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Principles of Microeconomics > Exam 2 Material > Flashcards

Exam 2 Material Flashcards

1
Q

Sunk Costs

A

sunk costs are unrecoverable costs that should not effect current decisions

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2
Q

In the short run, fixed costs are

A

sunk costs

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3
Q

In the short run, fixed costs should be

A

ignored

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4
Q

Economic profit

A

total revenue minus total costs (total cost= explicit + implicit costs)

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5
Q

If total revenue is greater than total cost, then economic profit is

A

positive

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6
Q

if total revenue is less than total cost, then economic profit is

A

negative

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7
Q

Accounting costs are only those costs that the firm

A

explicity pays (i.e. costs that an accountant sees)

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8
Q

Economic profit is always ____ than accounting profit

A

less

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9
Q

Do accounting costs account for the owner’s forgone value of time?

A

no. The value of the owner’s time is an implicit cost.

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10
Q

Output is the same thing as

A

total product

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11
Q

If a firm makes pizzas, its total product will be measured in terms of

A

pizzas

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12
Q

Inputs

A

are resources that a firm uses to produce a final product

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13
Q

The variable input discussed in class is

A

labor (i.e. workers)

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14
Q

For a pizza company, an example of a fixed input is

A

ovens

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15
Q

In the short run only ____ inputs can be changed

A

variable

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16
Q

Teamwork and specialization occur in the _____ portion of the total product curve.

A

convex

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17
Q

Congestion occurs in the ____ portion of the total product curve.

A

concave

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18
Q

The marginal product of labor

A

the change in total output that results from increasing the amount of labor by 1 unit.

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19
Q

Eventually, the marginal product of labor

A

decreases

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20
Q

The total product curve is convex when the output is ____ at an _____ rate.

A

increasing; increasing

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21
Q

The total product curve is concave when the ouptut is _____ at a _____ rate

A

increasing; decreasing

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22
Q

True or False: an extra worker will always add to total product

A

false

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23
Q

When there is one worker: 2 televisions are made per hour. When there are two workers: there are 10 televisions made per hour. Hence, the marginal product of the 2nd worker is

A

8 televisions per hour

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24
Q

the marginal product curve reflects changes in the _____ curve

A

total product

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25
Q

When the total product curve is convex, marginal product is

A

increasing

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26
Q

When the total product curve is concave, marginal product is

A

decreasing

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27
Q

Suppose the 4th worker produces an additional 6 pizzas. Is marginal product increasing or decreasing?

A

not enough information

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28
Q

When total product reaches its maximum, marginal product equals

A

0

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29
Q

Marginal product is the slope of the

A

total product curve

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30
Q

Average product is a measure of

A

how much each worker produces on average.

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31
Q

When marginal product is higher than average product, average product is

A

rising

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32
Q

Wage

A

is a payment to an employee for labor services

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33
Q

Variable costs

A

are costs that change with the amount of output being produced.

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34
Q

In the case of labor, variable cost=

A

of workers*wages

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35
Q

If 4 workers are hired at a wage of $10/hr, VC=

A

$40

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36
Q

True or False. Variable costs and marginal costs are essentially the same thing

A

False

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37
Q

When total product increases, then variable costs will ___

A

increase

38
Q

Variable cost can be graphed by plotting ____ on the y-axis and ____ on the x-axis

A

variable cost; total product

39
Q

Marginal cost

A

is the cost incurred by producing one additional unit of a good.

40
Q

Suppose with 3 workers: VC= $30 and TP= 20. With 4 workers: VC= $40 and TP= 25. Marginal cost=

A

$2 per unit

41
Q

The formula for marginal cost=

A

change in VC/ change in TP

42
Q

If change in variable cost= $5, and change in quantity=2, then marginal cost=

A

$2.50 per unit

43
Q

When there is teamwork and specialization, marginal cost is

A

decreasing

44
Q

When there is congestion (i.e. decreasing productivity), marginal cost is

A

increasing

45
Q

Changes in marginal cost are always the result of changes in

A

productivity

46
Q

If you keep hiring more workers, then at some point they will inefficiently use the ___ ___

A

fixed inputs (thus marginal cost inreases)

47
Q

When plotting the marginal cost curve, what goes on the x-axis?

