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Econ 1 > Quiz 3 > Flashcards

Quiz 3 Flashcards

0
Q

How to calculate profit π?

A

TR - TC

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1
Q

What is demand equal to in a competitive firm?

A

Price, AR, MR

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2
Q

Calculate TR?

A

P x Q

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3
Q

Calculate MR

A

Derivative of TR; slope of TR; ΔTR/ΔQ

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4
Q

Calculate TC

A

FC + VC

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5
Q

Calculate AC

A

TC / Q

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6
Q

Calculate MC

A

Derivative of TC; slope of TC; ΔTC/ΔQ

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7
Q

When average cost is falling, the marginal cost is …

A

Below it

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8
Q

When average cost is rising, the marginal cost is…

A

Above it

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9
Q

When is profit maximized?

A

MC = MR

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10
Q

When does MC equal the supply curve?

A

When it’s above the AC curve

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11
Q

How to divide production processes?

A

Have the marginal costs be equal between technologies

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12
Q

What is the long run?

A

It’s possible to switch technologies

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13
Q

What is the short run?

A

When it’s impossible to switch technologies

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14
Q

How to maximize profit? (2 ways)

A

Set derivative of TC & TR equal or set MC & MR equal

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15
Q

What is the term used to describe long run curves?

A

The “lower envelope” of all the short run curves

16
Q

What is the zero profit theorem?

A

Competition drives economic profit to zero (all businesses have the same ROI)

17
Q

What is the 5 step process leading to the ZPT?

A
  1. Profit is > 0
  2. New firms enter the industry
  3. Supply increases (shifts right)
  4. Prices go down
  5. Profit goes down
18
Q

What is a pareto improvement?

A

At least one winner and no losers

19
Q

Example of pareto improvements?

A

Voluntary trade

20
Q

When is something pareto efficient?

A

When no pareto improvements can be made

- you have reached a point where no one can gain without someone else losing

21
Q

Kaldor improvement

A

Possibility of paying off losers in a trade - winners compensate losers

22
Q

When is there pareto production efficiency?

A

Production lies on PPC curve

Set MCs of A and B equal which is the same as setting the supply curves equal

23
Q

What is consumption pareto efficiency?

A

Set demands or MB equal to each other

24
Q

What is trade pareto efficient?

A

Set MCs and MBs equal aka set Ss and Ds equal

25
Q

What can go wrong with efficiency? (3)

A

Rationality assumption
Externalities
Macro vs Micro views
Monopolies

26
Q

Example externality?

A

Pollution

27
Q

Three rules of avg and marginal functions?

A

If A decreasing, then marginal is less than the avg

If A increasing, then marginal is greater than the avg

If A is constant, then M = A

28
Q

What is variable cost (VC)?

A

Costs that vary by quantity

29
Q

What is fixed cost (FC)?

A

Cost that doesn’t change based on production

30
Q

what is average variable cost (AVC)?

A

VC / Q

31
Q

What is AFC?

A

FC / Q

32
Q

Why does supply equal MC above AC?

A

Firms will not produce if MC is below AC so there is no S curve if MC is below AC

33
Q

How does the LRMC and SRMC explain to the second law of supply?

A

The SR MC is very steep but the LRMC is flatter, just like the 2nd law, because in the LR you can switch technologies, so the price can vary less rather than shooting up

34
Q

Accounting profit vs economic profit

A

Accounting profit is where you make more money than you spend, but economic profit is where you make more money doing one thing than you would another (30k at both jobs is 0 economic profit, but 30k accounting profit at both)

35
Q

How do monopolies and individual firms differ?

A

Competitive firms have horizontal demand curves, but monopolies have a downward sloping demand because they encompass a large part of the industry (debateable about what ‘the industry’ is)

36
Q

When is a monopoly maximizing profit and why?

A

MC = MR because they are producing the most their revenues and costs are equal (they arent producing more than they can afford or less than they can affors)

Econ 1 (3 decks)

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