# Microeconomics Chapter6-7

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1. A large aircraft manufacturer, like Boeing, may have a cost advantage over a new smaller manufacturer because of:
Economies of scale
2. As more Big Macs are consumed each day, the marginal utility that a person gets from each additional Big Mac
decreases
3. Consumers should continue to rearrange their consumption of two goods until:
the marginal utitity is the same for each good for the last dollar spent on each good
4. An increase in the consumption of a good resulting from a reduction in price that makes the good cheaper in relation to other goods is called the:
substiution effect
5. A firm can produce 450 gallons of milk per day with 4 workers and 500 gallons per day with 5 workers. The marginal product of the fifth worker expressed in gallons per worker per day, is:
50
6. Marginal product measures the change in:
the firm's output brought about by employing one additional unit of input
7. A farm can produce 10,000 bushels of wheat per year with 5 workers and 13,000 bushels with 6 workers. The marginal product of the sixth worker for this farm is:
3000
8. Constant returns to scale cause the long-run average cost curve to be:
horizontal
9. assume a consumer purchases a combination of goods X and Y such as MUx / -Px=20 of utitities per dollar and MUy/Py =10 to maximize utitiy the consumers should buy
more of x and less of y
10. Variable inputs are defined as any resource that:
can be changed as output changes
11. long run is a planning period
during which the firm can vary all inputs including its plant size.
12. in the longrun, total fixed cost will
not exist by defintion
13. during which the firm can vary all inputs including its plant size.
increaese
14. Suppose the law of diminishing marginal utility holds for coffee. As a person drinks more coffee during the day, the total utility he or she receives will:
rise, but at slower and slower rates
15. Each point along an indifference curve represents the same level of total utility for a consumer t/f
true
16. Economists say that a firm has a normal profit when:
its economic profti is zero
17. An indifference map states:
indifference curves farther from the origin yield higher levels of total utility.
18. if marginal utitily is positive then total utility is
increasing
19. Marginal cost is calculated by dividing the change in total cost by the change in total output
true
20. primary cause of diseconomies of scale is macheinary and capital
true
21. Marginal utility can be measured by the change in
total utility / the change in quantity.
22. Assume the price of pizza decreases. As a result, your real income increases and you increase the quantity of pizza purchased each month. This is an example of the:
income effect
23. If Mr. Smith thinks the last dollar spent on shirts yields less satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should:
increase his spending on cola and decrease his spending on shirts.
24. The slope of an indifference curve is equal to the ratio of the ____ of the good on the horizontal axis to the ____ of the good on the vertical axis
marginal utility (MU); marginal utility (MU)
25. According to the income effect, when the price of automobiles rises, people buy fewer automobiles because:
the purchasing power of their income is reduced
26. Suppose the fixed cost of building a nuclear power plant is \$1 billion. Suppose also that the only variable cost is the labor of Homer Simpson, and he earns \$10 per hour. If the plant generates 1,000 kilowatts each hour, and has already generated 1 billion kilowatts, what can you say about the marginal cost of the next kilowatt
The marginal cost is equal to \$.01.
27. An indifference curve consists of quantity combinations of two goods that yield
the same total satisfaction
28. What does utility mean?
•The satisfaction, or pleasure, that people receive from consuming a good or service
29. What is total utility?
•The amount of satisfaction received from all the units of a good or service consumed
30. What is marginal utility?
•The change in total utility from one additional unit of a good or service
31. What is the law of diminishingmarginal utility?
•The principle that the extra satisfaction of a good or service declines as people consume more in a given period
32. When is total utility maximized?
•When the marginal utility per dollar of each good is equal and the entire budget is spent
33. What isconsumer equilibrium?
•A condition in which total utility cannot increase by spending more of a given budget on one good and spending less on another good
34. •The law of demand, that is, as the price of a good declines, consumers will buy more units of the good, and vice versa t/f
true
35. What are two alternativeexplanations of demand?
•Income effect •Substitution effect
36. What is theincome effect?
•The change in quantity demanded of a good or service caused by a change in real income (purchasing power)
37. What does the income effect show?
•As prices decline, your real income increases, increasing your buying power, so you buy more units, ceteris paribus
38. What is thesubstitution effect?
•The change in quantity demanded of a good or service caused by the change in its price relative to substitutes
39. What does the substitution effectshow?
•Suppose the price of a Pepsi falls and the price of a Coke remains unchanged; you will buy more Pepsi, because relatively, it is less expensive than Coke
40. Price of competing good Y rises-->Consumers switch from good Y to good X-->Quantity demanded of good X increases t/f
T
41. Price of good X falls=>Real purchasing power increases=>Quantity demanded of good X increases t/f
t
42. What is thesubstitution effect?
•The change in quantity demanded of a good or service caused by the change in its price relative to substitutes
43. What do the substitution andincome effects prove?
•The law of demand, that is, as the price of a good declines, consumers will buy more units of the good, and vice versa
44. What is an indifference curve?
•A curve showing the different combinations of two goods that provide the same satisfaction or total utility to a consumer
45. What is the marginal rate ofsubstitution (MRS)?
•The rate at which a consumer is willing to substitute one good for another good without a change in total utility
46. What does the MRS equal?
•The MRS equals the slope of an indifference curve at any point on the curve
47. What conclusion can we make ofindifference curves?
•The slope of the indifference curve is negative and equal to the marginal rate of substitution (MRS), which declines as one moves downward along the curve
48. What is an indifference map?
•A selection of indifference curves with each curve representing a different level of satisfaction or total utility
49. What conclusion can we make ofindifference maps?
•Each consumer has a set of indifference curves that form a map
50. What is a budget line?
•A line that represents all combinations of two goods that a consumer can purchase with a fixed amount of money given the price of each good
51. What does the slope of the budgetline equal?
•The slope of the budget line equals the ratio of the price of good X on the horizontal axis divided by the price of good Y on the vertical axis
52. What conclusion can we draw?
•Consumer equilibrium occurs where the budget line is tangent to the highest attainable indifference curve. At this unique point, MRS = slope (price ratio of Px/Py)
53. What are explicit costs?
•Payments to nonowners of a firm for their resources
54. What are implicit costs?
•The opportunity costs of using resources owned by the firm
55. What are total opportunity costs?
Explicit costs + Implicit costs
56. What iseconomic profit?
•Total revenue minus explicit and implicit costs, or total revenue minus total opportunity costs
57. What is normal profit?
•The minimum profit necessary to keep a firm in operation
58. How is accounting profit defined?
•Total revenue minus total explicit costs
59. What is a fixed input?
•Any resource for which the quantity cannot change during the period of time under consideration
60. What is avariable input?
•Any resource for which the quantity can change during the period of time under consideration
61. What is the short run?
•A period of time so short that there is at least one fixed input
62. What is the long run?
•A period of time so long  that all inputs are variable
63. What is theproduction function?
•The relationship between the maximum amounts of outputs a firm can produce and various quantities of inputs
64. What ismarginal product?
•The change in total output produced by adding one unit of a variable input, with all other inputs used held constant
65. What is the law of diminishingreturns?
•The principle that beyond some point the marginal product decreases as additional units of a variable resource are added to a fixed factor
66. What does the law of diminishingreturns assume?
\•Fixed inputs; it is  therefore a short-run concept
67. What istotal variable cost?
•Costs that are zero when output is zero and vary as output varies. Examples are wages, electricity, fuel, and materials.
68. What is total cost?
• TC = TFC + TVC
• •The sum of total fixed cost and total variable cost at each level of output
69. What isaverage fixed cost?
•Total fixed cost divided by the quantity of output produced

