Micro EX 2 fixed

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nikki002
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228706
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Micro EX 2 fixed
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2013-07-31 00:27:38
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  1. (the influential
    new school within microeconomics which conceives decision-makers as
    neither consistently rational nor reliably described as always motivated
    by self-interest. Our textbook doesn't talk about this newer development)
    behavioral economics
  2. (the
    satisfaction, or want-satisfying power, a consumer expects to get from
    consuming a product)
    utility

    1. (the added satisfaction a consumer gets from consuming ONE added unit of a product, like one slice of pizza)

    marginal utility
  3. (the principle that the marginal utility of a product decreases as more and more units of the product are consumed in a given time period; the 4th pizza slice doesn't please you as much as the 1st)
    the law of diminishing marginal utility
  4. when the consumer has spent her/his money just so as to maximize the utility they can get from their budget; to reach this state the rule is that the marginal utility per dollar of the last dollar spent on each good must be the same: for goods X, Y, and so on,MUx/Px = MUy/Py = ...MUz/Pz...)
    consumer equilibrium
  5.  (opportunity costs the owner(s) of a
    firm incur by investing their own resources -- labor, savings, buildings,
    etc. -- in the firm)
    implicit costs
  6. (a time period short enough that at least
    one input into the
    the short run
  7.  (a time period long enough that all
    inputs are variable -- firms have enough time to build larger factories,
    new factories, and whatever else they need to increase production)
    the long run
  8.  (means the firm has made a NORMAL rate of
    return on its owners' invested resources -- enough to pay the owners for
    their opportunity costs--but no more than that.Zero economic profit means
    in effect that the firm DID OK)
    zero economic profit
  9. (the added output produced
    when one more unit of labor is added to a firm, all else constant)
    marginal product of labor
  10.  (a function or listing showing how output
    levels [Q] vary as variable inputs vary, all else constant)
    production function
  11. the principle
    that as a firm adds more and more of a variable input [like labor] to a
    fixed input [like the plant, or building], after a certain point it gets
    less and less ADDED output from each added unit of variable input;OR: ...
    after a certain point the marginal product of labor decreases.)
    • law of diminishing marginal
    • returns
  12. (the ADDED total
    cost a firm has to pay when it increases its output (Q) by ONE UNIT;If for
    example Total Costs change from $2,000 to $2010 when output (Q) rises from
    100 to 101, the marginal cost of the 101st unit is $10.)
    marginal cost
  13. Total Costs per
    unit at a certain output level.ATC = TC/Q.If for example TC in a time
    period are $2,000 and Q = 100, ATC = $20.)
    Average Total Cost (ATC)
  14.  (If at a certain level of outputMC is above
    ATC, then average total costs are rising as Q increases [the ATC curve
    slopes up]MC is below ATC,. then average total costs are falling as Q
    increases [the ATC curve slopes down]MC equals ATC, then average total
    costs are constant [the ATC curve is flat]
    the marginal-average rule
  15.  (The left-most portion of the LRAC curve,
    where average costs of product fall as output increases [the LRAC curve is
    negatively sloped]; in this range of output, costs fall as the firm gets
    larger.Possible reasons: firms can use more efficient [larger] machines as
    firm size grows, as well as division of labor, and mass production-style
    production processes.)
     (


    Economies of Scale (region of the LRAC curve)
  16. the right-most region of an
    LRAC curve, where as output levels [and firm size] increase, average costs
    start to rise.LRAC curve slopes up.Possible reasons: too many layers of
    management make production less efficient as the firm gets too large.)
    Diseconomies of Scale (region of the LRAC curve)
  17. ( markets in which many
    small firms produce the product the product is homogeneous entry into and exit
    from the industry are easy [no big barriers], and information [about the
    product, etc.] is readily available to both buyers and sellers)
    perfectly competitive markets
  18. (for perfectly competitive
    firms, marginal revenue = price
    • marginal revenue for a perfectly competitive
    • firm
  19. (increase output untilprice
    = marginal cost;or, more accurately, until marginal cost is driven up just
    equal to the market price level--that's the profit-maximizing output level.)
    • profit-maximizing output level for
    • aperfectly competitive firm
  20.  


