microeconomics chapter 2
what does the totl variable cost curve look like
increases upward
if the price elasticity is less than one, the demand is
inelastic
when the demand is ______ consumers are less responsive to change
inelastic
when the elasticity is less than one, the demand is
inelastic
equation for price elasticity of demand
% change in quantity demanded / % change in price
marginal cost is equal to what
(change in total cost)/change in output
what is the marginal product
(change in total product)/(change in labor
what is the marginal product
(change in total product)/(change in labor)
what is the average fixed cost
(total fixed cost)/output
what is the average variable cost
(total variable cost)/output
what is the marginal social cost
The full cost to society of an economic transaction, including private and external costs.
what does the marginal cost curve look like
U-shaped
what does the average total cost curve look like?
U-shaped, above the average variable cost
which is most elastic, a car, a cup of coffee, or a candy bar
a car is the most elastic
economies of sale
a condition in which the long-run average total cost of production decreases as production increases
constant returns to scale
a condition in which the long-run average total cost of production remains constant as production increases
price elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
pollution is
a negative externality
revenue minus the explicit cost of production is
accounting profit
what are the effect of a price floor
all consumer lose some producers lose some producers benefit society is worse off
what does the average fixed cost curve look like
always declines with the quantity produced
elasticity can apply to
any two variable
fixed costs
are costs that do not change with production
the are btween the average total cost and average variable cost is the
average fixed cost
average total cost
average fixed cost + average variable cost
when looking at a graph, how is economic surplus found
by adding together the area of the consumer surplus and producer surplus
variable costs
change with the amount of output that a firm produces
diseconomies of scale
condition in which the long-run average total cost of production increases as production increases
who always loses with a binding price floor
consumers always lose
the marginal cost curve is
decreasing for low levels of output, then begins increasing.
what does the average fixed csot curve look like
donward sloping
if there are more substitutes for a good, then it will be more
elastic
the more a good or service is considered a luxury, the more _____ its demand will be
elastic
when customers have relatively more time to adjust, the demand becomes relatively more
elastic
when there are more substitutes for a good or service, then the demand is more
elastic
economic surplus is maximized at
equilibrium
economic costs is equal to
explicit costs plus implicit costs
what is marginal cost
extra cost
what is the average fixed cost
fixec cost / unit of output
elastic curves tend to be _______ than inelastic curves
flatter
total cost
implicit plus explicit costs
allocative efficiency
in which consumer surplus and producer surplus are maximized
is public school a private or public good
is a private good
what does the total fixed cost curve look like
is s horizontal line
items are more elastic when the proportion of income to buy these items is
larger
when demand is inelastic, consumers are ---- responsive to changes in price
less
when demand is inelastic, consumers are ______ responsive to changes in price
less
what does the total fixed cost curve look like
looks like a horizontal line
allocative efficiency occurs when
marginal benefit equals marginal cost
marginal cost equation
marginal cost = (change in total cost)/change in output or marginal cost = (change in variable cost)/change in output
the average total cost and average variable cost both intersect the
marginal cost curve
the additional output produced as a result of utilizing one more unit of a variable resources is
marginal revenue
______ defiition influences the number of substitutes
market
rivalry in consumption
means that if i consume it, you cant
excludability
means that people can be prevented from consuming the good
the avc and the mc curves intersect at the
minimum avc
explicit costs
monetary payments
zero accounting profit means that the economic profit is
negative
pollution is an example of an
negative externality
public goods are
nonrivalrous and nonexcludable
public goods are characterized by
nonrivalry and nonexcludability
what is the economies of scale
output increases while the long-run average total cost decreases
what is the total revenue?
price x quantity sold
what is the definition of total revenue
price*quantity sold
when running the business we should consider the
private and external market costs
who always loses with a binding price ceiling
producers always lose
competitive markets reduce limited resources through
productive and allocative efficiency
producing output at the lowest possible production per unit is
productive efficiency
private vs external cost
provate cost is what we pay to run our business/company. External cost is the cost to other people, like pollution
what are examples of fixed costs
rental payment and insuracen premiums
a private good is characterized by
rivalry and excludability
a private good is characterized by
rivalsry and excludability
what does the graph of the variable cost curve look like
slopes upward (increases)
what does the graph of the total cost look like
slopes upward and is above the variable cost curve
what is the private plus external marginal cost
social marginal cost
what are the effects of the price ceiling
some consumers low some consumers benefit producers all lose and society is worse off
total cost of production equation
tcp = tfc + tvc
What is producer surplus?
the amount a seller is paid for a good minus the seller's cost of providing it
what is a positive externality
the benefit that a third party enjoys from the consumption or production of a good or service
what is the consumer surplus
the difference between what people were willing to pay and what they actually paid for a good
what is a property right
the exclusive right to determine how a resource is used
prodictive efficiency
the firms supplies the most goods possible at the least price.
what is diseconomies of scale
the long run average total costs increases with additional output
minimum efficiency scale
the lowest level of output at which the long-run average total cost is minimized
we should clean up pollution when
the marginal benefit is greater than or equal to the marginal cost
the marginal cost curve shows the relationship between
the marginal cost and the output
what is the minimum efficiency scale
the minimum amount of output necessary to acheive the lowest possible long term average total cost
explicit costs
the monetary payments made so a business can function
what is the social supply curve
the new supply curve that results when we factor in the effect of negative externalities, such as pollution. placed above the old supply curve
implicit costs
the opportunity costs of owned resources
implicit costs
the oppurtunity cost of using the resources that we already have
what is constant returns to scale
the property whereby long-run average total cost stays the same as the quantity of output changes
diseconomies of scale
the situation in which a firm's long-run average costs rise as the firm increases output
what is the short run
the time period in which at least one input is fixed
total product is defined as
the total amount of output produced with a given amount of resources
A firm is planning to increase output in the long run from 100 units to 200 units. The long run average total cost falls from $25 to $20. What can be said about this level of output?
this is an economies of sale
when positive externalities exist
too little is produced price doesnt reflect value
when positive externalities are present
too little is produced and the price doesn't reflect the value of what is produced
average total cost
total cost/ output
the distance between the total cost and the total variable cost is the
total fixed cost
total cost for a firm
total fixed cost plus total variable cost
total product
total output
What is total product?
total output produced by the firm
accounting profit
total revenue - explicit costs
economic profit
total revenue minus total cost, including both explicit and implicit costs
economic profit
total revenue-economic costs
what is an accounting profit
total revenue-explicit costs
the vertical difference between the average _______ cost curve and the average _______ cost curve should get smaller as more output is produced
total, variable
t or f, the total variable cost curve is below the total cost curve
true
average variable cost
tvc/ the output
what does the average varuable csot curve look like
u-shaped
where is the optimal level for cleaning up polluation
where the marginal benefit and marginal cost curves intersect