Erhardt ECON 1001 Final Exam | Actual
study set | Questions and verified
Answers
Total utility - ANSW-the total satisfaction a consumer derives from consumption it could refer to either
the total utility of consuming a particular good or the total utility from all consumption
Marginal utility - ANSW-the change in total utility derived from a one unit chang in consumption of a
good
Law of diminishing marginal utility - ANSW-the more the more of a good a person consumes per period
the smaller the increase in total utility from consuming one more unit (o.t.c)
Consumer equilibrium - ANSW-the condition in which an individual consumers budget is spent and the
last dollar spent on each good yields the same marginal utility therefore utility is maximized
Marginal valuation - ANSW-the dollar value of the marginal utility derived from consuming each
additional unit of a good
Consumer surplus - ANSW-the difference between the maximum amount that a consumer is willing to
pay for a given quantity of a good and what the consumer actually pays
Indifference curve - ANSW-shows all combinations of goods that provide the consumer with the same
utility the consumer finds all combinations on a curve equally preferred
Marginal rate of substitution - ANSW-the number of "A" you are willing to give up to get more "B"
neither gaining nor losing utility in the process
The law of diminishing rate of substitution - ANSW-as your consumption of "A" increases the amount of
"B" you are willing to give up to get another "A" declines
Indifference map - ANSW-A graphical representation of consumers taste each curve reflects a different
level of utility
Explicit cost - ANSW-opportunity cost of resources employed by a firm that takes the form of cash
payments
Implicit costs - ANSW-a firms' opportunity cost of using its own resources or those provided by its
owners without a corresponding cash payment
Accounting profit - ANSW-a firms' total revenue minus its explicit costs
Economic profit - ANSW-a firms' total revenue minus its explicit and implicit costs
Normal profit - ANSW-the accounting profit earns when all resources earn their opportunity costs
Variable resources - ANSW-any resource that can be varied in the short run (3 months) to increase or
decrease production (labor)
Fixed resource - ANSW-any resource that cannot be varied in the short run (capital)
Short run - ANSW-a period during which one of the firms' resources is fixed
Long run - ANSW-a period during which all resources under the firms' control are variable
Total product - ANSW-the total output produced by a firm
Production function - ANSW-the relationship between the amount of resources employed and a firms'
total product
, Marginal production - ANSW-the change in total product that occurs when the use of a particular
resource increases by one unit all other resources constant
Increasing marginal returns - ANSW-the product of a variable resource increases as each additional unit
of that resource is employed
Law of diminishing marginal returns - ANSW-: as more of a variable resource is added to a given amount
of a fixed resource marginal product eventually declines and could become negative
Fixed cost - ANSW-any production cost that is independent of the firms' rate of output
Variable cost - ANSW-any production cost that changes as the rate of output changes
Total cost - ANSW-the sum of fixed cost and variable cost or TC=FC+VC
Average variable cost - ANSW-variable cost divided by output or AVC=VC/q
Average total cost - ANSW-total cost divided by output or ATC=TC/q the sum of average fixed cost and
average variable cost or ATC=AFC+AVC
Long run average cost curve - ANSW-a curve that indicates the lowest average cost of production at each
rate of output when the size or scale of the firm varies also called the planning curve
Economies of scale - ANSW-forces that reduce a firms' average cost as the scale of operation increases in
the long run
Diseconomies of scale - ANSW-forces that may eventually increase a firms' average cost as the scale of
operation increases in the long run
Constant long run average cost - ANSW-a cost that occurs when over some range of output long run
average cost neither increases or decreases with changes in firm size
Production function - ANSW-identifies the maximum quantities of a particular good or service that can
be produced per time period with various combinations of resources for a given level of technology
(equation, graph, or table)
Isoquant curve - ANSW-a curve that shows all the technologically efficient combination of two resources
such as labor and capital that produce a certain rate of output
Properties of isoquants - ANSW-1. Isoquants farther from the origin represent greater output rates
2. Isoquants have negative slopes because along a given isoquant the quantity of labor employed
inversely relates to the quantity of capital employed
3. Isoquants do not intersect because each isoquant refers to a specific rate of output
4. Isoquants are usually convex to the origin
Marginal rate of technical substitution (MRTS): - ANSW-the rate at which labor substitutes for capital
without affecting output
Isocost line - ANSW-identifies all combinations of capital and labor the firm can hire for a total given cost
Expansion path - ANSW-the line formed by connecting tangency points
Market structure - ANSW-important features of a market such as the number of firms product uniformity
across firms firm's ease of entry and exit, and forms of competition
Perfect competition - ANSW-a market structure with many fully informed buyers and sellers of a
standardized product and no obstacles to entry or exit of firms in the long run
Commodity - ANSW-a standardized product a product that does not differ across producers such as