AFC = TFC / Q
70. What is average variable cost?
•Total variable cost divided by the quantity of output produced

AVC = TVC / Q
71. What isaverage total cost?
•Total cost divided by the quantity of output produced. Also called per-unit cost.

ATC = TC/Q OR ATC=AFC +AVC
72. What is marginal cost?
• •The change in total cost when one unit of output is produced
• MC =  change TC/ change Q
73. What is themarginal-average rule?
•When MC <  AC, AC falls•When MC >  AC, AC rises•If MC =  AC, AC at minimum
74. What is the relationship betweenslopes of the MC and MP curves?
•The rising portion of the MP curve corresponds to the declining portion of the MC curve, and vice versa
75. What is the relationship betweenthe minimum and maximum points of the MR and MP curves?
•The maximum point of the MP curve corresponds to the minimum point of the MC curve
76. output increases with MP rising--> MC falls

output increases with MP falling --> MC rises
77. What is the long-run average costcurve?
•The curve that traces the lowest cost per unit at which a firm can produce any level of output when the firm can build any desired plant size
78. What areeconomies of scale?
•A situation in which the long-run average cost curve declines as the firm increases output
79. What are constant returns toscale?
•A situation in which the long-run average cost curve does not change as the firm increases output
80. What arediseconomies of scale?
•A situation in which the long-run average cost curve rises as the firm increases output
81. Bonus list 3 determinants of price elastic
availabity of subsitutes, shares of budgets, and adjustment to price change
82. bonus define tax incidence
when the buyer and seller share the tax burden
83. define and state the differences between accounting and economic profit
• accounting -- total rev-total explicit cost
• economic --- total rev- opportunity cost (explicit and implicit costs_
• the difference is that accounting does not factor in the costs owned to the the owner salary for example
84. identify and classify the 3 types of Long run Curve sacles of product
• economies, constant and dieconomies
• economies a firm produces more outputs and cost curve declines

Constant firm increases outputs and cost curve stays constant

diseconomies a firm increase outputs and opeartes at loss and cost curve rises
 Author: elizabethsanchez_1025 ID: 238502 Card Set: Microeconomics Chapter6-7 Updated: 2013-10-08 04:09:40 Tags: econ Folders: Description: tucker 8ed Show Answers: