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25 Cards in this Set

  • Front
  • Back
An increase in the price of a good
increases the opportunity cost of consuming a good
A consumer maximizes her utility by
setting the marginal utility of a product A divided by the price of product A equal to the marginal utility of product B divided by the price of product B
the law of diminishing marginal utility states that
as a consumer consumes more of a product, the consumer gets progressively less satisfaction out of each incremental unit of the good
Suppose you are eating hot dogs. The marginal utility of the first hot dog is 15 utils, the MU of the second is 12 utils and the third hot dog brings your total utility up to 35 utils. What was the marginal utility of the third hot dog?
8 utils
The utility generated by consuming a good is
The satisfaction or pleasure the consumer experiences when he or she consumes the good
Katie's demand curve for ice cream cones
assumes that the only variables that change are the price of ice cream cones and the quantity of ice cream cones demanded by Katie
Tim's marginal utility of beer is 12 utils and his marginal utility of pretzels is 5 utils. The price of beer is $4 and the price of pretzels is $1, and Tim is spending all of his money. Tim can increase his utility by
buying less beer and more pretzels. to solve this divide utils by price of product
A consumer maximizes utility by choosing
a combination of goods such that the marginal rate of substitution is equal to the price ratio
Increases in utility are represented by moving
to an indifference curve to the northeast
In the short-run, _____ factors of production are fixed, while in the long-run, ______ of them are.
What is this an example of: the number of professional baseball teams increases by two
long-run adjustment
Diminishing marginal returns imply that
marginal costs are increasing
What is the ultimate goal of a firm?
To maximize its profit, where profit=(total revenue-total cost)
Marginal cost is defined as
the change in total variable cost resulting from a one unit increase in the change in quantity
Average variable cost is defined as
total variable cost divided by quantity
Average fixed cost is defined as
total fixed cost divided by quantity
Average total cost is defined as
total cost divided by quantity
Average variable cost equals
Average total cost minus average fixed cost
Average fixed costs in the short-run
increases as the quantity produced increases
In the long run, total fixed costs
(there are no fixed costs in the long run)
The short-run average total cost curve is U-shaped because average fixed costs ____ and average variable costs _____ eventually as quantity produced increases.
decrease; increase (also the average variable cost curve will get close to the average total cost curve because average fixed costs are disappearing)
The marginal cost curve intersects the short-run average total cost curve where
average total costs are minimized in the short-run
To minimize average total costs, a firm should always increase output when
marginal cost is less than average total costs
The long-run average cost of production is defined as
total cost divided by the quantity of output the firm chooses when it can choose a production facility of any size
Suppose that Gigantic Company is increasing in size. As Gigantic company grows, the coordination of work teams is becoming more difficult because of increased bureaucracy. It is likely that continued growth will result in:
diseconomies of scale