Micro EX 2 fixed

(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)

(the
satisfaction, or want-satisfying power, a consumer expects to get from
consuming a product)

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

(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)

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...)

 (opportunity costs the owner(s) of a
firm incur by investing their own resources -- labor, savings, buildings,
etc. -- in the firm)

(a time period short enough that at least
one input into the

 (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)

 (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)

(the added output produced
when one more unit of labor is added to a firm, all else constant)

 (a function or listing showing how output
levels [Q] vary as variable inputs vary, all else constant)

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.)

(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.)

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.)

 (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 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.)

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.)

( 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)

(for perfectly competitive
firms, marginal revenue = price

(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.)

 


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.

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.

(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.)

(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.

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

 



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 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

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

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

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

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

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

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