    In the short run in perfectly competitive markets, a firm may
    make negative, zero, or positive economic profits.Market prices get pushed up
    or down by changing market conditions in the short run.If market price falls
    below the firm's minimum Average Total Cost, the firm runs a loss.If market
    price rises above the firm's Average Total Cost at the profit-maximizing output
    level, the firm runs a profit,If market price equals Average Total Cost at the
    firm's profit-maximizing output level, the firm earns zero profit.
    Perfect competitors'short-run profit level
  21. In the short run in
    perfectly competitive markets, a firm may make negative, zero, or positive
    economic profits.Market prices get pushed up or down by changing market
    conditions in the short run.If market price falls below the firm's minimum
    Average Total Cost, the firm runs a loss.If market price rises above the firm's
    Average Total Cost at the profit-maximizing output level, the firm runs a
    profit,If market price equals Average Total Cost at the firm's
    profit-maximizing output level, the firm earns zero profit.
    Perfect competitors'short-run profit level
  22. (in the long run, perfectly competitive
    firms earn zero economic profitthat is because if in an initial situation
    there IS positive profit, new firms will enter the industry [since entry is by
    definition easy in these industries, and new firms are always attracted by
    positive profit--and in the long run there's enough time to enter]. When they
    enter, they increase market supply and that pushes the market price down. Firms
    will keep entering until market price is pushed all the way down to the point
    that it just equals Average Total Cost at the firm's profit-maximizing output
    level: that means zero economic profit.)
    Perfect competitors'long-run profit levels
  23. (the firm's
    short-run supply curve isits marginal cost curve, or at leastthe portion
    of the marginal cost curve above the minimum average variable costa
    firm's short-run supply curve shows -- as you may remember--the quantities
    it would like to produce and sell at each possible price, all else
    constant.Given a certain price, firms wish to raise output right to the
    point that the price line crosses the marginal cost line; that makes the
    marginal cost curve (above a certain point) the same as the firm's supply
    curve.
    • Firm's
    • short-run supply curve
  24. Consider a
    consumer who spends all income on only two goods: bread and wine. An extra
    loaf of bread would give the consumer 10 extra utils, while an extra
    bottle of wine would give the consumer 60 extra utils. Bread costs 50
    cents per loar, and wine costs $6 per bottle. In this situation, 
    A. is violating the law of diminishing marginal utility
    B. could increase utility by purchasing more wine and less bread
    C. has maximized utility and attained consumer equilibrium
    D. could increase utility by buying more bread and less wine
    • D. could increase utility by buying more
    • bread and less wine : Since the marginal utility per dollar for bread is 20
    • (MU/P = 10utils/$.50 = 20 utils per $) while the marginal utility per dollar
    • for wine is 10 (MU/P = 60 utils/$6 = 10 utils per $), the consumer would be
    • better off (enjoy higher total utility) by buying less wine and using the money
    • to buy more bread
  25.  



    The consumer
    equilibrium condition for two goods is achieved by equating the:
    A. ratios of marginal utility to price for the last dollar spent on
    each good.
    B. marginal utility of one to the price of the other for the last
    dollar spent on each good.
    C. marginal utilities of both goods for the last dollar spent on each
    good.
    D. prices of both goods for the last dollar spent on each good.
    •  A. ratios of marginal utility
    • to price for the last dollar spent on each good.
  26. A production function shows
    A. total profit available as the firm increases its size over the long run
    B. the explicit, but not the implicit, costs of production as they vary
    with added units of variable input in the short run 
    C. the costs of production in dollars as they vary as inputs are added in
    the short run
    D. total output which can be produced at various levels of variable input
    in the short run
    • D. total output which can be produced at various levels of
    • variable input in the short ru
  27. If a firm's use of labor obeys the law of diminishing marginal
    returns, then 
    A. hiring additional workers adds less and less additional output
    B. doubling the number of workers causes the firm's output to also double
    C.  its marginal costs must be falling
    D. it does not have enough time to hire or fire workers
    • A. hiring additional workers adds less and less additional
    • output : (see the explanation for answer c in question 7 above
  28. As a firm
    attempts to increase its production, its LONG-RUN average costs eventually
    rise because of
    A. insufficient demand
    B. diseconomies of scale
    C. fixed capital
    D. the law of diminishing returns
    • B. diseconomies of scale : this is the name
    • for what is supposed to happen to firms when they get too large to be ideally
    • efficient in the long run (as firm size, including plant and capital,
    • managerial layers, etc. increases).
  29. As a firm
    attempts to increase its production, its LONG-RUN average costs eventually
    rise because of
    A. insufficient demand
    B. diseconomies of scale
    C. fixed capital
    D. the law of diminishing returns
    • . diseconomies of
    • scale : this is the name for what is supposed to happen to firms when they get
    • too large to be ideally efficient in the long run (as firm size, including
    • plant and capital, managerial layers, etc. increases).
  30. Economies of scale are created as firms expand in the long run
    and find greater efficiencies of capital as well as
    A. increased specialization of labor 
    B. smaller plant sizes
    C. better wages for labor 
    D. longer chains of command in management
    • . increased
    • specialization of labor : Increased specialization of labor is commonly cited
    • (ever since Adam Smith, 1776)as one of the reasons why average total costs
    • might fall as firms become larger, for this range of the Long Run Average Total
    • Cost curve
  31. In a perfectly competitive long-run equilibrium 
    A. firms begin to produce differentiated products
    B. firms earn zero economic profit
    C. the average total costs of a typical firm will be decreasing as output
    increases (ATC will be downwardly sloped at the profit maximizing output
    level.)
    D. new firms continue to enter the industry
    • B. firms earn zero economic profit : since entry is easy, any
    • positive economic profit attracts entry; the long run is a period of time long
    • enough that any firm which wishes to may enter. As firms enter, they shift the
    • market supply curve to the right and lower the market price -- all they way to
    • the point that firms will find their average total costs just equalling price
    • at the profit-maximizing output level -- so that in the long run firms earn
    • zero economic profit (and no more firms will seek to enter the industry
  32. A firm should shut down in the short run if 
    A. the market price is less than its lowest possible average variable cost
    B. its fixed costs are greater than its variable costs
    C. it has economic losses
    D. the market price is less than its marginal cost
    • A. the market price is less than its lowest possible average
    • variable cost : This is the rule for short-run shutdown: the firm is better off
    • shutting down immediately, even in the short-run, if and when market Price
    • falls below minimum average VARIABLE cost

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