AGB 144 Final exam 2023 with complete solution
Law of Diminishing Marginal Utility
all wants are insatiable, but the want for a particular item can be satisfied at some point
Total Cost
TFC/Q
Average Variable Cost
TVC/Q
Average Total Cost
TC/Q and AFC+AVC
Marginal Cost
the additional cost of producing one more unit of output
Change in total cost/change in quantity TC2-TC1/Q2-Q1
Total Revenue
Price x Quantity Sold
Marginal Revenue
Change in Total Revenue/Change in Quantity
Average Revenue
Total Revenue/Quantity
Law of Demand
as price decreases, demand increases
Utility Maximizing Rule
to maximize satisfaction the consumer should allocate their income so that the last
dollar spent on each product yields the same amount of marginal utility
To Maximize Utility
MU of A/$A = MU of B/$B
all income should be spent
Triple Bottom Line
People (Employees, Consumers), Planet, Profit
Break Even Point
Point at which all costs are recovered
ATC = MC
Productive Efficiency
produce goods in least cost way
Allocative Efficiency
-right mix of goods are produced
-maximize consumer and producer surplus
Four Market Models
Pure Competition(Agriculture), Pure Monopoly(Electric Companies), Monopolistic
Competition(Cell Phone Companies), and Oligopoly(OPEC)
Pure Competition characteristics
Very large number of sellers, Standardized product, Price takers, Free entry and exit
from the market
Short Run
Plant capacity is fixed but can adjust the degree to which the plant is used
Long Run
, Plant capacity variable
Constant Returns to Scale
As a firm increases production, average cost remains constant
Diseconomies of Scale
As a firm increases production, average cost increases
Producer Surplus
Surplus benefit received by supplier, price received by producer minus minimum
acceptable price for the producer
Consumer Surplus
Surplus benefit received by consumers, maximum price consumers are willing to pay
minus the actual price they pay
Total Product
Total quantity that is produced
Private Goods
Rivalry, Excludability
Losses and Shrinking Packages
Status Quo: People react when the price rises, they don't always notice when the
package gets smaller
Demand-Side Market Failures
Demand curve doesn't reflect actual willingness to pay
ex: fireworks, roadways, shoveling sidewalks
Increasing Cost Industry
Entry of new firms increases cost of resources, exit decreases cost of resources
Demand (slope)
Individual firm(perfectly elastic), Total market(downward sloping)
Normal Profit
What the entrepreneur could have made elsewhere
Accounting Profit
Total Revenue - Explicit Costs
Overstates the success of your business
Economic Profit
Total Revenue - (Explicit Costs + Implicit Costs)
Gives an accurate picture of the success of your business
Explicit Costs
Monetary payments for resources that a firm doesn't own
Ex. salaries, rent, inputs
Implicit Costs
The opportunity costs of using the resources that the firm does own; Ex. OC of land, OC
of natural resources
Elasticity
Have to continually lower the price by larger and larger amounts to convince consumers
to purchase more
Decreasing Cost Industry
Entry of firms decrease costs of resources, Exit of firms increases cost of resources
Constant Cost Industry
Entry/exit doesn't affect resource prices
Law of Diminishing Marginal Utility
all wants are insatiable, but the want for a particular item can be satisfied at some point
Total Cost
TFC/Q
Average Variable Cost
TVC/Q
Average Total Cost
TC/Q and AFC+AVC
Marginal Cost
the additional cost of producing one more unit of output
Change in total cost/change in quantity TC2-TC1/Q2-Q1
Total Revenue
Price x Quantity Sold
Marginal Revenue
Change in Total Revenue/Change in Quantity
Average Revenue
Total Revenue/Quantity
Law of Demand
as price decreases, demand increases
Utility Maximizing Rule
to maximize satisfaction the consumer should allocate their income so that the last
dollar spent on each product yields the same amount of marginal utility
To Maximize Utility
MU of A/$A = MU of B/$B
all income should be spent
Triple Bottom Line
People (Employees, Consumers), Planet, Profit
Break Even Point
Point at which all costs are recovered
ATC = MC
Productive Efficiency
produce goods in least cost way
Allocative Efficiency
-right mix of goods are produced
-maximize consumer and producer surplus
Four Market Models
Pure Competition(Agriculture), Pure Monopoly(Electric Companies), Monopolistic
Competition(Cell Phone Companies), and Oligopoly(OPEC)
Pure Competition characteristics
Very large number of sellers, Standardized product, Price takers, Free entry and exit
from the market
Short Run
Plant capacity is fixed but can adjust the degree to which the plant is used
Long Run
, Plant capacity variable
Constant Returns to Scale
As a firm increases production, average cost remains constant
Diseconomies of Scale
As a firm increases production, average cost increases
Producer Surplus
Surplus benefit received by supplier, price received by producer minus minimum
acceptable price for the producer
Consumer Surplus
Surplus benefit received by consumers, maximum price consumers are willing to pay
minus the actual price they pay
Total Product
Total quantity that is produced
Private Goods
Rivalry, Excludability
Losses and Shrinking Packages
Status Quo: People react when the price rises, they don't always notice when the
package gets smaller
Demand-Side Market Failures
Demand curve doesn't reflect actual willingness to pay
ex: fireworks, roadways, shoveling sidewalks
Increasing Cost Industry
Entry of new firms increases cost of resources, exit decreases cost of resources
Demand (slope)
Individual firm(perfectly elastic), Total market(downward sloping)
Normal Profit
What the entrepreneur could have made elsewhere
Accounting Profit
Total Revenue - Explicit Costs
Overstates the success of your business
Economic Profit
Total Revenue - (Explicit Costs + Implicit Costs)
Gives an accurate picture of the success of your business
Explicit Costs
Monetary payments for resources that a firm doesn't own
Ex. salaries, rent, inputs
Implicit Costs
The opportunity costs of using the resources that the firm does own; Ex. OC of land, OC
of natural resources
Elasticity
Have to continually lower the price by larger and larger amounts to convince consumers
to purchase more
Decreasing Cost Industry
Entry of firms decrease costs of resources, Exit of firms increases cost of resources
Constant Cost Industry
Entry/exit doesn't affect resource prices
