Quiz 3

Question 0

How to calculate profit π?

Answer 0

TR - TC

Question 1

What is demand equal to in a competitive firm?

Answer 1

Price, AR, MR

Question 2

Calculate TR?

Answer 2

P x Q

Question 3

Calculate MR

Answer 3

Derivative of TR; slope of TR; ΔTR/ΔQ

Question 4

Calculate TC

Answer 4

FC + VC

Question 5

Calculate AC

Answer 5

TC / Q

Question 6

Calculate MC

Answer 6

Derivative of TC; slope of TC; ΔTC/ΔQ

Question 7

When average cost is falling, the marginal cost is …

Answer 7

Below it

Question 8

When average cost is rising, the marginal cost is…

Answer 8

Above it

Question 9

When is profit maximized?

Answer 9

MC = MR

Question 10

When does MC equal the supply curve?

Answer 10

When it’s above the AC curve

Question 11

How to divide production processes?

Answer 11

Have the marginal costs be equal between technologies

Question 12

What is the long run?

Answer 12

It’s possible to switch technologies

Question 13

What is the short run?

Answer 13

When it’s impossible to switch technologies

Question 14

How to maximize profit? (2 ways)

Answer 14

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

Question 15

What is the term used to describe long run curves?

Answer 15

The “lower envelope” of all the short run curves

Question 16

What is the zero profit theorem?

Answer 16

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

Question 17

What is the 5 step process leading to the ZPT?

Answer 17

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

Question 18

What is a pareto improvement?

Answer 18

At least one winner and no losers

Question 19

Example of pareto improvements?

Answer 19

Voluntary trade

Question 20

When is something pareto efficient?

Answer 20

When no pareto improvements can be made

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

Question 21

Kaldor improvement

Answer 21

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

Question 22

When is there pareto production efficiency?

Answer 22

Production lies on PPC curve

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

Question 23

What is consumption pareto efficiency?

Answer 23

Set demands or MB equal to each other

Question 24

What is trade pareto efficient?

Answer 24

Set MCs and MBs equal aka set Ss and Ds equal

Question 25

What can go wrong with efficiency? (3)

Answer 25

Rationality assumption Externalities Macro vs Micro views Monopolies

Question 26

Example externality?

Answer 26

Pollution

Question 27

Three rules of avg and marginal functions?

Answer 27

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

Question 28

What is variable cost (VC)?

Answer 28

Costs that vary by quantity

Question 29

What is fixed cost (FC)?

Answer 29

Cost that doesn't change based on production

Question 30

what is average variable cost (AVC)?

Answer 30

VC / Q

Question 31

What is AFC?

Answer 31

FC / Q

Question 32

Why does supply equal MC above AC?

Answer 32

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

Question 33

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

Answer 33

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

Question 34

Accounting profit vs economic profit

Answer 34

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)

Question 35

How do monopolies and individual firms differ?

Answer 35

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)

Question 36

When is a monopoly maximizing profit and why?

Answer 36

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)