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84 Cards in this Set
- Front
- Back
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The amount of a good a demander would choose to buy at a given price?
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quantity demanded
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2 constraints faced with choice?
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Income and time
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the theory of individual decision making?
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consumer theory
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This identifies the combinations of goods and services the consumer can afford with a limited budget
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Consumers budget
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Graphical representation of a budget constraint?
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budget line
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The amount of one good that must be sacrificed inorder to buy another good?
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the slope of the budget line
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3 things that change the budget line?
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income, price of X or pirce of y
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One major assumption in budgeting?
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more is always better
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quantitative measure of pleasure or satisfaction obtained from consuming goods and services (Happiness!)
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Utility
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Additional utility from consuming an additional unit of good
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marginal utility
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As consumption of a good or service increases, marginal utility decreases
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The law of diminishing marginal utility
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When Income increases the demand for a normal good? inferior good?
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increases, decreases.
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you want MUx/Px to _________ MUy/Py
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equal
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Price decreasing will increase what
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purchasing power!
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Subsitution and income effects work together to increase what kind of goods? and decrease these?
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normal, Inferior
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When you have three people in the market, how do you make a market demand curve with three people and 3 different graphs?
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add up certain values at there prices
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behavior that deviates from the standard assumptions of economic models
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behavior economics
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An organization owned and operated by private individuals that specializes in production?
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Business Firm
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Process of combining inputs to make goods and services
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production
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Method of combining inputs to produce goods and services
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technology
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this Indicates the maximum amount of output a firm can produce over some period of time from each combination of inputs
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the production function
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A time horizon long enough for a firm to vary all of its inputs
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long run
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these inputs can be adjusted up or down as the quantity of output changes
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variable
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A time period during which at least one of the firm’s inputs is fixed
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short run
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these inputs cannot be adjusted as output changes in the short run
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Fixed
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Maximum quantity of output that can be produced from a given combination of inputs
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total product
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Additional output produced when one more worker is hired
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marginal production of labor
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MPL=
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change in quantity over a change in labor
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MPL increases as more labor is hired
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Increasing marginal returns to labor
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MPL decreases as more labor is hired
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diminishing
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As more and more of any input is added to a fixed amount of other inputs, its marginal product will eventually decline
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law of diminishing marginal returns
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The opportunity cost of the owners - everything they must give up in order to produce that amount of output
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Total Cost
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A cost that has been paid or must be paid, regardless of any future action being considered
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Sunk cost
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Money actually paid out for the use of inputs
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Explicit Cost
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The cost of inputs for which there is no direct money payment
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Implicit cost
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Costs of a firm’s fixed inputs, remains constant as output changes
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Fixed cost
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Costs of a firm’s variable inputs, changes with output
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Variable cost
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The cost of all inputs that are fixed in the short run
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Total fixed cost
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The cost of all variable inputs used in production
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Total variable cost
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The costs of all inputs—fixed and variable
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Total cost
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Total fixed cost divided by the quantity of output produced
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Average fixed cost
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Cost of the variable inputs per unit of output
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Average variable cost
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Total cost per unit of output
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Average total cost
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Increase in total cost from producing one more unit or output
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Marginal cost
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MPL rises and then falls, MC will ____ and then ____.
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fall then rise
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At low levels of output, the MC will be, and the ATC and AVC will be
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Below ATC and AVC, They will slope downward.
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What will the marginal cost intersect the Ave total cost and ave variable cost?
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at the minimum points
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To produce any given level of output, the firm will choose the input mix with the lowest cost
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Least cost rule
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The cost of producing each quantity of output when the least-cost input mix is chosen in the long run
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long run total cost
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Collection of fixed inputs at a firm’s disposal
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plant
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how does ATC and plant size relate to the short run
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move along the atc curve and cannot change the plant size
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How does ATC and plant size relate to the long run
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Choose among ATC Curves, and Can change plant size.
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An economy of scale will generally have a LRATC that
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decreases as output increases
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A diseconomy of scale will generally have a LRATC that
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increases as output increases
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constants return to scale will generally have a LRATC that
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is unchanged as output increases
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When will the LRATC be U shaped
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Economies of scale at low ouput, Constant returns at some intermidiate levels of output, Diseconomies at high levels of output
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The lowest output level at the minimum cost per unit in the long run
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Minimum effcient scale
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Significant, unexploited economies of scale
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mergers
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Every point on an isoquant represents
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an input mix that produces the same quantity of output
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The rate at which a firm can substitute one input for another while keeping output constant
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Marginal rate of technical subsitution
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What happens to the Marginal rate of technical subsitution as we move right on the isoquant?
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it decreases
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all combinations of the two inputs
same total cost for the firm |
An isocost line
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Isocost lines always slope
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downward
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What is the slope of an isocost line?
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Pn/PL
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The higher the isocost line, the greater the
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TC
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all combinations of the two inputs
same total cost for the firm |
The least cost input combination
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A single economic decision maker
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firm
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Sales revenue minus costs of production
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profit
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Total revenue minus accounting costs
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accounting profit
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Total revenue minus all costs of production, Both explicit and implicit costs
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Economic profit
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The total inflow of receipts from selling a given amount of output
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Total revenue
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implicit and explicit costs
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Total cost
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Total revenue (TR) minus total cost (TC) at each output level
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Profit
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Total cost (TC) minus total revenue (TR), when TC > TR
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Loss
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The change in total revenue from producing one more unit of output MR=ΔTR/ΔQ
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Marginal Revenue
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Increase in output= what for marginal revenue?
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Revenue gain from selling additional output, and revenue loss from lowering the price on all output
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An increase in output will raise profit if MR > MC
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true
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An increase in output will lower profit if MR < MC
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True
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When Marginal revenue is equal to marginal cost
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then the profit will be maximized
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In the short run, the firm should continue to produce if total revenue exceeds total variable costs; otherwise, it should shut down
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Shutdown rule
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if TR>TVC
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Keep producing
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If TR<TVC
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Shut down
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If TR=TVC
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Doesn't matter between keep producing and shut down
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A permanent cessation of production when a firm leaves an industry
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Exit
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