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MicroEcon Section 2 > Secton2.2 > Flashcards

Secton2.2 Flashcards

1
Q

What is a firms goal?

A

Maximize Profit

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2
Q

What is Depreciation?

A

The fall in value of a firm’s capital

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3
Q

What is ecconomic porfit?

A

Economic Profit is equal to the total revenue minus the total cost, with total cost measured at the oppurtunity cost of production.

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4
Q

What is the Oppurtunity Cost of Production?

A

The value of the best alternative use of the resources that a firm uses in production. – What else can you do with what you are using.

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5
Q

What is Implicit Rental Rate?

A

When a firm uses its own capital.

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6
Q

What is Economic Depreciation?

A

Economic Depreciation is the fall in the market value of a firm’s capital over time.

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7
Q

What is forgone interest?

A

When a firm uses funds to buy capital, they are giving up the chance to use those funds to purchase bonds which would gain iterest.

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8
Q

What three constraints limit a firms economic profit?

A

Technological constraints, information constraints and market constraints.

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9
Q

What is technological efficiency?

A

The firm is producing a given output using the least amount of inputs.

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10
Q

What is economic efficiency?

A

The firm produces a given output at the least cost.

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11
Q

What is the Short Run?

A

The short run is a period of time in which the quantity of at least one factor of production is fixed.

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12
Q

What is the long run?

A

The Long Run is a period of time in which the quantities of all factors of production can be varied.

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13
Q

What is Sunk Cost?

A

Sunk Cost is past expenditure that has no resale value – Something you sepnd previously that is irrelevant to the current time.

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14
Q

What is Total Product?

A

Total Product is the mazimum output that a given quantity of labor can produce.

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15
Q

What is Marginal Product?

A

Marginal Product of labor is the increase in total product that results from a one unit increase in the quantity of labor employeed.

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16
Q

What is the Average Product?

A

The Average Product of Labor is equal to the total product divided by the quantity of labor employed.

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17
Q

What does the Total Product Curve tell us?

A

The total product curve tells us what is attanable (below the curve) to what is unattanable (what is above the curve)

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18
Q

What are diminishing Marginal Returns?

A

Diminishing Marginal Returns occur when the marginal product of an additional worker is less then the marginal product of the previous worker.

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19
Q

What is the Law of Diminishing Returns?

A

As a firm uses more of a cariable factor of production with a given quantity of the fixed factor of production, the marginal product of the variable factor eventually diminishes. – The more you produce, the harder it is to keep up production numbers.

20
Q

What is a firms Total Cost (TC)?

A

Total cost is the cost of all the factors of production it uses. Total Cost is also the sum of Total Fixed Cost and Total Variable Cost.

21
Q

What is Total Fixed Cost (TFC)?

A

Total Fixed Cost is the cost of a firms fixed factors. i.e. the cost of renting the machines.

22
Q

What is Total Variable Cost (TVC)?

A

Total Variable Cost is the cost of the firms variable factors. i.e. Labor

23
Q

What is Marginal Cost?

A

A firm’s Marginal Cost is the increase in total cost that results from a one unit increase in output.

24
Q

How do we calculate Marginal Cost?

A

We calculate the MC as the increase in total cost divided by the increase in output.

25
Q

What is Average Fixed Cost (AFC)?

A

Average Fixed Cost is the total fixed cost per unit of output. AFC = TFC divided by Quantity

26
Q

What is Average Variable Cost (AVC)?

A

Average Variable Cost is total variable cost per unit of output. AVC = TVC divided by Quantity

27
Q

What is Average Total Cost (ATC)?

A

Average Total Cost is the total cost per unit of output. ATC = TC divided by Quantity

28
Q

Why is the ATC curve a U shape?

A

ATC = AFC + AVC. AFC will always be diminishing, while AVC will begin with a decrease, but will eventually slope upward due to the law of diminishing returns.

29
Q

What two factors shift a cost curve?

A

Technology and Prices of factors of Production.

30
Q

What is a firm’s Production Function?

A

The relationship between the maximum output attanable and the quantites of both labor and capital.

31
Q

What is the Marginal Product of Capital?

A

The Marginal Product of Capital is the change in total product divided by the change in capital.

32
Q

When is a plant said to be economically efficient?

A

The one that has the lowest average total cost.

33
Q

What is the Long-Run Average Cost Curve?

A

When a firm is producing a given output at the least possible cost, it is operating on its LRAC.

34
Q

What does the LRAC tell the firm?

A

It tells the firm the plant and the quantity of labor to use at each output to minimize average cost.

35
Q

What are Economies of Scale?

A

Economies of Scale are features of a firm’s technology that make average total cost fall as output increases – making the LRAC slope downward.

36
Q

What are Diseconomies of Scale?

A

Diseconomies of Scale are features of a firm’s technology that make average total cost rise as output increases – making the LRAC slope up.

37
Q

What are Constant Returns to Scale?

A

Constant Returns of Scale are features of a firm’s technology that lead to constant long-run average cost as output increases – If these are present the the LRAC is horizontal.

38
Q

What is a Minimum Efficient Scale?

A

The smallest output at which long-run average cost reaches its lowest level.

39
Q

When is a market said to be in Perfect Competition?

A

When many firms sell identical products; there are no restrictions to enter the market; Established firms have no advantage; Sellers and buyers are well informed about the price.

40
Q

What is a Price Taker?

A

A price taker is a firm that cannot influence the market price because its production is an insignificant part of the total market.

41
Q

What is Normal Profit?

A

Normal Profit is the return to entrepreneurship and it is the profit that an entrepreneur earns on average. – What you would make at your best alternative buisness.

42
Q

What is Total Revenue?

A

The value of a firm’s sales

43
Q

What is Marginal Revenue?

A

The change in total revenue that results from a one-unit increase in the quantaty sold.

44
Q

If a firm is in perfect competition, what will the firm’s marginal revenue equal?

A

The Market Price.

45
Q

What is the Law of Supply?

A

The higher the market price of a good, the greater the quantity supplied of that good.

46
Q

What is the Shutdown Point?

A

The Shutdown Point is the price and quantaty at which the firm is indifferent between producing its good or shutting down.

47
Q

What is the Short-Run Market Supply Curve?

A

A curve that shows the quantity supplied in a market at each price when each firm’s plant and the number of firms remains the same.

MicroEcon Section 2 (5 decks)

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