Fan
When do price ceilings matter?
3 situation:
1. Binding Price ceiling is effective (surplus)
2. Non-bind Price ceiling is ineffective (shortage)
3. Price ceiling in the long-run (shortage expands)
Describe the two types of externality
1.
Name four types of goods and gives characteristic of each
1. private good (excludable & rivalry) e.g Movie theater
2 club good (excludable & non-rivalry)e.g Cable tv
3. Common resource good (non-excludable & rivalry) e.g fish in the lake, tragedy of the common
4. public good (non-excludable & nonrivalry) e.g public park, national defense.
Two types of costs and explain
Explicit costs: Tangible, out-of-pocket expenses.
E.g rent, utility, wage,
Implicit costs : hidden cost (opportunity cost of time, money, capital)
How do you calculate profit?
2 ways:
Profit = (Price -ATC) * Q
Profit = TR - TC
What will be the effect of a nonbinding price ceiling?
No effect, because price ceiling is above market price.
Which of the following activities would most likely create a negative
externality?
A. eating a slice of pizza
B. smoking a cigarette
C. taking a nap
D. getting a college degree
B. smoking a cigarette
Why: second-hand smoke
Membership at your local fitness facility is what type of good?
A. private good
B. club good
C. common resource good
D. public good
B. club good
Difference between accounting profit and economic profit
Accounting profit = revenues – explicit costs
Economic profit = revenues – (explicit + implicit costs).
What is the formular of the following?
TC =
AVC =
AFC =
ATC =
TC = TFC + TVC
AVC = VC / Q
AFC = FC / Q
ATC = TC / Q
When do price floors matter?
Three different situations:
1. Binding Price floor is effective (surplus)
2. Non-binding Price floor
3. Long-run effects of price floor (surplus expands)
Which of the following activities is most likely to create a positive externality?
A. eating a slice of pizza
B. smoking a cigarette
C. taking a nap
D. getting a college degree
D. getting a college degree
In short run, Fixed cost is.........
Fixed
E.g Lease contract
Which of the following is an example of an implicit cost?
A. Wages paid to employees.
B. Cost of food delivery.
C. The opportunity cost of the owner’s time.
D. Monthly insurance premiums.
C. The opportunity cost of the owner’s time.
3 main inputs production
Land (rent)
Labor (wage)
Capital (interest)
Suppose good X creates a negative externality. Which of the following would NOT be an appropriate way to correct the negative externality?
A. Subsidize the production of good X.
B. Tax the production of good X.
C. Limit how much of good X can be produced.
D. Require the producers of good X to pay for external costs that arise.
A. Subsidize the production of good X.
In long run, Fixed cost is.......
variable, can change, adjust.
Total output with seven workers is Q = 70. Total output with eight workers is Q = 82. What is the marginal product of the eighth worker?
A. 12
B. 10
C. 82
D. 8
A. 12
MP = Change in output
82 - 70 = 12
What is production function?
Describes the relationship between inputs and output.
Which of the following is an example of a public good?
A. a free outdoor Christmas light display
B. a college football game
C. a parking spot with a parking meter
D. a college education
A. a free outdoor Christmas light display
Suppose the wage rate that a company pays its workers increases. In terms of the cost equations, which of the following is true?
A. TC will increase, but ATC will decrease.
B. TVC will increase, but AVC will decrease.
C. The MC curve will become hill-shaped.
D. The TFC and AFC will not change.
D. The TFC and AFC will not change.
Assume that the size of the restaurant, capital, and so on is fixed. What happens to output as the manager hires more workers?
Marginal Product of labor decreases.