chapter 6

supply curves are upward sloping because as prices rise,

- individual suppliers already in the market will be willing to turn to more costly production techniques to supply more product - Firms with higher opportunity cost of producing the product will be willing to start supplying the product

perfectly competitive market conditions

-All firms sell the same standardized product -the market consists of many buyers and sellers -productive resources are mobile -buyers and sellers are well informed

Producer surplus

-a measure of the producer's net benefit from a market transaction

Any consumer trying to decide whether or not to buy a given good or service will base the decision on his or her reservation price and the existing market price 1)when making this decision, the buyers reservation price measures the ...... 2) the market price measure the ..... 3) consumer will purchase the good/service only if the buyer's......

1)marginal benefit 2) marginal cost 3) reservation price is equal to or higher than the market price

suppose that when the price of apples are 25 cents each there are 10 farmers who each supply 600 apples per day and 2 farmers who each supply 1,000 apples per day. Thus when the price of apples is 25 cents the market supply of apples is....

8,000 (10x600)+(2x1000)

reservation price

= to marginal cost

market price

= to producers benefit from the scale (revenue)

average revenue equation

AR=TR/quantity

average total cost equation

ATC = AFC + AVC

marginal revenue equation

MR=change in TR/change in quantity

profit equation

Profit= total revenue- Total cost

total cost equation

TC= TFC + TVC

total revenue equation

TR=price x quantity

where are market supply curves derived from?

The marginal cost curves of individual firms

A firms __________ cost is the sum of all payments the firm makes to inputs whose quantities can be altered in the short run.

Variable

as input prices increases the cost of producing each additional unit of output increases leading to ......

a decrease in supply

price taker

a firm that has no influence over the price at which it sells its product

profit maximization firm

a firm whose primary goal is to maximize the difference between its total revenues and total costs

profitable firm

a firm whose total revenue exceeds its total cost

perfectly competitive market

a market in which no individual supplier has significant influence on market price of a product

law of diminishing returns

a property of the relationship between the amount of good/service produced and the amount of a variable factor required to produce it the law says that when some factors of production are fixed, increased production of the good eventually requires ever-larger increases in the variable factor.

what affect does marginal cost have on supply

always more profitable to increase output when MC is decreasing

variable factor of production

an input whose quantity can be altered in the short run

fixed factor of production

an input whose quantity cannot be altered in the short run

what is marginal cost affected by?

changes in variable cost

average cost

cost per unit of output produced

A firms profit maximizing level of output will not change when the firms ____________ cost changes

fixed

revenue

how much you earn from selling what you produce

if a firm is profitable then at its profit maximizing level of output it total revenue ....

is greater than its total cost

Suppose the automobile industry manufacturers in an economy use a similar set of inputs to produce cars and SUV's. If the market price of an SUV increases which is likely to happen to the supply of cars?

it will decrease

you produce more when

marginal cost<marginal revenue

you produce less when

marginal cost> marginal revenue

you are having lunch at a buffet. If you are rational what should your marginal utility from the last morsel of food you swallow be ?

marginal utility from the last morsel of food you swallow should be 0

suppose sandy makes bracelets that she sells on etsy if her fixed cost increases then her profit maximizing number of bracelets will ___________

not change

suppose the west bakery is currently producing 6 dozen blueberry muffins each day. If the bakery's fixed cost falls then the bakery's profit maximizing level output will .....

not change

which of the following would impact a buyers reservation price for a given good/service - price of a good -cost of producing that item -peer influence

peer influence

A firm cannot be profitable unless

price is greater than the average total cost for some level of output

profit is maximized when

price= marginal cost

in input price decreases supply will shift....

rightward

as prices _______ individual suppliers already in the market will be willing to turn to more costly production techniques to supply more of the product

rise

producer surplus

the amount by which price exceeds the seller's reservation price

marginal cost

the extra cost required to produce 2 extra units of output

what is the increasing portion of the firms marginal cost curve called?

the supply curve

Total cost

total cost required to produce a certain amount of output

true or false perfect competition is a model

true

what are the two decisions in competitive markets

what to produce how much to produce

when cathy goes from hiring 10 to 11 workers in her bakery , her total output increases from 100 to 120 loaves of bread per day. If Cathy's production process exhibits diminishing marginal returns then when she hires 12 workers, we know her total output will be less than _________ loaves a day

140

imperfectly competitive firm

a firm that has at least some control over the market price of its product

what do prices on the supply curve represent

-marginal opportunity cost of resources used -the payments the producer gave up to participatein the market