questions
How do you calculate the market supply curve from individual supply schedules?
Add up the quantity supplied by all firms at each price level to create the market supply curve
Given a table of workers and output, how do you determine the marginal product of labor?
Marginal Product of Labor (MPL) = Change in total output / Change in labor (workers hired)
How do you calculate marginal cost if total cost changes from one level of output to the next?
Marginal Cost (MC) = Change in total cost / Change in quantity produced.
If a firm’s total revenue increases from $1,000 to $1,500 when output increases from 50 to 75 units, what is the marginal revenue?
Marginal Revenue (MR) = Change in total revenue / Change in quantity sold = ($1,500 - $1,000) / (75 - 50) = $500 / 25 = $20.
If marginal revenue (MR) = $10 and marginal cost (MC) = $8, should a firm increase or decrease output? Explain.
Increase output because MR > MC, meaning producing more is still profitable.
If MR = MC at an output level of 200 units, what does this tell you about the firm’s profit-maximizing level of output?
The firm is maximizing profit at 200 units because MR = MC is the rule for profit maximization.
A firm has fixed costs of $5,000 and variable costs of $10 per unit. What is the total cost if they produce 100 units?
Total Cost = Fixed Cost + Variable Cost = $5,000 + (100 × $10) = $6,000.
A firm’s variable costs increase, but its fixed costs remain unchanged. How will this affect marginal cost?
Marginal cost increases because variable costs affect the cost of producing additional units.
A business sees an increase in workers, but the last few workers hired decrease overall productivity. What is happening in terms of the marginal product of labor?
The firm experiences diminishing marginal returns, meaning each additional worker contributes less to total output.
What happens to marginal cost when a firm experiences negative marginal returns?
Marginal cost increases because the firm is becoming less efficient.
How does the law of supply explain the relationship between price and quantity supplied?
Law of Supply: As price increases, quantity supplied increases; as price decreases, quantity supplied decreases.
What is the difference between a change in supply and a change in quantity supplied?
Change in supply = Shift of the supply curve (caused by factors like input costs, technology, or government policies). Change in quantity supplied = Movement along the supply curve (caused by a change in price).
How does a supply schedule help in constructing a supply curve?
A supply schedule is a table showing different price levels and their corresponding quantity supplied, which is used to plot the supply curve.
If new technology reduces production costs, what happens to the supply curve?
The supply curve shifts to the right because production becomes more efficient.
What factors can shift the supply curve to the left?
Factors that shift the supply curve left: increased input costs, new taxes/regulations, or supply chain disruptions.
How does a subsidy affect market supply?
A subsidy lowers production costs, causing the supply curve to shift right (increase in supply).
What are fixed costs, and how do they differ from variable costs?
Fixed costs do not change with output (e.g., rent), while variable costs change with output (e.g., wages, materials).
Why is the short run different from the long run in economics?
The short run has at least one fixed cost, while in the long run, all costs are variable.
Why do businesses want to produce at the profit-maximizing level of output?
Producing at the profit-maximizing level of output (MR = MC) ensures the firm earns the most profit possible.
What happens if a firm produces at an output level where MR < MC?
If MR < MC, the firm is producing too much and should reduce output to avoid losses.
Why is perfect competition considered the most efficient market structure?
Perfect competition leads to efficiency because many firms sell identical products, meaning price equals marginal cost (P = MC).
How does a firm determine its total cost?
Total Cost (TC) = Fixed Cost (FC) + Variable Cost (VC).
If wages increase, what happens to the marginal product of labor and marginal cost?
If wages increase, marginal cost rises and the marginal product of labor may decrease due to higher labor costs.
Why do some firms experience negative marginal returns in the short run?
Negative marginal returns happen when adding more workers decreases total output due to overcrowding or inefficiencies.
In a perfectly competitive market, how does a firm’s marginal revenue relate to the market price?
In perfect competition, marginal revenue equals market price (MR = P) because firms are price takers.