AP Microeconomics Unit 3

Fixed Resources are __________________and an example would be a ___________.

stationary w the business, a pizza oven

Do variable resources change a lot? T or F

TRUE

What does it mean to be in the short run?

Having only one fixed cost

What does it mean to be in the long run?

All costs are variable

Variable Resource

is something that is changing, an energy bill

When calculating marginal product, initially this happens _______________ and then this happens right after _____________________________.

specialization, law of diminishing marginal utility

Formula for ATC

TC/Q

Formula for AVC

VC/Q

Formula for TC

VC + FC = :)

Formula for AFC

FC/Q

Why does MC go down then up?

specialization

What isn't really shown on the graphs?

AFC

Where does AVC hit MC? _____________ Also, w/ ATC? ____________

both @ its minimum

____ + ____ = ATC

AFC, AVC

When given quantity (ex-5 units), where should you look for cost? (Applies to all curves) ______

Y-axis

To calculate AVC (and even ATC, AFC) on graph, what should you do? (When given both values) _________

Multiple x times y values (P times Q)

MC is ____-shaped

U

Is Economies of Scale in the short or long run?

LONG RUN

What are explicit costs?

the direct costs of operating a business

What are implicit costs? ___________ costs

opportunity

If input doubles what happens to output? Is this long or short run?

Long run

If input doubles what happens to output- More than doubles?

increase returns to scale

If input doubles what happens to output- doubles?

constant returns to scale

If input doubles what happens to output- less than doubles?

decreases, returns to scale

What happens in Economies of Scale to

TC up overall
ATC down per unit

What is the idea of Economies of Scale?

the phenomenon where the average costs per unit of output decrease with the increase in the scale or magnitude of the output being produced by a firm.

What should a company do if it becomes so big and is in diseconomies of scale?

get more workers and more managers

Is Economies of Scale long run?

YES LONG RUN

In Perfect Competition are there small firms?

YES

What are the barriers to Perfect Competition?

low barriers to enter and exit

What products are in Perfect Competition?

identical products!!

Are Perfect Competition firms price makers or price takers?

price takers

Demand for Perfect Competition markets is...

perfectly elastic

If ATC is above MR, you are........

loss

TC bigger than revenue....

loss!!!

Profit or loss is only in the?

short run

Marginal product (MP)—

The quantity of total output produced by each additional unit of input used in the production process. This is calculated by dividing the change in total product by the change in inputs used.

Increasing Marginal Returns—

Each additional variable input is more productive than the last. MP and AP increase, as each variable input specializes in its task and utilizes fixed inputs.

Economies of scale

the firm can reduce its total cost-per-unit by boosting its plant capacity and output

Diseconomies of scale

the firm would be better off reducing its plant capacity and output in order to lower their per-unit costs

constant returns to scale

When the firm increases production, costs stay the same

Where is ATC at its lowest?

constant returns to scale

Accounting profit

total revenue minus the firm's explicit costs

Economic profit

TR- (explicit & implicit)

Normal profit

economic profit is zero

$100,000 and the total of your explicit and implicit costs are $100,000, what's the economic profit?

zero

What is normal profit also referred to as?

breaking even

When a firm is experiencing an economic profit, what should they do?

increase production

If a firm is earning an economic loss, what should they do?

decrease output!!

What is the profit maximizing point?

MR = MC

Is the shut down rule in the long or short run?

short run

What is the shut down rule?

when the price of the good or service drops below the AVC

What does it mean to be a price taker?

firms have no control over price

Can firms break even in the long run for perfectly competitive markets?

yes, b/c there are lack of barriers to enter or exit

are firms perfectly efficient in the long run?

yes

ATC below MR means........

PROFIT

ATC above MR............

loss!!! :(((

All of the following are examples of fixed costs EXCEPT
A. CEO contracted salary
B. Insurance
C. Raw materials
D. Rent

Raw Materials

2. What are the characteristics of total product (TP) and marginal product (MP) during diminishing marginal returns?
A. TP is increasing, MP is decreasing
B. TP is decreasing and MP is increasing
C. TP is stays the same, MP is increasing.
D. TP is decreasing and MP stays the same

TP is increasing, MP is decreasing

3. The long-run in microeconomics refers to
A. a concept that is too far out in the distant future that it should not be considered.
B. a period of time when the wages are "sticky" and will not change.
C. a period of time around three months.
D. a period when all resources/factors are variable and the market can react.

a period when all resources/factors are variable and the market can react.