Econ 2

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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


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