A

TP

48
Q

When graphing marginal product, what goes on the x-axis?

A

of workers

49
Q

Marginal cost is rising when marginal product is

A

falling

50
Q

When marginal product is rising, marginal cost is

A

falling

51
Q

When marginal cost is at a minimum, then ____ is at a maximum

A

marginal product

52
Q

marginal cost and marginal product are ____ related

A

inversely

53
Q

The slope of the variable cost curve is

A

marginal cost

54
Q

Marginal product is the addition to total product from

A

hiring one more worker

55
Q

marginal cost is the addition to total costs from

A

producing another unit

56
Q

You can find marginal cost by dividing W by

A

MP. (MC=wage/MP)

57
Q

True or false: marginal product and marginal cost curves are mirror images of one another.

A

true

58
Q

Short run

A

a brief period of time during which only one input can be varied

59
Q

In class examples, what was the variable input?

A

The number of workers

60
Q

Fixed inputs

A

inputs in the production production process that do not change with changes in output. Examples are machinery and factories.

61
Q

Total fixed costs (FC)

A

short-run costs that do not vary with output

62
Q

Do all firms have fixed inputs in the short run?

A

yes

63
Q

The fixed inputs are usually the ____ and equipment, and the variable input is ____.

A

factory; labor

64
Q

To produce output, firms have to combine ____ and ____ inputs.

A

fixed; variable

65
Q

Are there fixed inputs in the long run?

A

no. Every input is variable.

66
Q

Can a small company transform into a large company in the short run?

A

no

67
Q

Can a small company transform into a large company in the long run?

A

yes

68
Q

Can a firm vary the size of its factory in the short run?

A

no

69
Q

Can a firm vary the size of its factory in the long run?

A

yes

70
Q

A firm with market power is called a price ____

A

setter

71
Q

How much market power do competitive firms have?

A

zero

72
Q

Competive firms are called price ____

A

takers

73
Q

How much influence does a competive firm have over the price the good it sells?

A

zero

74
Q

Do competitive firms have to accept the price determined by the market?

A

yes

75
Q

A firm that has market power is usually ____ relative to the size of the market.

A

large

76
Q

Can price setters influence the price of their product?

A

yes

77
Q

What are the 3 characteristics of perfect competition?

A
  1. the output of a single firm is relatively small. 2) all firms sell identical products and customers do not distinguish between products. 3) there are no barriers to entry.
78
Q

What is a competitive firm’s demand curve determined by?

A

the market price. a firm’s demand curve is flat and equal to the market price.

79
Q

If a firm tries to raise their price above the market price, what happens?

A

the firm sells nothing

80
Q

how many units can a firm sell at the market price?

A

as much they want

81
Q

what is the difference between ‘market price’ and ‘equilibrium price’?

A

nothing. they are the same thing.

82
Q

What is the formula for total revenue (TR)?

A

TR= P*y In other words price*quantity.

83
Q

What is the difference between total product and quantity?

A

nothing. they are the same thing.

84
Q

If the market price is $4 and y= 20. What is total revenue?

A

$80

85
Q

The total revenue curve looks like a _____

A

straight line with a positive slope.

86
Q

A competitive firm’s profit maximizing output level is where its MC curve equals

A

the product price. (the MC curve must be increasing at this point)

87
Q

When q=3; MC= $4, when q=4; MC= $5. If the price is $4.50, how many units should the firm sell?

A

3 (assuming fractional units are not an option)

88
Q

Marginal revenue

A

the change in total revenue that results from a change in output

89
Q

For a competitive firm, what is the difference between price and marginal revenue?

A

nothing. they are the same thing for a competitive firm.

90
Q

On a graph, what shape is TR?

A

a rectangle

Principles of Microeconomics (3 decks)

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