Microeconomics exam 2

Question 1

Short run

Answer 1

at least one of firms inputs (labour or capital) is fixed

Question 2

Long run

Answer 2

None of firms inputs to production are fixed

Question 3

Diminishing returns

Answer 3

as successive units of variable input are added and all other inputs are fixed, then the marginal product of that inout with decrease beyond some amount of that variable input

Question 4

Inputs to production

Answer 4

resources used to create goods and services - land, labour, capital

Question 5

Total product

Answer 5

Total amount go good a firm produced

Question 6

Marginal Product of an input

Answer 6

Additional output associated with additional unit of an input - total quantity / total unit of input

Question 7

Average input of a product

Answer 7

output per unit of an input

Question 8

Explicit cost

Answer 8

Monetary payments a firm makes to those from whom it purchases resources it doesn’t own

Question 9

Implicit cost

Answer 9

Opportunity cost of using resources the firm already owns

Question 10

total fixed cost

Answer 10

does not change wot output, arises from fixed input

Question 11

total variable cost

Answer 11

costs that do not change with output

Question 12

total cost

Answer 12

Total variable + Total fixed cost

Question 13

average fixed cost

Answer 13

TFC / Q

Question 14

average variable cost

Answer 14

TVC / Q

Question 15

average total cost

Answer 15

TC / Q or AVC + AFC

Question 16

marginal cost

Answer 16

Additional cost to produce next unit of output
= ATC / Total Q = ATVC / Total Q

Question 17

constant returns to scale

Question 18

economies of scale

Answer 18

Feature of the firms technology that causes the long run average to decrease

Question 19

labour specialisation

Answer 19

Results in decrease long run costs

Question 20

cube square rule

Answer 20

doubling down size does not necessarily equal doubling the cost

Question 21

technological tradeoff

Answer 21

Some technologies are cost minimising only at larger quantities of output

Question 22

indivisibilities of capital

Answer 22

cost of unused capacity is spread over more units of production: some items cannot be halved

Question 23

diseconomies of scale

Answer 23

feature of the firms technology that causes the long run average cost to increase

Question 24

monitoring costs

Answer 24

more resources must be used to keep workers on task as more workers are hired

Question 25

communication costs

Answer 25

relaying information about costs to others takes up time that could have been used more effectively

Question 26

minimun efficient scale

Answer 26

The lowest level of output at which the firm may minimise its long run average cost

Question 27

pure competition

Answer 27

firms compete
multiple assumptions:
large number of firms - enough that no 1 controls price
product homogenous - firms produce same
firms are price takers
perfect information - know cost, price, action of firms
free entry and exit - no barriers to entry
goal of firms is to maximise profit

Question 28

pure monopoly

Answer 28

one firm

Question 29

monopolistic competition

Answer 29

product is differentiated

Question 30

oligopoly

Answer 30

only a few firms which sell same product. Cartel; a group of firms cooperating instead of competing with each other

Question 31

standardised products

Answer 31

each firm produces the same product

Question 32

price taking assumptions

Answer 32

assumes that he or she can purchase any quantity at the market price—without affecting that price

Question 33

p = mc

Answer 33

individual firms supply curve

Question 34

short run supply curve

Answer 34

the individual’s marginal cost at all points greater than the minimum average variable cost.

Question 35

firms supply curve

Answer 35

tells us how much output the firm is willing to bring to market at different prices

Question 36

free entry and exit

Answer 36

firms have no barriers preventing them from entering or exiting the market

Question 37

barriers to entry

Answer 37

factors that can prevent or impede newcomers into a market or industry sector

Question 38

shutdown price

Answer 38

if profit is less than MC = AVC or p = mc

Question 39

market supply curve

Answer 39

measures the relationship between total output and the common marginal cost of producing this output.

Question 40

equilibrium price

Answer 40

supply of good matches demand

Question 41

equilibrium quantity

Answer 41

when there is no shortage or surplus of a product in the market

Question 42

market equilibrium in the short run

Answer 42

point where the quantity supplied equals the quantity demanded, where the number of producers is held fixed.

Question 43

identical costs

Answer 43

competing firms have identical costs

Question 44

constant cost industry

Answer 44

industry where each firm’s costs aren’t impacted by the entry or exit of new firms

Question 45

long run supply curve

Answer 45

the summation of output produced by each firm at every price level at which firms earn zero profit

Question 46

increasing cost industry

Answer 46

industry where costs go up as more firms compete

Question 47

decreasing cost industry

Answer 47

industry where costs go down as more firms compete

Question 48

zero profit condition

Answer 48

condition that occurs when an industry or type of business has an extremely low (near-zero) cost of entry to or exit from the industry.