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