Microeconomics Exam 3 Finck Auburn

Why do consumers buy stuff?

To maximize utility

What is utility measured in?

Utils

What is the total satisfaction a person derives from consuming some specific quantity?

Total Utility

TU _______ as QD ________

Increases, decreases

Formula for TU:

SUM of marginal utilities of everything consumed

What is the Law of Diminishing Marginal Utility?

As Qd rises, MU falls

What is the additional utility a consumer derives from an additional unit of a good?

Marginal Utility

What is line that shows the different consumption bundles a consumer can purchase with a specific money income (consumer version of the PPF)?

Budget Line/Constraint

What is the combination of goods and services consumed by an individual?

Consumption Bundle

What is the formula for a budget line/constraint?

Income = (QxPx)+(QyPy)

What is the formula for the opportunity cost of X in a budget line/constraint?

Max Qy/Max Qx

What is the formula for the opportunity cost of Y in a budget line/constraint?

Max Qx/Max Qy

What factors can change a Budget line?

Income, change in price of x or y

________ can cause a shift in the budget line

Income

Change in the price of X or Y can cause a ________ of the budget line

Rotation

What do consumers buy first?

The good that gives us the most marginal utility per dollar

Formula for marginal utility per dollar

MU/p

When is TU maximized?

All income is spent, MUx/Px = MUy/Py

What is the bundle that maximizes total utility ?

Optimal consumption bundle

Formula to find the optimal consumption bundle (3 Ways)

Income=(QxPx)+(QyPy)

MRS=RP

MRS=MUx/MUy

What is the a line that shows the consumption bundles that yield the same amount of total utility?

Indifference Curve

ICs ___________ from the origin represent a greater level of TU

Farther

How do you calculate the slope of an IC?

∆Qy/∆Qx = -MUx/MUy

What is The ratio of the marginal utility of one good to the marginal utility of another?

MRS

What is the formula for MRS?

MRS = MUx/MUy

What is the principle that says the more of good X a person consumes in proportion to good y; the less y the consumer is willing to substitute for X?

Principle of diminishing MRS

MRS ________ as Qx _________

decreases, increases

Why does The MRS changes along an IC?

Diminishing marginal utility

How do you find the optimal bundle on a BL and IC curve graph?

Highest IC curve you can afford

What is The ratio of the price of one good to the price of the other?

Relative price

What is the formula for RP?

Px/Py

When dealing with RP what is the formula to find the optimal bundle?

MRS = RP or MUx/MUy

At the optimal consumption bundle, MRS = _____?

RP

What are Goods for which the marginal rate of substitution is constant; no matter how much of each is consumed?

Perfect Substitutes

What are Goods that a consumer will consume in the same ratio regardless of their relative price (1:1 ratio; left & right shoes)?

Perfect complements

Where is the optimal bundle located on a graph that has perfect substitutes?

End point

How do you find the optimal bundle of a perfect substitute?

Income/Low Price

What does the IC of a perfect complement look like?

Right angle

How do you find the optimal bundle for a perfect complement?

Income/Px+Py

How do you find a producers profit?

TR - TC

TC/Accounting Pi formula?

TR - Explicit Cost

TC/Economic Pi formula?

TR - Economic Cost

What is the Economic cost includes the implicit cost, which for a producer is the forgone income from employing resources in their next-best use

Profit

What does

economic cost =

and accounting profit =

when profit is normal?

0, Implicit cost

What is an amount of time insufficient to allow plant capacity to vary. Also, firms may shutdown production, but they cannot exit the market

Short Run

What is the size of the building and the amount of capital equipment ?

Plant Capacity

What is all costs are variable; entry and exit are possible?

Long run

Short Run Fixed Costs:

Cannot be _________ in the short run

Do ________ change as output changes

Still exist when output falls to _______

varied, not, zero

What are costs that change as output changes; go to zero during shutdown ?

Variable

How do you find total cost?

TFC+TVC

How do you find AFC?

TFC/Q

How do you find AVC?

TVC/Q

How do you find ATC?

TC/Q or AFC+AVC

How do you find marginal cost?

∆TC/∆Q

On a short run graph where should ATC and AVC cross MC?

Minimum

How to find marginal utility?

∆TU

What is as successive units of a variable resource are added to a fixed resource the marginal product of the variable resource eventually decreases?

Law of diminishing marginal returns

LMDR explains why the ______ costs eventually _______ as output _______

Short Run, increase, increase

LMDR only applies to short run because it involves ______ inputs

Fixed

Formula for MP(L) =

∆Q/∆L

Total Product = Q =

Sum of MP(L)

Marginal Cost =

Wage/MP(L)

As MP(L) diminish, marginal cost _______

increases

Economies of Scale/Increasing Returns to Scale =

As Q rises, LRATC falls

Diseconomies of Scale/Increasing Returns to Scale =

as Q rises, LRATC rises

What three things can shift LRCC?

Input prices, technology, regulation/taxes

How do input prices and cost move when on an LRCC?

Together

How do LRCC and technology move when on an LRCC?

as technology improves, costs fall

How do regulation/taxes move when on an LRCC?

Together