EXAM MASTERLIST Flashcards
The average total cost curve will be downward sloping when
MC < ATC
Economic cost is what
the value of all resources used to produce a good
What is price elasticity of demand?
Its how sensitive buyers are to a change in price
Why is average total cost important to a business?
It tells a firm what the profit per unit produced is
When is total utility maximized?
When marginal utility is neither positive nor negative
Additional pleasure from a good decreases as more of it is consumed, this is _________
The Law of Diminishing Marginal Utility
Changes in short-run total costs result in changes in….
Variable costs
If the demand for a product is elastic, then _______________
% change in quantity demanded is greater than the % change in price
What occurs when the marginal cost curve rises?
Total costs will rise, when MC is positive
In the short run, when a firm produces zero output, total cost equals
Fixed Costs
What does a production function show?
The max amounts of output that can be produced from different combinations of factor inputs
If two goods are complementary
Cross-price elasticity will be negative
Price elasticity of demand formula…
% change in quantity demanded / % change in price
The law of diminishing returns is reflected in
the shape of the marginal cost curve
Cross-price elasticity
How consumers react to a change in a goods price
Marginal Utility
The additional satisfaction received from consuming an additional unit of a good
When the average total cost curve rises, the marginal cost curve will …
be above the average total cost curve
What is likely to have a price elasticity coefficent > 1
Long term air travel
Normal Good
Demand for a normal good rises when income rises
Consumer Surplus Formula
Amount willing to pay - actual price
If two goods substitute eachother
Then the quantity demanded for good x will fall with a reduction in price of good y
The most desirable rate of output for a firm is the output that
Maximizes total profit
Fixed Cost + Variable Cost =
Total Cost
When a firm increases variable input w/o changing its fixed input….
the firm will experience diminishing returns
Why does price discrimination work for airports?
Buyers do not have information about the true price
ATC =
Total Cost / Amount produced
What is a inferior good?
A good that experiences decreased sales when incomes increase
What happens when MPP falls?
MC of each output rises
If the sign on the income elasticity formula is positive then
the good is normal
The MCC curve intersects with what other curves?
ATC and AVC
Total Utility
How much marginal utility a good has given an individual
When the price elasticity has an absolute value
the quantity demanded will decrease by that amount for every 1% decrease in price
A good is inferior when
its income elasticity of demand is negative
Accounting cost
Labor + Equipment + Materials
Profit per unit is maximized when
ATC is minimized
Barrier to entry
Obstacles that make it hard for firms to enter a market
When will a production shut down?
When price is below AVC
The demand curve confronting a competitive firm is
Horizontal, while market demand is downward-sloping
Marginal Revenue is always ________ for a competitive firm
Constant
Improvements to technology causes ATC to ___________
shift down
Perfect Competition
many firms with no market power
If a new firm opens
the market supply curve will shift to the right
A perfectly competitive firm is a price taker because
prices are determined by several buyers and sellers
Profit per unit
Price - ATC
A monopoly realizes larger profits than a comparable competitive market by
Reducing production and pushing prices up
A monopolist will find that its marginal revenue curve
Lies below its demand curve and is steeper than its demand curve.
A firm maximizes profit when
Total revenue exceeds total cost by the greatest amount.
What is normal profit
profits covering all explicit costs and implicit costs
When technology improves, the firm’s marginal cost curve shifts
Downward, and supply increases.
A firm’s total revenue can be determined by
Price times quantity.
Which of the following does not affect marginal costs?
An increase in property taxes.
If a perfectly competitive firm is producing a rate of output at which MC exceeds price, then the firm
Can increase its profit by decreasing output.
When a perfectly competitive firm should expand output?
P> MC
Monopolists set prices
At the output where marginal revenue equals marginal cost.
A patent gives a firm the exclusive right to produce a product for
20 years
Short-run profits are maximized at the rate of output where
Marginal revenue is equal to marginal cost.
A monopolist has market power because it
Faces a downward-sloping demand curve for its own output.
