 5

Answer 21

Price of the product
The prices of related products
The income and tastes of consumers
The quality of the product
Advertising

Question 22

What is the law of demand

Answer 22

The lower the price, the higher the demand
The higher the price, the lower the demand

Question 23

What is price elasticity of demand

Answer 23

The price elasticity of demand, commonly denoted by n, is the percentage change in quantity brought about by a 1 percent change in price

Question 24

How do you calculate price elasticity of demand

Answer 24

Price Elasticity of Demand = % of change in quantity demanded / % of change in price.

Question 25

When is demand inelastic

Answer 25

if N is less than 1

Question 26

When is demand elastic

Answer 26

if N is greater than 1

Question 27

What is the Total revenue function

Answer 27

TR(Q) = P*Q

Question 28

What is the average revenue function

Answer 28

AR = TR/Q

Question 29

What is the Marginal revenue function

Formula

Answer 29

MR= dTR/dQ d= derivative

Question 30

When demand is elastic, Is MR greater or smaller than 0

Answer 30

Greater than 0

Question 31

When demand is inelastic, Is MR greater or smaller than 0

Answer 31

Smaller than 0

Question 32

What is the theory of the firm

Answer 32

The theory of the firm follows that the ultimate objective is to make as large a profit as possible

Question 33

How to calculate change in total revenue

Answer 33

MR X ▲Q

Question 34

How to calculate change in total cost

Formula

Answer 34

MC X ▲Q

Question 35

How to calculate in total profit

Formula

Answer 35

(MR-MC) X ▲Q

Question 36

How can the firm increase profit when the MR > MC

Answer 36

They should sell more and to do so, it should lower its price

Question 37

How can the firm increase profit when the MR < MC

Answer 37

They should sell less and to do so, it should raise its price

Question 38

When does the optimal price and quantity occur

Answer 38

When MR =MC

Question 39

What is the theory of perfect competition

Answer 39

For example; an industry with many firms producing identical products (so that consumers choose among firms solely on the basis of price) and where firms can enter or exit the industry at will.

Question 40

What is Game theory

Answer 40

The analysis of optimal decision making when all decision makers are presumed to be rational.

Question 41

What is a Nash equilibrium

Answer 41

Each player is doing the best he or she can, given the strategies of the other players.

Question 42

When is the matrix form used in game theory

Answer 42

When each party moves simultaneously

Question 43

When is the game tree used in game theory

Answer 43

When each party moves sequential

Question 44

What is a Subgame perfect Nash equilibrium (SPNE)

Answer 44

In an SPNE, each player chooses an optimal action at each stage in the game that it might conceivably reach and believes that all other will behave in the same way.