Econ 102 exam 2
explicit cost
when money leaves your hands, ex pay a bill
marginal product must be positive
when total product is rising
determinants of elasticity
1. # of substitutions 2. % of income spent on good 3. passage of time -- become more elastic in the long run
1. US . vs 2. Canada
1. higher costs but quicker service and more availability 2. lower costs but longer . waits and limited availability scarcity and tradeoffs in both
correlation proves causation fallacy
2 events happen together, therefore they are casually related
B.
5.If the marginal product curve is increasing from workers 1-89 and then decreases steadily, crossing the horizontal axis at 190 workers, we know that: A.the total output curve increases from workers 1-89, decreases from workers 90-189, and becomes 0 at the190th worker. B.the total output curve is increasing at an increasing rate from workers 1-89, then increases at a decreasing rate until the 190th worker, after which it decreases. C.the total output curve is increasing throughout, although at an increasing rate for the first 190 workers and at a decreasing rate after the 190th worker .D.diminishing marginal product sets in with the 190th worker.
Diminishing MPL
A firm in the short run will generally see hill-shaped product curves (APL, MPL) and U-shaped cost curves (ATC, AVC, MC). What explains these shapes?
A.
A firm's long-run average cost curve is: A.the locus of points representing the minimum unit cost of producing any given rate of output when all inputs may be adjusted. B.the locus of points made up of the minimum point on each short-run average total cost curve when only one input may be adjusted. C.the envelope of the firm's variable cost curves. D.identical to the lowest short-run average cost curve the firm has.
C.
A negative value for the marginal physical product would indicate that: A.the company has not yet reached the point of saturation. B.total output increased by a significant amount. C.total output decreased when the extra unit of the variable input was added. D.total output increased, but the increase was very small.
marginal utility is negative
A rational consumer will NEVER purchase a product when
The highest marginal utility per dollar spent
According to consumer theory, when a consumer makes a choice between multiple goods to purchase, he will choose the good with
average fixed costs
As a firm continues to produce additional output, which of the following will continue to decline as output expands?
Post hoc ergo propter hoc
B occurred after A, therefore A caused B
B.
Constant returns to scale are illustrated by A. a downward sloping long-run average cost curve. B. a horizontal long-run average cost curve C. an upward sloping long-run average cost curve. D. a long-run average cost curve that is shaped like an upside down U.
C.
Diseconomies to scale are illustrated by: A.a downward sloping long-run average cost curve. B.a horizontal long-run average cost curve. C.an upward sloping long-run average cost curve. D.a long-run average cost curve that is shaped like an upside down U.
Moral hazard
Does insurance cause us to "overuse" health care at the margin
A.
Economies to scale are illustrated by: A.a downward sloping long-run average cost curve B.a horizontal long-run average cost curve. C.an upward sloping long-run average cost curve. D.a long-run average cost curve that is shaped like an upside down U.
B. Variable input
For a hotdog vender, the hotdog buns represents his: A. fixed input B. variable input C. sunk cost D. none of the above
A. fixed input
For a hotdog vender, the hotdog stand represents his: A. fixed input B. variable input C. diseconomies of scale D. none of the above
supply elasticity
If a good is easy or cheap to change production, more elastic supply
below average total cost
If average total cost is decreasing as more and more units are produced, then marginal cost must be
marginal cost must lie between average variable and average total costs
If average variable costs are increasing while average total costs are decreasing, then
c. 79
If the average product of 20 workers is 100 bushels of wheat and the average product of 21 workers of wheat is 99 bushels of wheat, then the marginal product of the 21st worker was ___________ bushels of wheat. a. -1 b. 5 c. 79 d. 99
low-income people
Medicaid is government-provided healthcare assistance for whom?
the elderly
Medicare is government-provided healthcare assistance for whom?
sunk cost fallacy
Occurs when people make decisions based on how much was already spent rather than how the decision might affect their current well-being. (ex. stuck in long relationship)
economic profits
TR - (explicit + implicit costs)
accounting profits
TR - explicit cost
A.
The concept of the production function implies that a firm using resources inefficiently will: A.obtain less output than the theoretical production function shows. B.obtain more output than the theoretical production function shows. C.obtain exactly the amount that the theoretical production function shows. D.not be subject to diminishing marginal product.
Firm costs increase. Any level of output will be costlier to make.
What happens to firm costs if input costs increase?
we misestimate probabilities of real life events
What mistakes do we make in probabilities and value
Hill-shaped. MPL eventually decreases due to the law the of diminishing marginal product.
What shape are APL and MPL?
U-shaped.
What shape are AVC and MC?
B.
When a firm is at its minimum efficient scale of operation, it produces the: A.maximum rate of output at which long-run average cost is minimized. B.minimum rate of output at which long-run average cost is minimized. C.maximum rate of output consistent with lowest long-run marginal cost. D.minimum rate of output consistent with lowest long-run marginal cost.
A.
Which of the following statement is correct? A. When Marginal Product is greater than Average Physical Product, Average Physical Product is increasing. B. When Marginal Product is greater than Average Physical Product, Average Physical Product is decreasing. C. When Marginal Product is greater than Average Physical Product, Average Physical Product is equal to Total Product. D. When Marginal Product is greater than Average Physical Product, Total Product is increasing at a decreasing rate.
demand is inelastic
a given percentage change in price will result in a less than proportionate percentage change in the quantity demanded
inferior good
a good which we purchase less of when income increases, ceteris paribus
normal good
a good which we purchase more of when income increases, ceteris paribus
normal rate of return
accounting profit that could be earned elsewhere opp cost of your current firm
production
any activity that results in the conversion of resources into products that can be used in consumption
numbers and costs in health care
big and getting bigger, are skewed
Discrete choice model
choose just one good ex. airline ticket, house, car
Black box notation
don't inspect step-by-step production meaning that we do not care about how products are produced, just care that it has been produced
theory of firm
goal = maximize profit
Optimal consumption
goal = maximize utility. This is done by finding largest MU at each possible spending decision
K in the short-run vs long-run
in the short-run, K is fixed but in the long run K can be changed
the time period in which all factors of production can be varied
long run
diminishing MU
more consumption of a good leads to less additional happiness. * difference between diminishing MU and negative MU
implicit costs of a firm
opportunity cost of owned capital opp cost of owner-provided labor
implicit cost
opportunity costs, no direct payment made
Status quo bias
people will stay in same situation even when switching to another option is low
Production Function
relationship between inputs (K,L) and output (Q)
Utility
satisfaction from consuming a good/service
intermediaries in healthcare insurance
sharing risk, works when "healthy" people subsidize "sick"
expected value
sum(probability x payoffs)
Confirmation bias
tendency to search for and facor info that confirms pre-existing beliefs
Minimum Efficient scale
the least amount of an output the firm has to make to get the minimum LRAC
total utility
total satisfaction resulting from the consumption