Studied by 0 people
What is Total Product (TP)?
Total output produced.
Define Marginal Product (MP).
Additional output from one more unit of input.
What occurs when Marginal Product (MP) is increasing?
It is initially due to specialization, such as with the first few workers.
What does it indicate if Marginal Product (MP) begins to decrease?
Diminishing returns set in after a certain number of inputs.
What shape is the Average Total Cost (ATC) curve?
U-shaped.
When is Average Total Cost (ATC) minimized?
When Marginal Cost (MC) equals ATC.
How is Marginal Cost (MC) calculated?
MC = ΔTC / ΔQ.
What does the Long-Run Average Cost (LRAC) curve represent?
The envelope of short-run ATC curves.
What are Economies of Scale?
LRAC decreases as output rises.
What are Diseconomies of Scale?
LRAC increases due to inefficiencies, like uncontrollable resources.
Define Consumer Surplus.
The difference between willingness to pay and actual price.
Provide an example of Consumer Surplus.
Fred’s maximum price of $20k for a car, leading to surplus if the price is less than $20k.
Why do consumers take only one paper from vending machines?
Because the marginal utility of additional papers is less than the price.
What is the rule for Utility Maximization?
MU_A / P_A = MU_B / P_B.
When is Total Utility (TU) maximized?
TU peaks when Marginal Utility (MU) equals 0.
What does the Income Effect refer to?
A price change that alters purchasing power.
What does the Substitution Effect indicate?
Consumers switch to cheaper alternatives when prices change.
What is the formula for Price Elasticity of Demand?
Price Elasticity = %ΔQ / %ΔP.
What characterizes elastic demand?
Elasticity greater than 1 and a flat demand curve.
What characterizes inelastic demand?
Elasticity less than 1 and a steep demand curve.
What condition defines unit elasticity?
Total revenue is maximized.
What does Cross-Price Elasticity measure?
The responsiveness of demand for one good when the price of another good changes.
Provide an example of two substitute goods.
Golf balls and tennis balls.
What is Income Elasticity with respect to Normal Goods?
Demand rises as income increases.
What happens to demand for Inferior Goods as income rises?
Demand falls as income rises.
What does the demand curve indicate?
Higher prices result in more elasticity along a linear curve.
What peaks at unit elasticity with respect to total revenue?
Total Revenue peaks at unit elasticity.
Describe an elastic supply curve.
It is flat and responsive to price changes.
What describes an inelastic supply curve?
It is steep, as seen in perishable goods.
What is a perfectly inelastic supply curve?
A vertical line indicating fixed quantity.
Differentiate between Explicit and Implicit Costs.
Explicit are direct payments; implicit are opportunity costs.
What is considered a Normal Profit?
Covers implicit costs with an economic profit of zero.
When do we define Economic Profit?
When revenue exceeds total costs, including implicit costs.
What is an Accounting Loss?
When total revenue is less than explicit costs.
What constitutes an Economic Loss?
When total revenue is less than the sum of explicit and implicit costs.
What happens to firms in a market when there are Economic Profits?
Firms will enter the market.
What happens to firms in a market facing Economic Losses?
Firms will exit the market.
What factor leads to Diseconomies of Scale in movie theaters?
Uncontrollable factors like city regulations.
Where does the Marginal Cost (MC) curve intersect the Average Total Cost (ATC) curve?
At the minimum point of the U-shaped ATC curve.
How can elasticity be calculated between points on a linear demand curve?
By assessing the change in price and quantity.
How does Total Utility (TU) relate to Marginal Utility (MU)?
TU increases while MU is positive.
Note 
Flashcard (33)