WGU C211 Exams Questions with Complete Solutions 2023

WGU C211 Exams Questions with Complete Solutions 2023 Four properties of an indifference curve (1) Higher indifference curves are preferred to lower ones. People usually prefer to consume more goods rather than less. (2) Indifference curves are downward sloping. The slope of an indifference curve reflects the rate at which the consumer is willing to substitute one good for the other. (3) Indifference curves do not cross. (4) Indifference curves are bowed inward. The slope of an indifference curve is the marginal rate of substitution—the rate at which the consumer is willing to trade off one good for the other. Marginal rate of substitution. The rate at which the consumer is willing to trade off one good for the other (i.e. how much Pepsi the consumer requires to be compensated for a one-unit reduction in pizza consumption) Budget constraint The consumption bundles that the consumer can afford. How might a budget constraint be impacted by an increase in income? Additional bundles could be consumed with an increase in income. Graphical elements needed to determine a consumer's optimal point of consumption Indifference curve and budget constraint. How is a consumer's optimal point of consumption determined precisely? What is the condition that must be met? The point at which this indifference curve and the budget constraint touch (the best combination of pizza and Pepsi available to the consumer.) The marginal rate of substitution equals the relative price of the two goods. Marginal cost The increase in total cost that arises from an extra unit of production How is marginal cost related to total cost? The portion of total cost resulting from an extra unit of production. Formula to calculate marginal cost Change in total cost divided by change in quantity If Dave's company has a total cost of $100 when quantity output is 5, and a total cost of $115 when quantity output is 6, what is the marginal cost of producing the 6th unit? $15 Total cost is made of two types of costs, what are they? Fixed and Variable. How does a firm determine to shut down in the short-run? What rule characterizes this? If the revenue that it would earn from producing is less than its variable costs of production. P<AVC (Price is less than Avg Variable Cost) Market structure characterized as being "price takers" Competitive markets Price taker One who must accept the price as the market determines When a market is characterized as being a price taker, what fundamental shape does the demand curve for this market take? Horizontal line. Demand curve for a perfectly competitive firm Horizontal line Demand curve for a monopolistic market Downward-sloping What does "downward" sloping with regards to a demand curve mean? The monopoly has to accept a lower price if it wants to sell more output. Where do firms with market power determine the quantity of product/service they will produce? A firm chooses a quantity of output such that marginal revenue equals marginal cost. The firm chooses quantity so that price equals marginal cost. Thus, the firm's marginal-cost curve is its supply curve. Primary goal/objective of a firm Maximize profit. If the firm has price setting capacity, how will they use information about marginal costs and marginal revenues in order to accomplish their primary objective? The monopolist's profit-maximizing quantity of output is determined by the intersection of the marginal-revenue curve and the marginal-cost curve. Describe the basic distinctions between the market models with respect to: number of market participants, type of product being marketed, ease of entry/exit into the market and the prevalence of advertising/marketing Monopoly and Oligopoly have one to few firms, with limited products (cable TV), entry is difficult, and advertising is a natural feature. Monopolistic competition/perfect competition have many firms, mono comp has differentiated products (novels/movies) and perfect comp has identical products, entry is easy, and spend very little on advertising. Fundamental truth realized when studying the behavior of an oligopolistic firm within the context/model called "prisoner's dilemma" Self-interest makes it difficult for the oligopolists to maintain the cooperative outcome. Relentless logic of self-interest drives the participants toward the non-cooperative outcome, which is worse for both parties. How might an oligopolistic firm behave like a monopoly? What forces may prevent this? Forming a cartel and acting like a monopolist, but self-interest drives them towards competition. Indifference Curve Shows consumption bundles that give the consumer the same satisfaction. (i.e. pepsi & pizza - with wich a consumer is equally satisfied.)