Micro Final

Front 1

Adverse selection

Back 1

occurs when an informed individual's decision depends on her unobservable characteristics in a manner that adversely affects the uninformed agents in the market.

Front 2

Principle- agent relationship:

Back 2

the hiring of one person by another person to make economic decisions

Front 3

Production function

Back 3

for a particular good shows the maximum amount of good that can be produced using alternative combinations of capital and labor

Front 4

Marginal product of capital/labor

Back 4

the additional output that can be produced by employing one more unit of input

Front 5

Marginal rate of technical substitution

Back 5

shows the rate at which labor can be substituted for capital while holding output constant

Front 6

increasing/decreasing/constant returns to scale

Back 6

tells us what happens to an ouput when all outputs are increased by the same proportion

Front 7

Producer surplus

Back 7

the dollar amount by which a firm benefits bu producing a profit maximizing level of ouput

Front 8

Shutdown condition

Back 8

if price falls below the minimum average variable cost, the firm should shut down in the short run

Front 9

Economic profit

Back 9

total revenue minus total cost

Front 10

long run/short run isoquant curves

Back 10

a curve representing all the combinations of inputs that produce a given quantity of output

Front 11

natural monopoly

Back 11

an industry where the fixed cost of the capital goods is so high that it is not profitable for a second firm to enter and compete

Front 12

ouput expansion path

Back 12

a ray from the origin