Managerial Economics

Question 1

What Forces makes Market economies work?

Answer 1

Supply and demand

Question 2

<p>

| What do Supply and demand determine ?</p>

Answer 2

<p>
They determine the <span><span>quantity</span></span> of each good produced</p>

<p>
and the<span> <strong>price</strong></span> at which it is sold.</p>

Question 3

<p>
<br></br>
What does Demand curve Show?</p>

Answer 3

<p>
The Demand Curve <strong>relates</strong> the total quantity demanded of a good to the price charged for that<br></br>
good.</p>

<p>
The demand curve gives the quantity demanded as a function of price.</p>

Question 4

<p>
<br></br>
What affects the Demand for things ?</p>

Answer 4

<p>

| Income of buyers, price of related goods, expectations, tastes, </p>

Question 5

<p>

| What are DEMAND SHIFTERS?</p>

Answer 5

<ul>
	<li style="text-align: center;">
		Income</li>
	<li style="text-align: center;">
		The Prices of Other Goods  (complements, substitutes)</li>
</ul>

Question 6

<p>

| What does complement goods mean?</p>

Answer 6

<p>
A decrease in the price of one causes demand for the<br></br>
other to increase (shift to the right).</p>

Question 7

<p>

| What does substitute goods mean?</p>

Answer 7

<p style="text-align:center;">
	A decrease in the price of one causes demand for the other<br>
	to decrease (shift to the left).</p>

Question 8

<p>

| Demand Function is ?</p>

Answer 8

<p style="text-align: center;">
	D = D(p, I, pc, ps)</p>
<ul>
	<li>
		p = price ,</li>
	<li>
		I = income ,</li>
	<li>
		pc = price of a complement ,</li>
	<li>
		ps = price of a substitute<br />
		 </li>
</ul>

Question 9

<p>

| What does The Supply Curve show ?</p>

Answer 9

<p>
Relates the total <strong>quantity of a good </strong>offered for sale by all sellers to the<strong> price</strong><br></br>
charged for that good.</p>

Question 10

<p>

| What is the difference of Supplly Curve and Demand Curve ?</p>

Answer 10

<p>
The demand curve gives quantities that<br></br>
people desire to satisfy their wants (which<br></br>
obviously depend on price), while the supply curve<br></br>
gives the quantity that others want to supply,<br></br>
usually to maximize profits.</p>

Question 11

<p>

| What are Supply shifters ?</p>

Answer 11

<ul>
	<li style="text-align: center;">
		increases in the minimum wage,</li>
	<li style="text-align: center;">
		adoption of a new technology,</li>
	<li style="text-align: center;">
		imposition of new environmental regulations,</li>
	<li style="text-align: center;">
		the entry of new firms.</li>
</ul>

Question 12

<p>

| What is market clearing price level ? (equilibrium price)</p>

Answer 12

<p>
At the equilibrium price<br></br>
level the quantity demanded is equal to the quantity supplied. No goods Unsold.</p>

Question 13

<p>

| What does the price elasticity of demand mean?</p>

Answer 13

<p style="text-align: center;">
	the ratio of the percentage change in quantity demanded to the percent change in price.</p>
<p style="text-align: center;">
	Percent change in quantity /<br />
	Percent change in price</p>

Question 14

<p>
What are<br></br>
factors of production (inputs) ?</p>

Answer 14

<ul>
<li>
<strong>Labour</strong></li>
<li>
<strong>Land:</strong> Land and natural resources</li>
<li>
<strong>Capital</strong> (physical capital): All manufactured inputs such as plant, tools, machinery etc.</li>
<li>
<strong>Entrepreneurship:</strong> Initiating and organising of the production of new goods, or the introduction of new techniques, and the risk taking associated with it. </li>
</ul>

Question 15

<p>

| What is Total physical product (TPP) ?</p>

Answer 15

<p>

| Total output of a product per period of time that is obtained from a given amount of inputs.</p>

Question 16

<p>

| &bull;What is Average physical product (APP) ?</p>

Answer 16

<p>
Total output per unit of the variable factor in question.</p>

<p>
For example APP of labour is APPL = TPP/L </p>

Question 17

<p>

| &bull;What is Marginal physical product (MPP) ?</p>

Answer 17

<p>

| The extra output gained by the employment of one more unit of the variable factor.</p>

Question 18

<p>

| What is Fixed factor ?</p>

Answer 18

<p>
An input that cannot be changed in supply within a given time period.</p>

<p>
(equipment, plant vs.)</p>

Question 19

<p>

| What is a Variable factor ?</p>

Answer 19

<p>
An input that can be changed in supply within a given time period.</p>

<p>
(Labor)</p>

Question 20

<p>

| What is the Law of diminishing (marginal) returns ?</p>

Answer 20

<p>
When increasing amounts of a variable factor are used with a given amount of a fixed factor, the MPP of additional units of variable factor will eventually fall.</p>

<p>
Long-run production function is subject to law of diminishing returns.</p>

Question 21

<p>

| What are Total Costs (TC) ?</p>

Answer 21

<p>
sum of all costs of production. In the short run, TC includes all variable costs (VC) as well as all fixed costs (FC):</p>

<p>
TC = FC + VC </p>

Question 22

<p>

| What are Variable Costs (VC) ? </p>

Answer 22

<p>

| are all costs that change when output changes. </p>

Question 23

<p>

| What areFixed Costs (FC) ? </p>

Answer 23

<p>

| All costs that are independent of the level of output</p>

Question 24

<p>

| What is Average Cost (AC) ? </p>

Answer 24

<p>
per unit cost of production. </p>

<p>
AC = (TC/Q) </p>

Question 25

<p>

| What is Marginal Cost (MC) ? </p>

Answer 25

<p>
Change in Total Cost caused by a one unit change in output</p>

<p>
MC = (Change in Total Cost) / (Change in Output) = (dTC/dQ)</p>