Microeconomics- Homework 7/8
Does the law of diminishing returns apply in the long run?
No
Average Revenue (AR)
Total revenue / quantity
Variable cost
a cost that changes as output changes
Which of the following is most likely to a variable cost for a business firm?
costs of shipping products
Which of the following is most likely to be a fixed cost for a farmer?
insurance premiums on property
The marginal cost curve intersects both the average variable cost and the average total cost curves at their __________ points.
minimum
MC
change in TC/change in Q
ATC
AVC + AFC
AVC
VC/Q
How are implicit costs different from explicit costs?
An explicit cost is a cost that involves spending money, while an implicit cost is a nonmonetary cost.
When are firms likely to be price takers?
A firm is likely to be a price taker when it sells a product that is exactly the same as every other firm or when it represents a small fraction of the total market.
What is a price taker?
A price taker is a firm that is unable to affect the market price.
AFC
FC/Q
What is the law of diminishing returns?
adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the variable input to decline.
Marginal Revenue (MR)
the change in total revenue / change in quantity
What are implicit costs?
An implicit cost is a non monetary opportunity cost
Perfectly competitive markets A market that meets the following conditions:
1. Many buyers and sellers. Each individual buyer and seller is small relative to the entire market, and, as a result, cannot affect the market price. 2. All firms sell identical products. There can be no verifiable difference between the goods and services sold under perfect competition. 3. There are no barriers to entry into the market.
What is the relationship between a perfectly competitive firm's marginal cost curve and its supply curve?
A firm's marginal cost curve is equal to its supply curve for prices above average variable cost.
Which of the following statements is correct?
Economic profit takes into account all costs involved in producing a product.
What are the three conditions for a market to be perfectly competitive?
For a market to be perfectly competitive, there must be many buyers and sellers, with all firms selling identical products, and no barriers to new firms entering the market.
The marginal cost of production shows the change in a firm's total cost from producing one more unit of a good or service. What is the shape of the marginal cost curve?
Graphically, the marginal cost curve is a U shape, initially falling when the marginal product of labor is rising and then eventually rising when the marginal product of labor is falling.
Explain why it is true that for a firm in a perfectly competitive market that P = MR = AR.
In a perfectly competitive market, P = MR = AR because firms can sell as much output as they want at the market price.
How are prices determined in perfectly competitive markets?
In perfectly competitive markets, prices are determined by the interaction of market demand and supply because firms and consumers are price takers.
What is the difference between the short run and the long run?
In the short run, at least one of a firm's inputs is fixed, while in the long run, a firm is able to vary all its inputs and adopt new technology.
Is the amount of time that separates the short run from the long run the same for every firm?
No
Total Revenue (TR)
Price x Quantity
ATC
TC/Q
Explain why the marginal cost curve intersects the average total cost curve at the level of output where average total cost is at a minimum.
The marginal cost curve intersects the average total cost curve at the level of output where the average total cost is a minimum because when the marginal cost of the last unit produced is below the average, it pulls the average down, and when the marginal cost is above the averge, it pulls the average up.
How is the market supply curve derived from the supply curves of individual firms?
The market supply curve is derived by horizontally adding the individual firms' supply curves.
Marginal product and marginal cost
When the marginal product of labor isrising, the marginal cost of production is falling. When the marginal product of labor is falling, the marginal cost of production is rising.
Fixed costs
are costs that remain constant as output changes
Long run costs are U−shaped because
economies and diseconomies of scale
