Micro Economics Exam 2 Flashcards

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Questions and Answers

What does the law of diminishing marginal productivity state?

Output will always increase with additional inputs.

All inputs must be increased simultaneously.

Further increases in one input will have a limited effect on output. (correct)

Increases in output will continue indefinitely.

What is marginal product?

The extra output produced on using one more unit of labor.

What does average product measure?

Productivity with a particular number of workers.

What is the relationship between average product and marginal product?

Marginal product is the increase in total product from adding one more unit of input. Signup and view all the answers

What is the short-run in economics?

At least one fixed factor of production. Signup and view all the answers

What characterizes the long-run in economics?

All factors of production are variables. Signup and view all the answers

What is an explicit cost?

A direct payment made to others in the course of running a business. Signup and view all the answers

What is an implicit cost?

A cost that has already occurred but is not reported as a separate expense. Signup and view all the answers

What is marginal cost?

The cost added by producing one additional unit of a product or service. Signup and view all the answers

What does the relationship between marginal cost and marginal product indicate?

Marginal cost is inversely related to marginal product. Signup and view all the answers

What is a fixed cost?

A cost that does not change with the level of output. Signup and view all the answers

What is a variable cost?

A cost that varies with the level of output. Signup and view all the answers

What are the two necessary conditions for profit maximization?

Marginal revenue equals marginal cost. Signup and view all the answers

What does the MR = MC rule indicate?

Marginal revenue equals marginal cost. Signup and view all the answers

What are economies of scale?

The inverse relationship between quantity produced and per-unit fixed costs. Signup and view all the answers

What is the difference between economic profit and accounting profit?

Economic profit includes both explicit and implicit costs, whereas accounting profit only considers explicit costs. Signup and view all the answers

What characterizes a competitive market?

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How does marginal cost relate to short-run competitive supply?

A perfectly competitive firm equates marginal revenue, equal to price, with marginal cost. Signup and view all the answers

What is a shutdown point?

A point of operations where a company experiences no benefit from continuing operations. Signup and view all the answers

Study Notes

Law of Diminishing Marginal Product

Principle indicating increasing one input with others constant initially boosts output but later sees limited or negative effects.

Marginal Product

Refers to the additional output generated by using one more unit of labor.

Average Product

Productivity measure calculated by dividing total product by the number of workers involved.

Relationship between Average Product and Marginal Product

Marginal Product denotes output increase from adding an input unit; Average Product is total output divided by input quantity.

Short-run

Defined as a period when at least one production factor is fixed.

Long-run

Characterized by all factors of production being variable.

Explicit Cost

Direct payments made during business operations such as wages, rent, and materials.

Implicit Cost

Costs that have occurred but aren’t explicitly reported; represent opportunity costs of using internal resources.

Marginal Cost

Additional cost incurred by producing one more unit of a product or service.

Relationship between Marginal Cost and Marginal Product

Marginal Cost is the expense of producing one more product unit, while Marginal Product is the extra output from additional input. They are inversely related: as one increases, the other decreases.

Fixed Cost

Costs remaining constant regardless of changes in production or sales levels.

Variable Cost

Costs that fluctuate based on output levels.

Relationship between Total Product Curve and Total Cost Curve

Not specified but implies interaction between total output and associated costs.

Relationship between Marginal Product and Marginal Cost

They are inversely related, with increased Marginal Product leading to decreased Marginal Cost, and vice versa.

Conditions for Profit Maximization

Not specified; implies necessity for two key criteria.

MR = MC Rule for Profit Maximization

Indicates that profit is maximized when Marginal Revenue equals Marginal Cost.

Economies of Scale

Occur due to decreasing per-unit fixed costs as production quantity increases, distributing fixed costs over more units.

Economic Profit vs. Accounting Profit

Economic profit accounts for both explicit and implicit costs; accounting profit considers only explicit costs.

Significance of Positive Economic Profit

Represents the difference between sales revenue and the opportunity costs of inputs, highlighting profitability beyond mere revenue.

Salient Characteristics of a Competitive Market

Not detailed but implies essential traits defining competitive scenarios.

Marginal Cost and Short-run Competitive Supply

Perfectly competitive firms produce where marginal revenue equals price and marginal cost, forming their short-run supply curve based on profit-maximizing output.

Shutdown Point

Represents a situation where operations yield no benefits, indicating whether to continue or temporarily halt production.

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Description

Prepare for your Micro Economics Exam 2 with these flashcards. Each card focuses on key concepts such as the Law of Diminishing Marginal Product and Marginal Product, providing definitions and insights to help you understand these fundamental economic principles.