ECON 3030 CH1

6 Factors that shift demand curve

1. income 2. weather 4. preferences 4. population 5. expectations 6. prices of related goods

Accounting profit =

Accounting profit = Total revenue - Explicit costs

Explicit Costs

Actual costs

MR=

CHange in TR/ Change in Q

Implicit Costs

Cost of what you could have had

The demand curve is called

Demand

Economic profit =

Economic profit = Total revenue - Total economic cost OR Economic profit= Total revenue - Explicit costs - Implicit costs

Opportunity Costs

Explicit Costs + Implicit Costs

Loss investment income

Implicit costs

if income increase and demand increases the good is considered an

Normal good

If something other than prices changes, the demand curve

Shifts

Demand

Shows the relationship between price and quantity. THe maximum price consumers are willing and bale to pay for each quantity level

If Price of a good increases, while the Quantity of the same good decreases and the Quantity of another good increases the goods are considered to be

Substitutes

Profit maximization=

TR-TC

Marginal Revenue

The change in Total revenue associated with an additional unit of output

Marginal Cost

The change in total cost associated with an additional unit of output

Which of the following is NOT one of the features characterizing market structures?

The level of capital investment in research and development.

Law of Demand

The quantity demanded increases when the price of a good decreases all else equal.

Economic theory is a valuable tool for business decision making because it

Theory provides important clues to managers about the kinds and amounts of information that will be needed to make decisions

Which of the following is NOT a characteristic of monopoly market structures?

There are no barriers to entry

In markets characterized by monopolistic competition,

a large number of relatively small firms sell a differentiated product & entry into the market is relatively easy so that profit in the long run is zero.

A risk premium is...

a measure calculated to reflect the riskiness of future profits.

Economic profit equals

accounting profit minus the total cost of using owner-supplied resources.

A risk premium

accounts for the riskiness of future profits.

The principal-agent problem arises when the principal

and the agent have different objective, and cannot enforce the contract agent or finds it too costly to monitor the agent.

Consumer surplus is the area

area below demand , above P, up to the quantity traded

A price-setting firm

can lower the price of its product and sell more units, can raise the price of its product and sell fewer units but will not lose all of its sales, possesses market power, sells a product that is somehow differentiated from the product sold by it rivals or sells in a limited geographic s, market area with only one or a few sellers.

MC=

change in TC/ Change in Q

Change in the price of a good leads to ______________

changes in the quantity demanded

if the price of one good increases and the Quantity of another good decreases the goods are considered

complements (X,Y)

Consider a firm that employs some resources that are owned by the firm. When economic profit is zero, accounting profit is

equal to the implicit costs of using owner-supplied resources.

Which of the following statements is true?

implicit costs are the opportunity cost of the owner's resources.

If income increases and demand decreases the good is considered an

inferior good

The total opportunity cost of using owner-supplied resources

is part of the business firm's total economic cost and must be covered by revenues or economic profit will be negative and owner's wealth will be reduced.

Moral hazard

is the cause of principal-agent problems.

Owners of a firm want the managers to make business decisions that will

maximize the value of the firm and maximize expected profit in each period of operation

Economic profit is...

negative when costs exceed revenues.

A price-taking firm can exert no control over price because

price is determined by market forces,price is determined by the intersection of demand and supply,the firm's individual production is insignificant relative to production in the industry,many other firms produce a product that is nearly identical to its product

A point on the demand curve is called

quantity demanded

The value of a firm is

smaller the higher is the risk premium used to compute the firm's value.

Economic profit is...

the difference between total revenue and the opportunity cost of all the resources used in production.

Economic profit is the best measure of a firm's performance because...

the opportunity cost of using ALL resources is subtracted from total revenue.

The value of a firm is

the price for which it can be sold, and that price is equal to the present value of the expected future profit of the firm.

When economic profit is positive

total revenue exceeds total economic cost, and the business owners' wealth increases. and the firm earns more than enough revenue to cover the opportunity costs of all of the resources it uses.