ECO 201 Exam 3
What are the assumptions underlying perfectly competitive markets? - ANS-1. Large
number of buyers and sellers
2. Identical products
3. Easy entry and exit
4. Perfect information (buyers know price of all sellers)
If marginal cost begins below average cost and is everywhere increasing, what is true
about the shape of the average cost cover? - ANS-Average cost intersects marginal
cost at its lowest point possible.
Marginal Revenue (MR) - ANS-the extra revenue associated with selling an extra unit of
output or the change in total revenue with a one-unit change in output
Marginal Cost (MC) - ANS-the change in total costs associated with a one-unit change
in output
In a graph of average costs (AVC and ATC), why is it not necessary to also include a
graph of AFC? - ANS-Because in between AVC and ATC is the amount of AFC on the
graph.
What do we assume is true about adding labor to fixed capital in the short-run? -
ANS-The total cost will increase due to an addition of labor (variable cost increase)
marginal product of labor - ANS-the change in output from hiring one additional unit of
labor
Fixed costs - ANS-Costs that do not vary with the quantity of output produced
variable costs - ANS-costs that vary with the quantity of output produced
Average total cost - ANS-total cost divided by the quantity of output
Long run - ANS-the time period in which all inputs can be varied
What does it mean for an economic agent to be rational? - ANS-Doing only things we
believe will make us better off
What are the assumptions underlying perfectly competitive markets? - ANS-1. Large
number of buyers and sellers
2. Identical products
3. Easy entry and exit
4. Perfect information (buyers know price of all sellers)
If marginal cost begins below average cost and is everywhere increasing, what is true
about the shape of the average cost cover? - ANS-Average cost intersects marginal
cost at its lowest point possible.
Marginal Revenue (MR) - ANS-the extra revenue associated with selling an extra unit of
output or the change in total revenue with a one-unit change in output
Marginal Cost (MC) - ANS-the change in total costs associated with a one-unit change
in output
In a graph of average costs (AVC and ATC), why is it not necessary to also include a
graph of AFC? - ANS-Because in between AVC and ATC is the amount of AFC on the
graph.
What do we assume is true about adding labor to fixed capital in the short-run? -
ANS-The total cost will increase due to an addition of labor (variable cost increase)
marginal product of labor - ANS-the change in output from hiring one additional unit of
labor
Fixed costs - ANS-Costs that do not vary with the quantity of output produced
variable costs - ANS-costs that vary with the quantity of output produced
Average total cost - ANS-total cost divided by the quantity of output
Long run - ANS-the time period in which all inputs can be varied
What does it mean for an economic agent to be rational? - ANS-Doing only things we
believe will make us better off