bushels of wheat or an ounce of gold
study set | Questions and verified
Answers
Total utility - ANSW-the total satisfaction a consumer derives from consumption it could refer to either
the total utility of consuming a particular good or the total utility from all consumption
Marginal utility - ANSW-the change in total utility derived from a one unit chang in consumption of a
good
Law of diminishing marginal utility - ANSW-the more the more of a good a person consumes per period
the smaller the increase in total utility from consuming one more unit (o.t.c)
Consumer equilibrium - ANSW-the condition in which an individual consumers budget is spent and the
last dollar spent on each good yields the same marginal utility therefore utility is maximized
Marginal valuation - ANSW-the dollar value of the marginal utility derived from consuming each
additional unit of a good
Consumer surplus - ANSW-the difference between the maximum amount that a consumer is willing to
pay for a given quantity of a good and what the consumer actually pays
Indifference curve - ANSW-shows all combinations of goods that provide the consumer with the same
utility the consumer finds all combinations on a curve equally preferred
Marginal rate of substitution - ANSW-the number of "A" you are willing to give up to get more "B"
neither gaining nor losing utility in the process
The law of diminishing rate of substitution - ANSW-as your consumption of "A" increases the amount of
"B" you are willing to give up to get another "A" declines
Indifference map - ANSW-A graphical representation of consumers taste each curve reflects a different
level of utility
Explicit cost - ANSW-opportunity cost of resources employed by a firm that takes the form of cash
payments
Implicit costs - ANSW-a firms' opportunity cost of using its own resources or those provided by its
owners without a corresponding cash payment
Accounting profit - ANSW-a firms' total revenue minus its explicit costs
Economic profit - ANSW-a firms' total revenue minus its explicit and implicit costs
Normal profit - ANSW-the accounting profit earns when all resources earn their opportunity costs
Variable resources - ANSW-any resource that can be varied in the short run (3 months) to increase or
decrease production (labor)
Fixed resource - ANSW-any resource that cannot be varied in the short run (capital)
Short run - ANSW-a period during which one of the firms' resources is fixed
Long run - ANSW-a period during which all resources under the firms' control are variable
Total product - ANSW-the total output produced by a firm
Production function - ANSW-the relationship between the amount of resources employed and a firms'
total product
, Marginal production - ANSW-the change in total product that occurs when the use of a particular
resource increases by one unit all other resources constant
Increasing marginal returns - ANSW-the product of a variable resource increases as each additional unit
of that resource is employed
Law of diminishing marginal returns - ANSW-: as more of a variable resource is added to a given amount
of a fixed resource marginal product eventually declines and could become negative
Fixed cost - ANSW-any production cost that is independent of the firms' rate of output
Variable cost - ANSW-any production cost that changes as the rate of output changes
Total cost - ANSW-the sum of fixed cost and variable cost or TC=FC+VC
Average variable cost - ANSW-variable cost divided by output or AVC=VC/q
Average total cost - ANSW-total cost divided by output or ATC=TC/q the sum of average fixed cost and
average variable cost or ATC=AFC+AVC
Long run average cost curve - ANSW-a curve that indicates the lowest average cost of production at each
rate of output when the size or scale of the firm varies also called the planning curve
Economies of scale - ANSW-forces that reduce a firms' average cost as the scale of operation increases in
the long run
Diseconomies of scale - ANSW-forces that may eventually increase a firms' average cost as the scale of
operation increases in the long run
Constant long run average cost - ANSW-a cost that occurs when over some range of output long run
average cost neither increases or decreases with changes in firm size
Production function - ANSW-identifies the maximum quantities of a particular good or service that can
be produced per time period with various combinations of resources for a given level of technology
(equation, graph, or table)
Isoquant curve - ANSW-a curve that shows all the technologically efficient combination of two resources
such as labor and capital that produce a certain rate of output
Properties of isoquants - ANSW-1. Isoquants farther from the origin represent greater output rates
2. Isoquants have negative slopes because along a given isoquant the quantity of labor employed
inversely relates to the quantity of capital employed
3. Isoquants do not intersect because each isoquant refers to a specific rate of output
4. Isoquants are usually convex to the origin
Marginal rate of technical substitution (MRTS): - ANSW-the rate at which labor substitutes for capital
without affecting output
Isocost line - ANSW-identifies all combinations of capital and labor the firm can hire for a total given cost
Expansion path - ANSW-the line formed by connecting tangency points
Market structure - ANSW-important features of a market such as the number of firms product uniformity
across firms firm's ease of entry and exit, and forms of competition
Perfect competition - ANSW-a market structure with many fully informed buyers and sellers of a
standardized product and no obstacles to entry or exit of firms in the long run
Commodity - ANSW-a standardized product a product that does not differ across producers such as
bushels of wheat or an ounce of gold
