Producers

Question 1

Sellers problem entails?

Answer 1

How much and what to produce (expand production until MC=MR)

Question 2

Sellers problem factors:

Answer 2

1. Revenue
2. Costs
3. Production

Question 3

What does a perfectly competitive market look like?

Answer 3

1. No one has too great an influence
2. Sellers produce identical goods
3. Free entry and exit

Question 4

What are two terms that relate to changing marginal returns?

Answer 4

Specialization and Law of Diminishing Returns

Question 5

What does Short Run mean?

Answer 5

Variables! Producers can change this thing in the short run; eg employees

Question 6

What does Long Run mean?

Answer 6

Fixed! Things that cannot be replaced soon; eg the factory or manufacturing equipment

Question 7

How do you calculate total revenue?

Answer 7

Price * Quantity Sold

Question 8

Calculate marginal cost:

Answer 8

Marginal Cost = (Change in total cost)/(Change in output)

Change in total cost when you produce one more unit of output

Question 9

Average Total Cost (ATC)?

Answer 9

[Total Cost = Variable Cost + Fixed Cost]/Q = ATC

Total cost divided by the total output

Question 10

Marginal Product Calculation:

Answer 10

Same as marginal benefit but disregard the price of the good.

Question 11

What does a graph with marginal cost and average total cost look like?

Answer 11

MC is parabolic, U shaped
ATC is also parabolic but wider, and it’s m=0 when it intersects MC

Question 12

BATH TUB + FAUCET
What is MC and what is ATC?

Answer 12

Bath tub: ATC
Faucet: MC

Question 13

Calculating Profits:

Answer 13

When P1 intersects MC, that is Q1. Find where Q1 intersects ATC. The price difference between ATC and MC multiplied by Q1 are your profits!

Question 14

What is variable in the long run?

Answer 14

Everything

Question 15

When should you SHUTDOWN in the short run regarding supply?

Answer 15

When your AVC (the line below ATC) is above your MC (marginal cost)

Question 16

When should you EXIT in the long run regarding supply?

Answer 16

When your AVC (no fixed cost in the long run) is above your MC

Question 17

SEVEN DEADLY COST CURVES

Answer 17

1. Marginal Cost
2. Average Total Cost
3. Average Variable Cost
4. Average Fixed Cost (this is a curve, but not parabolic; it looks like an L because it starts high but levels out lower than the other curves; only goes down)
5. Long Run Total Cost (parabola, symmetrical)
6. Short Run Supply
7. Long Run Supply