Exam 2 (Chapters 6, 7, and 8)

Question 1

The total satisfaction you derive from consumption; this could refer to either your total utility of consuming a particular good or your total utility from all consumption

Answer 1

Total utility

Question 2

The change in your total utility from a one-unit change in your consumption of a good

Answer 2

Marginal utility

Question 3

The more of a good a person consumers per period, the smaller the increase in total utility from consuming one more unit, other things constant

Answer 3

Law of diminishing marginal utility

Question 4

The condition in which an individual consumer’s budget is exhausted and the last dollar spent on each good yields the same marginal utility; therefore, utility is maximized

Answer 4

Consumer equilibrium

Question 5

The dollar value of the marginal utility derived from consuming each additional unity of a good

Answer 5

Marginal valuation

Question 6

The difference between the most a consumer would pay for a given quantity of a good and what the consumer actually pays

Answer 6

Consumer surplus

Question 7

Opportunity cost of resources employed by a firm that takes the form of cash payments

Answer 7

Explicit cost

Question 8

A firm’s opportunity cost of using its own resources or those provided by its owners without a corresponding cash payment

Answer 8

Implicit cost

Question 9

A firm’s total revenue minus its explicit costs

Answer 9

Accounting profit

Question 10

A firm’s total revenue minus its explicit and implicit costs

Answer 10

Economic profit

Question 11

The accounting profit earned when all resources earn their opportunity cost

Answer 11

Normal profit

Question 12

Any resource that can be varied in the short run to increase or decrease production

Answer 12

Variable resource

Question 13

Any resource that cannot be varied in the short run

Answer 13

Fixed resource

Question 14

A period during which at least on of a firm’s resources is fixed

Answer 14

Short run

Question 15

A period during which all resources under the firm’s control are variable

Answer 15

Long run

Question 16

A firm’s total output

Answer 16

Total product

Question 17

The relationship between the amount of resources employed and a firm’s total product

Answer 17

Production function

Question 18

The change in total product that occurs when the use of a particular resource increases by one unit, all other resources constant

Answer 18

Marginal product

Question 19

The marginal product of a variable resource increases as each additional unity of that resource is employed

Answer 19

Increasing marginal returns

Question 20

As more of a variable resource is added to a given amount of another resource marginal product eventually declines and could become negative

Answer 20

Law of diminishing marginal returns

Question 21

Any production cost that is independent of the firm’s rate of output

Answer 21

Fixed cost

Question 22

Any production cost that changes as the rate of output changes

Answer 22

Variable cost

Question 23

The sum of fixed cost and variable cost, or TC = FC + VC

Answer 23

Total cost

Question 24

The change in total cost resulting from a one-unit change in output; the change in total cost divided by the change in output, or MC = change in TC/change in q

Answer 24

Marginal cost

Question 25

Variable cost divided by output, or AVC = VC/q

Answer 25

Average variable cost

Question 26

Total cost divided by output, or ATC = TC/q; the sum of average fixed cost and average variable cost, or ATC = AFC + AVC

Answer 26

Average total cost

Question 27

Forces that reduce a firm’s average cost as the scale of operation increases in the long run

Answer 27

Economies of scale

Question 28

Forces that may eventually increase a firm’s average cost as the scale of operation increase in the long run

Answer 28

Diseconomies of scale

Question 29

A curve that indicates the lowest average cost of production at each rate of output when the size, or scale, of the firm varies; also called the planning curve

Answer 29

Long-run average cost curve

Question 30

A cost that occurs when, over some range of output, long-run average cost neither increases nor decreases with changes in firm size

Answer 30

Constant long-run average cost

Question 31

The lowest rate of output at which a firm takes full advantage of economies of scale

Answer 31

Minimum efficient scale

Question 32

Important features of a market, such as the number of firms, product uniformity across firms, firm’s ease of entry and exit, and forms of competition

Answer 32

Market structure

Question 33

A market structure with many fully informed buyers and sellers of a standardized product and no obstacles to entry or exit of firms in the long run

Answer 33

Perfect competition

Question 34

A standardized product, a product that does not differ across producers, such as bushels of wheat or an ounce of gold

Answer 34

Commodity

Question 35

A firm that faces a given market price and whose quantity supplied has no effect on that price; a perfectly competitive firm that decides to produce must accept, or “take,” the market price

Answer 35

Price taker

Question 36

The firm’s change in total revenue from selling an additional unity; a perfectly competitive firm’s marginal revenue is also the market price

Answer 36

Marginal revenue (MR)

Question 37

To maximize profit or minimize loss, a firm should produce the quantity at which marginal revenue equals marginal cost; this rule holds for all market structures

Answer 37

Golden rule of profit maximization

Question 38

Total revenue divided by quantity, or AR = TR/q; in all market structures, average revenue equals the market price

Answer 38

Average revenue

Question 39

A curve that shows how much a firm supplies at each price in the short run; in perfect competition, that portion of a firm’s marginal cost curve that intersects and rises above the low point on its average variable cost curve

Answer 39

Short-run firm supply curve

Question 40

A curve that indicates the quantity supplied by the industry at each price in the short run; in perfect competition, the horizontal sum of each firm’s short-run supply curve

Answer 40

Short-run industry supply curve

Question 41

A curve that shows the relationship between price and quantity supplied by the industry once firms adjust in the long run to any change in market demand

Answer 41

Long-run industry supply curve

Question 42

An industry that can expand or contract without affecting the long-run per-unit cost of production; the long-run industry supply curve is horizontal

Answer 42

Constant-cost industry

Question 43

An industry that faces higher per-unit production costs as industry output expands in the long run; the long-run industry supply curve slopes upward

Answer 43

Increasing-cost industry

Question 44

The condition that exists when production uses the least-cost combination of inputs; minimum average cost in the long run

Answer 44

Productive efficiency

Question 45

The condition that exists when firms produce the output most preferred by consumers; marginal benefit equals marginal cost

Answer 45

Allocative efficiency

Question 46

A bonus for producers in the short run; the amount by which total revenue production exceeds variable cost

Answer 46

Producer surplus

Question 47

The overall well-being of people in the economy; maximized when the marginal cost of production equals the marginal benefit to consumers

Answer 47

Social welfare