Quiz 3
The price of good x is $1.50 and that of good y is $1. Assume a consumer has maximized his utility subject to a budget constraint. If the marginal utility of the last unit consumed of good y is 30 then the marginal utility of the last unit of good x consumed must be
45
what is the basic consumer problem?
A consumer (purchaser of priced quantifiable goods in a market) is often modeled as facing a problem of utility maximization given a budget constraint
law of diminshing marginal returns
As more of a variable resource is added to a given amount of a fixed resource, marginal product eventually declines and could become negative
fixed costs
Costs that do not vary with the quantity of output produced
The average variable cost curve is U‑shaped because of
increasing marginal returns and decreasing marginal returns
what is the relationship between normal profit and economic profit?
Economic Profit is the remaining surplus left after deducting total costs from total revenue. Normal Profit is the least amount of profit needed for its survival
How does an economist view costs differently than an accountant?
Economists treat costs in a slightly different way, called, unsurprisingly, economic costs. Whereas an accountant needs to know what costs have accrued over the past year, an economist wants to examine costs as they relate to the firm's decision-making
what happens in an industry if economic profit is positive?
If economic profit is positive, there is incentive for firms to enter the market.
implicit costs
input costs that do not require an outlay of money by the firm
What is marginal utility?
The change in total utility when an extra unit of output is consumed.
what is the long run average cost curve?
The long-run average cost (LRAC) curve shows the firm's lowest cost per unit at each level of output,
what is the difference between the long run and short run?
The short run is a period of time in which the quantity of at least one input is fixed and the quantities of the other inputs can be varied. The long run is a period of time in which the quantities of all inputs can be varied
explicit cost
a cost that involves spending money
The U.S. steel industry is an example of
an industry with a large range of output where economies of scale exist
variable resource
any resource that can be varied in the short run to increase or decrease production
how is marginal utility calculated?
change in total utility/change in quantity or units
If a good has a zero price then the rational consumer will
continue to purchase it so long as marginal utility is positive.
average fixed cost
fixed cost divided by the quantity of output
If accounting profit is positive then economic profit
may be positive, negative, or zero
The principle of diminishing marginal utility
says that additional units of a good will yield less and less extra satisfaction to the consumer during a given period of time
normal profit
the accounting profit earned when all resources earn their opportunity cost
consumer surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
Marginal Cost (MC)
the change in total costs associated with a one-unit change in output
Marginal utility is best defined as
the change in total utility resulting from consuming one more or one less unit of the good.
What is a budget constraint?
the limit on the consumption bundles that a consumer can afford
law of diminishing marginal utility
the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time
fixed resources
the quantity and quality of the factors of production are fixed
What is utility?
the want-satisfying power of a good or service
average total cost
total cost divided by the quantity of output
economic profit
total revenue minus total cost, including both explicit and implicit costs
accounting profit
total revenue minus total explicit cost
The sum of the marginal utilities up to any point is known as
total utility
average variable cost
variable cost divided by the quantity of output
