econ exam 2
marginal product
the change in total output from using an additional unit of one variable input, holding other inputs constant
88-84/ 1 = 4
4 laborers produced 66 hotdogs 5 laborers produced 76 hotdogs 6 laborers produced 84 hotdogs 7 laborers produced 88 hotdogs What is marginal physical product of 7th laborer?
receives economic rent of $15,000
A dedicated teacher loves being in the classroom and would teach for $40,000/year, but is actually paid $55,000/year. This teacher receives _______.
TR - TC is the greatest
A firm in a perfectly competitive market maximizes profit when it finds the quantity at which __________.
$1,500 1,000 units x $1 = $1,000 VC +FC = TC so $1,000 + $500 = 1500
A firm is producing 1,000 units of output. At that level of output, AVC is $1 per unit & TFC is $500. What is total cost?
P<AVC
A firm should never produce any output if ________.
TFC
A firm that shuts down in the short run experiences losses equal to its ______.
below AVC rates of output
A firm will shut down in the short run when price is __________ at all possible ________.
minimum unit cost any given rate of output may be
A firm's long-run average cost curve is locus of points representing the _________ producing _______ when all inputs _____ adjusted.
perfectly elastic demand
A perfectly competitive firm faces a _____ _____ demand.
positive, negative, or zero
A perfectly competitive firm is maximizing profits in the short run. This implies that the firm is earning the most economic profits possible which can be ________.
horizontal summation individual firm's supply curve
A perfectly competitive industry's short-run supply curve is best described as the _____ _____ of the ____ _____ _____ _____.
decreases
AFC _______ as output increases.
less than
AVC is always _____ average total costs.
production function
Adding a second production facility exactly like its first production site will change a firms ______.
perfectly competitive firm
All producers are price-taking producers and all consumers are price-taking consumers- no one's actions can influence the market price(marginal revenue)
$8,000 ATC ($100) - AFC ($20) = $80 variable cost/unit 100 units x $80 = $8,000
Assume that in the short run a firm is producing 100 units of output, has ATC of $100, AFC of $20. The firms total variable cost at this level of output is _____.
should increase output
At current level of output, price is $10, MC is $4, AVC is $7, ATC is $11, the firm _______.
minimized LRAC, LRMC, MR zero
At long run equilibrium in perfect competition, LRAC is ______; P = _____, _____, and _____; economic profit is _____.
earning zero economic profits
At the short-run break even point,the perfectly competitive firm is __________.
a firm cannot influence market price
Being a price taker means that ________.
$14,000 per year 100,000 x .14 = 14,000
Best investment you can make with $100,000 is to purchase a govt bond that pays 14% interest/year. If you invest the $ in your own business instead of buying the govt bond, the opportunity cost of this financial capital is
decreases increase
Economies of scale occur when there are ______ in the LRAC resulting from ______ in outputs.
marginal revenue = marginal cost
Firms seeking to maximize economic profits should produce at the output at which ______.
AVC ; minimum
Marginal cost is = to AVC when ________ is at its _________ value.
both variable & fixed cost
Short run costs contain _______.
increase - labor fixed factors smaller increases
The law of diminishing marginal product states that successive equal-sized ______ in ________, when added to the ____ ______ of production will result in _____ _____ of output.
maximum level of output set of inputs
The production function shows the ______ for given _________.
constant
Total fixed cost is ______as output increase or decrease.
False. economic cost = accounting cost + opportunity cost
True or false? Explain. Economic costs are less than accounting costs.
P = d = MR
What is always true for a perfectly competitive firm?
when diminishing marginal product begins
When does marginal cost begin to rise?
SR = at least one input fixed LR = all inputs variable
When is a firm in the short run? Long run?
increase increases
When marginal cost is greater than ATC, ATC will _____ if the firm _____ output.
decrease
When marginal cost is less than AVC, AVC will _____ if the firm increases output.
marginal cost is at its minimum
When marginal product is at its maximum, _____ is at its ______.
marginal cost is rising
When marginal product is falling, __________
increase
When marginal product is greater than average product, average product will ______ if more variable input is used.
decrease
When marginal product is less than average product, average product will ______ if more variable input is used.
positive and decreasing
When total product is increasing at a decreasing rate, marginal product is _____ & ______.
TVC/Q of output change in TC/change in output
marginal cost is equal to ___/___ & ___/___
explicit costs implicit costs
out of pocket expenses firms must pay out such as raw materials, wages, taxes, rent expenses not paid out of pocket such as opportunity costs of factors of production owned (depreciation)
economic losses
perfectly competitive firm faces the following cost & revenue conditions : ATC = $6, AVC = $3, MC & MR = $5. The firm is experiencing ________ ______.
continue to produce at the current level of output
perfectly competitive firm faces the following short run cost & revenue conditions : ATC = $7, AVC = $5, MC = $6.50, MR = $6.50. The firm should
law of diminishing marginal product
shape of the short run average variable cost curve is the result of ________
marginal cost curve average variable cost curve
Perfectly competitive seller's short run supply curve is its_______equal to or above the point of intersection with its ________.
law of diminishing marginal product
Phil found that as he continued to crowd laborers in his hot dog stand, the extra output he was receiving from each additional laborer was beginning to fall off. This is an example of ________.
variable inputs
For a hot dog vendor, the hotdog buns represents his _________.
fixed input
For a hot dog vendor, the hotdog stand represents his _________.
they produce at the level at which MR=MC profit maximization
How does a firm choose the output level to produce? Why is that level chosen?
lower than
If marginal product is greater than average product, then marginal cost is _________ average variable cost.
greater than
If marginal product is less than average product, then marginal cost is _________ average variable cost.
close my business
If, as an enrepeneur, I am earning accounting profits of $50,000/year & opportunity cost of my time is $60,000, I should ________.
yes it is able to cover variable costs No price is below ATC No In a perfectly competitive firm, they would lose customers if they raised price
In a perfectly competitive firm, price = $10, MC = $10, ATC @ current output = $15, AVC @ current output = $8. Should firm continue to produce? Why? Is firm earning a positive profit? Why? If firm is not earning positive profit, should they raise price until it does? Why?
horizontal and perfectly elastic market demand & supply curves
In a perfectly competitive firm, the demand curve is ________ & _______ and the _______ & _______ determine the market price.
free entry & exit downward sloping the same homogenous product
In a perfectly competitive industry, there is ______ in the long run, the industry demand curve is _______, and each firm produces _________.
increase in long-run per unit costs
In an increasing cost industry, an increase in output will lead to _______ in ______.
enter the industy shifts to right price falls opposite
In the long run when a perfectly competitive firm experiences positive economic profits, firms ______, supply curve _____, and market ______. What if they experience negative?
-yes bc AVC is being met; market price is greater than AVC -No bc ATC is higher than market price -No bc customer will find another firm with lower price
Market price of a perfectly competitive firm in the short run is below its ATC but greater than AVC. -Should firm continue to produce? Why? -Is firm earning a positive economic profit? Why? -If it's not earning a positive profit, should it raise it's price until it does so? Why?
marginal cost
change in total costs due to a one-unit change in output
marginal revenue
change in total revenue resulting from change in output of 1 unit
marginal cost
change in total variable cost which accompanies one extra unit of output
break even point
firm operating at an output rate at which total revenue = total costs
constant-cost industry
generates increasing profits whenever demand increases because the new long-run equilibrium price is above the old price even though avg costs have not changed
profit maximization
goal of the firm
