Econ Exam 2
The term "constant returns to scale" describes a situation where
expanding all inputs does not change the average cost of production
If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?
variable costs
increasing returns to scale
when long-run average total cost declines as output increases
Characteristics of Perfect Competition
1. Many buyers and many sellers. 2. The goods offered for sale are largely the same. 3. Firms can freely enter or exit the market.
3 Factor of decision making
1.Taking into account monetary costs but ignoring non-monetary opportunity costs 2.Failing to ignore sunk costs 3.Being unrealistic about their own future behavior
If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises
Decreasing Returns to Scale
elastic demand curve
Flat slope
he elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in __________
Price
inelastic demand curve
steep
Price elasticity of demand is defined as
the percentage change in quantity demanded divided by the percentage change in price
elasticity formula
% change in quantity / % change in price
Total Cost Formula
TC = TFC + TVC
In order to determine the average variable cost, the firm's variable costs are divided by
The quantity of output
AFC formula
FC/Q
A price cut will increase the total revenue a firm receives if the demand for its product is
Elastic
In microeconomics, the term _____________________ is synonymous with economies of scale.
Increasing Returns to scale
Total Revenue Formula
P x Q
Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?
Physical Space for Gallery
Fixed Cost Formula
TC - VC = FC
variable cost formula
TC-FC
ATC formula
TC/Q
In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity
either total cost or variable cost
The price elasticity of demand measures the
responsiveness of quantity demanded to a change in price
___________ include all spending on labor, machinery, tools, and supplies purchased from other firms
Total Costs
AVC formula
VC/Q
______________ include all of the costs of production that increase with the quantity produced
Variable costs
In order to determine ____________, the firm's total costs must be divided by the quantity of its output.
Average costs
The term _____________ is used to describe the additional cost of producing one more unit
Marginal Cost
Why in the long run are there zero profits in a PC market?
So many firms are creating homogenous products, cost will get spread thinner due to increasing supply
When demand is inelastic
consumers are not very responsive to changes in price.
If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?
divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be
1. A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production
fixed costs; do not change,
Fixed costs are important because, at least in the ___________, the firm _______________.
short run; cannot alter them
law of diminishing marginal utility
the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time
Icome Elasticity of Demand
%∆Q/%∆Income
law of diminishing returns
When additional units of a variable input are added to fixed inputs after a certain point, the marginal product of the variable input declines.
marginal cost formula
change in TC/change in Q
Demand is said to be _____________ when the quantity demanded is not very responsive to changes in price
inelastic
____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added
Diminishing marginal returns
The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.
Economies of Scale
Demand is said to be ___________ when the quantity demanded is very responsive to changes in price
Elastic
Taxes on goods with __________ demand curves will tend to raise more tax revenue for the government than taxes on goods with __________ demand curves
Elastic; Inelastic
The longer the time period considered, the more the elasticity of supply tends to
Increase
Why would labor be treated as a variable cost?
producing larger quantities of a good or service generally requires more workers
marginal product of labor
the change in output from hiring one additional unit of labor