ECON 11 LE2

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Questions and Answers

What does a change in the price of one commodity do to the budget line?

It pivots the budget line anchoring on the commodity that did not change price. (correct)

It shifts the budget line away from the origin.

It causes the budget line to become steeper without affecting the total budget.

It leads to a decrease in the total income available for spending.

How is marginal cost (MC) defined in the context of production?

The total cost incurred in producing all units of output.

The fixed costs associated with production excluding variable costs.

The average cost of producing multiple units of output.

The additional cost incurred in producing one extra unit of output. (correct)

What formula would you use to calculate average cost (AC)?

Total Cost x Quantity.

Fixed Cost + Variable Cost.

Total Cost / Quantity. (correct)

Fixed Cost / Variable Cost.

If a firm produces 1000 units at a total cost of $10,000, what is the marginal cost of producing the 1001st unit if the total cost rises to $10,006?

$6 Signup and view all the answers

What happens to total costs as output increases?

Total costs generally rise, mostly because of variable costs. Signup and view all the answers

What forms the Equal-Cost Curve or Isocost in production?

The budget line for suppliers Signup and view all the answers

Which combination results in the maximum units that can be purchased given a total cost of $6?

2 units of Land and 3 units of Labor Signup and view all the answers

What does the least-cost tangency represent in a production graph?

The best combination of inputs for minimal costs Signup and view all the answers

Which scenario indicates a firm should continue production in a perfectly competitive market?

If price is greater than the shutdown point Signup and view all the answers

How does the Law of Diminishing Marginal Product manifest in production?

As an eventual decrease in marginal output with more inputs Signup and view all the answers

What happens to the demand for good B if the price of good A increases?

The demand for good B will increase. Signup and view all the answers

What does the Marginal Revenue Product (MRP) equal under perfect competition?

MP Signup and view all the answers

How does the law of diminishing marginal utility affect the consumption of good A?

Consumers will stop buying good A when its marginal utility equals that of other goods. Signup and view all the answers

What defines the concept of income elasticity?

The ratio of quantity demanded change to income change. Signup and view all the answers

What happens to the Labor Force Participation Rate (LFPR) when there is an increase in wage levels?

It decreases because fewer hours are desired. Signup and view all the answers

What is the primary reason for the paradox of value, where essential commodities like water have low prices while luxury goods like diamonds are expensive?

The abundance of a good decreases its relative desirability. Signup and view all the answers

Which of the following factors does NOT affect the Marginal Productivity of Labor?

Availability of natural resources Signup and view all the answers

In consumer theory, what distinguishes cardinal from ordinal utility?

Cardinal utility is not measurable, while ordinal utility is rankable. Signup and view all the answers

What is the primary consequence of a minimum wage set above the equilibrium wage?

Reduction in work hours for employees Signup and view all the answers

Which statement best describes the concept of wage differentials?

They do not exist if people and jobs are alike. Signup and view all the answers

Study Notes

Marginal Analysis in a Nutshell

Optimal Activity Level: Maximize an activity until marginal benefit equals marginal cost (zero marginal net yield).
Relative Activity Levels: Allocate resources to activities with similar marginal benefits. Choose the option with the highest marginal net yield.

Totals, Averages, and Marginals: Arithmetic Relationships

First Units: At the zeroth unit, total, average, and marginal values are all zero. If not zero, marginal values are still zero.
Total and Marginal Relationship: Total is the sum of all preceding marginal values.
Relationship between Average and Marginal: Average rises when marginal is above average and vice versa. Average stays constant when marginal equals average.

Geometry of Marginal Analysis: Total X Curves

Average X and Total Curve: To find the average profit at a point, draw a line from the origin to that point on the graph and calculate its slope (rise/run).
Marginal X and Total Curve: To find the marginal profit at a point, determine the slope of the tangent line at that point.
Total X and Average Curve: The total cost of any quantity (OQ) is the area under the marginal cost curve above the line OQ.

Straight-line Marginal and Average Curves

For average to rise, the marginal must be above average. Vice versa for average to fall. Marginal equals average when average is constant.

Total x and Marginal curve

The total cost of producing OQ units of any commodity is the area under the marginal cost curve above the line OQ.

General Marginal and Average Curves

A tangent line at a given point is used to determine the marginal.
Extend the tangent line to the vertical axis and calculate the midpoint.
A perpendicular line from the extended point to the horizontal axis passing through the midpoint is drawn.

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Description

Explore the essential principles of marginal analysis, from optimal activity levels to the relationship between total, average, and marginal values. This quiz covers arithmetic relationships and the geometry of marginal analysis to help solidify your understanding of key economic concepts.