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Econ 142 > Exam 4 (11, 12, 13) > Flashcards

Exam 4 (11, 12, 13) Flashcards

1
Q

Production (def)

A

the process of converting inputs to outputs

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2
Q

Production function (def)

A

the relationship between the quantity of inputs a firm uses and the quantity of outputs it produces

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3
Q

Fixed inputs

A

whose quantity is fixed for a given period of time and cannot be varied

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4
Q

Variable inputs

A

whose quantity the firm can vary at any length of time

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5
Q

Fixed input example

A

equipment/capital, land, building you’re renting

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6
Q

Variable input example

A

labor

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7
Q

Short run (def)

A

time period during which at least one input is fixed

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8
Q

Long run (def)

A

time period during which all inputs can be varied

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9
Q

Marginal product of an input

A

the additional quantity of output that is produced by using one more unit of that input

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10
Q

Marginal Productivity of Labor

A

(Change in Quantity of output) / (change in quantity of labor)

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11
Q

Diminishing returns to an input

A

marginal product initially rises as more workers are hired, then it declines

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12
Q

Total product curve (Def)

A

for a given fixed input, it shows how the quantity of output depends on the quantity of the variable input

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13
Q

Total product curve (shape)

A

upward sloping but gets flatter as more workers are hired because of diminishing returns to labor

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14
Q

Fixed cost (def)

A

does not depend on the quantity of output produced. It is the cost of the fixed input

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15
Q

Variable cost (def)

A

depends on the quantity of output produced. It is the cost of the variable input

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16
Q

Total cost =

A

Fixed cost + Variable cost

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17
Q

Total cost curve (shape)

A

upward sloping; b/c of the fixed cost, the curve doesn’t start at 0, it starts at the amount = fixed cost

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18
Q

Marginal cost (def)

A

change in total cost from one additional unit of output

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19
Q

Marginal cost curve (shape)

A

is upward sloping because of diminishing returns

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20
Q

Average Total Cost

A

total cost per unit of output produced

= (TC) / (Q)

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21
Q

Average Variable Cost

A

Variable cost per unit of output produced

= (VC) / (Q)

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22
Q

Average Fixed Cost

A

fixed cost per unit of output produced
= (FC) / (Q)
–As Q increases, AFC decreases

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23
Q

Spreading effect

A

larger output means there is more output over which fixed costs are spread leading to lower average fixed cost

24
Q

AVC curve (shape)

A

is upward sloping but is flatter than the MC curve

25
Q

AFC curve (shape)

A

downward sloping because of the spreading effect

26
Q

ATC curve (shape)

A

is U-shaped

27
Q

MC curve intersects the ATC curve _______.

A

from below crossing at its lowest point

28
Q

When MC is below ATC …

A

ATC is downward sloping (falling)

29
Q

When MC is above ATC

A

ATC is upward sloping (rising)

30
Q

All inputs are ______ in the long-run

A

variable

31
Q

Long run ATC curve relationship to short run ATC curve

A

LRATC curve is the outer envelope of all SRATC curves for different quantities of fixed inputs

32
Q

Key Characteristics of Perfect Competition

A
  1. Many buyers and sellers each w/ a small market share
  2. The product is standardized across Sellers
  3. Free entry and exit
33
Q

Key Characteristic of Perfect Competition:

1. Many buyers and sellers each w/ a small market share

A
  • -Market share = individual output divided by total industry output
  • -This means both sellers and buyers are price-takers; their actions have no effect on the price
34
Q

Key Characteristic of Perfect Competition:

2. The product is standardized across Sellers

A

–Standardized Product = consumers regard products sold by different producers as equivalent

35
Q

Key Characteristic of Perfect Competition:

3. Free entry and exit

A

–New producers can easily enter into an industry and existing producers can easily leave that industry

36
Q

Total Rev =

A

P * Q

37
Q

Profit =

A

Total Rev - Total Cost

38
Q

Marginal Rev (def)

A

change in total revenue generated by an additional unit of outputs

39
Q

Marginal Rev =

A

change in total rev / change in quantity

40
Q

For perfect competition Marginal Rev …

A

is constant and equal to the market price

41
Q

Optimal output rule

A

profit is maximized by producing the quantity of output at which the MR of the last unit produced is equal to it’s MC

42
Q

Profit =

A

(Price - ATC) * Q

43
Q

Break-even price (def)

A

market price at which a firm earns 0 profit (economic profit)

44
Q

When do you break even?

A

If the price is just high enough to cover the ATC

45
Q

In the short run, firms will choose to produce (even at a loss) if …

A

they can at least cover their variable costs

–Shortcut: is the price above or below the minimum AVC?

46
Q

In the long run, new firms enter the market as long as …

A

there is a positive economic profit

47
Q

A market is in log run equilibrium when …

A

the quantity supplied = the quantity demanded and no firms have incentive to enter or exit the industry

48
Q

Long run Supply curve is …

A

always flatter (more elastic) than the short run Supply curve

49
Q

Monopolist (def)

A

a single producer of a good w/ no close substitute (industry controlled by a monopolist is known as a monopoly)

50
Q

Market power (def)

A

the ability of a firm to raise prices

51
Q

Barriers to entry

A
  1. Control of natural resources or inputs
    - The diamond industry was controlled by monopolist who had control of the diamond mines
  2. Increasing returns to scale
  3. Technological superiority
    - can’t enter a market if you lack knowledge/technology
  4. Government-made barriers, including patents and copy rights
52
Q

Demand curve of a perfectly competitive producer

A

is constant – a perfectly elastic demand curve

53
Q

Demand curve of a monopolist

A

downward sloping

54
Q

MR for monopolies is ___________, but _________ for perfectly competitive

A

downward sloping; constant

55
Q

Profit is maximized where

A

MR = MC

56
Q

2 Steps for profit maximizing in monopoly

A
  1. Choosing a quantity
    - Where MR and MC intersect
  2. Choosing a Price
    - After picking Q, follow the graph to the demand curve, which shows how much consumers will pay

Econ 142 (5 decks)

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