university of michigan

profit maximization assumption - Answer we assume that firms attempt to maximize profits profits= - Answer TR-TC P*Q-C(Q) total revenue - Answer the amount of income received from all units sold total cost - Answer the total amount spent producing a given quantity of output marginal cost - Answer the additional cost incurred by producing an additional unit of output MC= - Answer ΔTC/ΔQ MR= - Answer ΔTR/ΔQ marginal revenue - Answ...

Positive Economics - Answer What is Normative Economics - Answer What ought to be 4 Keys of Good Decision-Making - Answer 1) Cost-benefit 2) Opportunity cost 3) Marginal principle 4) Connectedness principle Cost-benefit - Answer evaluate full set of cost and benefits, then pursue benefit that is at least as large as the cost Consumer Surplus - Answer difference between willingness to pay and the price Producer Surplus - Answer difference betw...

comparative advantage - Answer when one producer can produce a good at a lower opportunity cost than another producer -reason for specialization absolute advantage - Answer when one producer can produce more of a good than another producer in a certain period of time Production Possibility Frontier - Answer represents the possible combinations of goods that an economy can produce in a certain period of time specilaization - Answer requires sufficient ability to ...

positive economics vs normative economics - Answer pos = what is norm = what ought to be framing - Answer how diff alternatives are described/framed sunk costs - Answer costs you’ve already incurred, cannot be reversed, ignore these sunk costs individual demand curve - Answer downward sloping law of demand - Answer the Q demanded is higher when prices r lower rational rule for buyers - Answer buy more of an item if its MB is greater than/= to...

market power and what it arises from - Answer extent to which a seller can charge a higher price without losing many sales to competing businesses. comes from the # of competing firms and the level of product differentiation perfect competition - Answer markets in which a) all businesses in the industry sell an identical good and b) there are many buyers and sellers who are all small relative to the market under perfect competition, all sellers have ___ market power, so they ar...

profit maximization assumption - Answer firms attempt to maximize benefits marginal revenue (MR) - Answer change in total revenue generated by selling an additional unit of output MR = change in TR / change in quantity benefits firm profit maximizing condition - Answer -keep producing as long as MR > MC -profits are maximized where MR = MC if total revenue > total cost - Answer the firm is profitable if total revenue = total cost - Answer the...

Total Costs - Answer TC = TVC + TFC Average Variable Costs - Answer AVC = TVC / Q Average Total Costs - Answer ATC = AVC + AFC = TC / Q Marginal Product - Answer MP = Change in Q / Change in Input Average Product - Answer AP = Q/Input Explicit Costs - Answer actual dollar payments to non-owners of the firm Implicit Costs - Answer the opportunity costs to the firm (the opportunity cost of using resources that are owned by the firm--there...

Demand schedule - Answer a table showing how much of a good/service consumers will want to buy at different prices Quantity demanded - Answer the amount of a good or service that a consumer is willing and able to purchase at a given price Demand curve - Answer A graph representing demand schedule; shows relationship between quantity and price Law of Demand - Answer The higher the price for a good or service, cetris paribus, the smaller the demand for said good or...

Define Economics: - Answer Economics is the study of the Allocation of Scarce Resources over Competing and Alternative Uses. Scarcity - Answer Not enough to go around; more wants than availability. Implies some sort of rationing must occur. Allocation - Answer What we choose to use resources for; Who gets what; how distributed. Resources - Answer Land, labor, capital, time Competing and Alternative Uses - Answer There are always choices to make, if no ch...

Ceteris Paribus Assumption - Answer "all else equal," or ignore the things that change, take away irrelevant factors in the model Circular Model Flow - Answer Participants: 2 Agents (households and firms) 2 markets: goods and services (wage, rent, profit) What do models omit? What do we learn? - Answer banks, government, transactions between government firms pay costs in order to get revenue (profit) Models - Answer simplification to understand complex ...