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by: Lael Wynne

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# Econ 120 Econ 120

Lael Wynne
UIC

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Exam 2
COURSE
Principles of Microeconimcs
PROF.
Officer
TYPE
Bundle
PAGES
5
WORDS
CONCEPTS
KARMA
75 ?

## Popular in Principles of Microeconimcs

This 5 page Bundle was uploaded by Lael Wynne on Tuesday March 8, 2016. The Bundle belongs to Econ 120 at University of Illinois at Chicago taught by Officer in Spring 2016. Since its upload, it has received 73 views. For similar materials see Principles of Microeconimcs in Business at University of Illinois at Chicago.

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Date Created: 03/08/16
ECON 120 MIDTERM 2 Free Question: MPr \$20 MPL 10 An entertainment film uses and robots to produce a given number of DVD. Letting MPr denote the marginal product of robots, MPL the marginal products of workers (Wage rate per worker-hour). MPr is ten times MPL, while Pr is only double Pr. A) The cost of producing ONE unit of DVD by using robots: Pr/MPr= \$20/10= 2 B) The cost by using labor: PL/MPL= \$10/1= 10 C) MPr= 10 unit/robot MPL= b1 unit/labor Pr= \$20 PL= \$10 Q= 1000 units D) Case 1: Hire only labor, 1000 labor needed… TC=1000(10)= 10,000 Case 2: Hire only robot, 100 robots need… TC= 100(20)= 2000 The film wants to minimize the total cost of producing the given number of DVDs. So it should hire_____ robots and ______ workers. Answer: More; Fewer change∈Q Income Elasticity= change∈Income change∈Q Cross-Price Elasticity= change∈P(another) (New-Old/Old) Example 1: K Crunch and Cheerios; Price of K decreases by 20%; Quantity of C decreases by 10% −10 Elasticity: Q/P… −20 =0.5 Example 2: Milk and Cereal; Price of Milk increases by 10%; Quantity of Cereal decreases by 8% −8 Elasticity: Q/P… =−0.8 10 TC= FC + VC Marginal Cost- The cost of producing an EXTRA unit of goods TotalCost Average Cost = Quantity MC ATC P1: Shut down price P2: Break-even price P2 ----------------------------- AVC Example: P1 -------------------- AVC= \$10 Shutdown Market price= \$9.9 Law of Diminishing Returns: 10 Machines 100 Workers Quantity = 1000 (500 more workers)… Q=5000 As the number of a source of input increases, it does not increase the output as much as it can before. Elasticity: Income elasticity- The percentage change in quantity of demand (consumption) induced by the percentage change in income. Income increases by 1%, consumption increases by 0.5%. What is the income elasticity? Q 0.5 Income elasticity = =0.5 I 1 Total Revenue- the total income of a business; TR= Q*P Marginal Revenue- the increase in revenue from the sale of one additional ∆TR unit of output; ∆Q Average Revenue- the revenue per unit of output sold. AR= TR/Q Marginal Revenue Curve- profit max happens at the quantity where MR=MC Price Taker-a firm that can change its rate of production and sales without affecting the market price of its product. Price Maker- any firm with market power (downward-sloping demand curve) Production Function- Fixed Input-An item required to produce goods and services that does not demonstrate short term variations Variable Input-a resource or factor of production which can be changed in the short run Long Run-A period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all costs Short Run- Law of Diminishing Returns- A concept in economics that if one factor of production (number of workers, for example) is increased while other factors (machines and workspace, for example) are held constant, the output per unit of the variable factor will eventually diminish. Economies of scale- when more units of a good or a service can be produced on a larger scale, yet with (on average) less input costs Constant Costs-An industry in which the ratio comparing units produced to production cost per unit remains the same regardless of industry volume or demand growth Income Elasticity- a change in the quantity demanded for a particular good change∈QD and a change in real income; IncomeElasticitychange∈income Perfect Competition-A market structure in which the following five criteria are met: 1) All firms sell an identical product 2) All firms are price takers - they cannot control the market price of their product 3) All firms have a relatively small market share 4) Buyers have complete information about the product being sold and the prices charged by each firm 5) The industry is characterized by freedom of entry Elasticity of Supply-rice elasticity of supply (PES) measures the responsiveness of quantity supplied to a change in price; change∈quantitysupplied elasticitchange∈price Monopoly-A situation in which a single company or group owns all or nearly all of the market for a given type of product or service

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