Econ 2
the typical total product curve
-reaches its highest point at the input level where marginal product is zero -has an inflection point where the technology switches from increasing to diminishing marginal returns -is falling when there are negative marginal returns -starts at the origin
a firm earning zero profit will
continue to operate
if the price of a substitute good falls then
demand will shift in, equilibrium price will fall and the equilibrium quantity will rise
if the next unit adds more to the revenues than to cost MR>MC
produce more
Which of the following gives total fixed cost?
- TC-TVC - AFC*q - (ATC - AVC) * q - The vertical intercept of the total cost curve
The marginal cost curve intersects
-The average total cost curve at the lowest point on the average total cost curve -The average variable cost curve at the lowest point on the average variable cost curve
If a firm is experiencing increasing marginal return to its only variable input, then
-The total product curve is increasing at an increasing rate -The marginal product curve is rising -The total cost curve is increasing at a decreasing rate -the marginal cost curve is falling
Mike's Mowers operates in the perfectly competitive lawn mowing industry with a market price of $40 and MC = 2q. What is Mike's profit maximizing output?
20
Jim operates a donut shop in a market where he takes the price of $1 per donut as given. His total cost of production is given by TC(q) = 20 + 0.01q^2 and his marginal cost of production is given by MC(q) = 0.02q. At his profit maximizing output level of q* - ________, Jim earns _________
50 donuts; $5
The law of diminishing returns state that
as the amount of an input is increase, holding all else constant, the marginal product of the increasing input will eventually fall
the law of diminishing returns states that
as the amount of an input is increased, holding all else constant, the marginal product of the increasing input will eventually fall
a price taking firm will shut down in the short run if
total revenue is less than total variable cost
if corn and wheat are substitutes in production then an increase in the supply of corn will take place:
when the price of wheat falls
price ceiling
a government imposed maxiumum price, above which you cant buy or sell -meant to benefit consumers -creates a shortage, may create a black market
for a firm, the short-run is defined as
a period of time in which at least one input remains fixed in proportion
for a perfectly competitive firm, marginal revenue is always
equal to price
price floot
government imposed minimum price, below which trades are not allowed (to be effective it needs to be above p* equilibrium) -minimum wage, agricultural price supports -create a surplus, may create a black market in equilibrium
supply curve
graphical representation of the supply relationship; a perfectly cometitve firm's supply curve is its MC curve above AVC
in perfect competitions
many buyers and sellers; identical products; no barrieres to entry or exit! together these answers imply that each firm and consumer is too small relative to the size of the market to have any infulence on the good's price -the are price takers
four structures
perfect competition, monopolistitc competiton, monopoly, oligopoly
compartitive statics
predicting changes in the equilibrium
anytime a firm faces a situation where MR<MC, the firm should
reduce output
quantity supplied
the amount we want to sell at a give price
relationship btwn averages and marginals implies that
the average product curve and marginal product curve intersect at the highest point on the average product curve
the marginal cost curve intersects
the average total cost curve at the lowest point on the average total cost curve AND the average variable cost curve at the lowest point on the average variable cost curve
deadweight loss
the loss in total surplus when we do not produce any goods for which someone is willing to pay at least MC or we do poruce unitys even though no one values them at least MC
a perfectly competitve firm's supply curve is the same as
the marginal cost curve above the average variable cost curve
if a firm intially experiences a decreasing marginal product of labor, then
the marginal product of labor curve starts below the average product of labor curve and the average product of labor curve is falling
on a total prduct curve with labor on the horizontal axis, the inflection point represents the quantity of labor where
the marginal product of labor is at its highest
optimal scale represents
the output level that allows the firm to reach the minimum point of average total cost
if incomes rise and at the same time a technological breakthrough lowers the cost of producing weazils then
the price will fall if weazils are an inferior good
supply
the relationship btwn a good's price and the quantity that firms what to sell
at the point of profit maximization
the slope of TR=the slope of Tc
consumer surplus
the value left w/ consumers after all transactions take place(difference btwn demand and the price they actually had to pay) -the area below the demand curve and above the price -the amt they would pay to participate in the market
producers surplues
the value left w/ the firms after all transactions take place -the difference btwn the minimum price that would have induced production and the price they recieve -the amt firms are willing to pay to participate in the market -the area above the supply and below price
profit maximization rule
MR=MC
equilibrium
occurs at a price, p*, where Qd=Qs=Q*
Increasing marginal returns to its only variable input means
-total product curve is increasing at an increasing rate -the marginal product curve is rising -the total cost curve is increasing at a decreasing rate -the marginal cost curve is falling
Optimal Scale represents
The output level that allows the firm to reach the minimum point of average total cost
total revenue changes
if we produce one more or one less unit