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ECO 201 Miami University Exam 3 Questions & answer
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ECO 201 Miami University Exam 3 Questions & answer
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ECO 201 Miami University Exam 3accounting total cost - ANS-explicit costs only
economic total cost - ANS-accounting total cost + implicit costs
economic total cost is opportunity cost
accounting profit = - ANS-total revenue - accounting total costs
economic profit = - ANS-total revenue - economic total costs
when economic profit = 0 - ANS-normal economic profit; means that the firm is doing as
well as it could in it's next best alternative
economic profit > 0 - ANS-firm's owner is doing better than she/he could in her/his next
best alternative
economic profit < 0 - ANS-firm's owner is doing worse than she/he could in his/her next
best alternative
short run - ANS-period of time so short that capital is fixed.
firms can change output ONLY by changing the number of workers hired, NOT by
changing factory size
L represents - ANS-labor
N represents - ANS-natural resources
K represents - ANS-capital
in the short run... - ANS-Q=f(L) because capital is fixed
marginal product of labor = - ANS-change in quantity / change in labor
tells us how output changes as the firm hires an additional worker
, fixed costs (FC) - ANS-costs that do not change as output changes (rent)... only exist in
the short run
variable costs (VC) - ANS-costs that vary as output changes (labor costs). VC goes up
as Q goes up. VC goes down as Q goes down.
Total cost = - ANS-Fixed costs + variable costs
marginal cost (MC) = - ANS-change in total cost / change in quantity
average fixed cost - ANS-fixed cost per unit = FC / Q
continuously declines as output rises
Average variable cost (AVC) - ANS-VC/Q, graphed as a U-shaped curve
Average total cost (ATC) - ANS-TC/Q or AFC + AVC
ATC = - ANS-AFC + AVC
MC intersects ATC & AVC at their __________ points - ANS-minimum
P=R only for a ___________ firm - ANS-competitive
profit = - ANS-(P-ATC) x Q*
when profit > 0 for a firm in the short run - ANS-profit = (P-ATC) x Q* and is a
rectangular shape
when profit = 0 for a firm in the short run (normal or zero profit) - ANS-when profit = 0,
P=ATC=MC (minimum at ATC)
the firm is doing just as well in its next best alternative
profit = 0 ---> long run equilibrium
when profit < 0 for a firm in the short run (negative economic profit AKA loss) -
ANS-should the firm operate in the short run or shut it down?
-if the firm closes, loss = fixed costs (firm must still pay rent)
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