Final Exam (Microeconomics)

Question 1

Microeconomics

Answer 1

the study of economics as seen by a single business

Question 2

Purpose of microeconomics

Answer 2

to maximize profit by finding the most efficient level of production and sales for a product/service

Question 3

Profit Formula

Answer 3

Profit = Revenue - Costs

Question 4

For-Profit Companies

Answer 4

seek to maximize shareholder/investor value and may share profits among shareholders

Question 5

Not-for-Profit Companies

Answer 5

seek to maximize the purpose for which they were created; profit generated by these organizations must be retained for the organization and may not be shared

Question 6

Income Statement

Answer 6

Records revenues and expenses over time (monthly, quarterly, or yearly)
- Shows the bottom line of net income (key measurement of the company’s performance)

Question 7

Income Statement Formula

Answer 7

Revenue - Costs = Operating Income

Question 8

Balance Sheet

Answer 8

Snapshot that records the assets and liabilities of a company

Question 9

Accounting Equation

Answer 9

Assets = Liabilities + Equity

Question 10

Law of Supply

Answer 10

• Quantity of goods supplied rises and market price rises & falls as the price falls (willingness of a supplier to supply goods/services to the market)

Question 11

Law of Demand

Answer 11

• Quantity of goods demanded rises as the price falls & falls as the price rises (willingness of a consumer to buy goods/services at a given price)

Question 12

Fixed Costs

Answer 12

Costs a business must bear before they produce a single product or service (remains the same no matter how much you produce)

Question 13

Fixed Costs Examples

Answer 13

Loan Payments (interest and principal)
Rent
Basic Utilities (electricity, water, etc.)
Salaried employees
Taxes and Fees

Question 14

Variable Costs

Answer 14

Directly related to the volume of goods or services provided; increases or decreases as the amount of product you provide increases or decreases)

Question 15

Variable Costs Examples

Answer 15

Raw Materials
Cost of Maintaining or Replacing Tools
Labor Costs

Question 16

Total Cost

Answer 16

The sum of fixed costs and variable costs (same as variable cost curve but displaced due to the addition of fixed cost)

Question 17

Average Total Cost

Answer 17

Total cost divided by number of units produced

Question 18

Marginal Cost

Answer 18

Cost to produce one more
- Sum of the actual direct variable costs required to make that additional unit/service

Question 19

Decrease and Increase of the Cost Curves

Answer 19

• The cost decreases as production increases because the cost is spread over many products.
• The cost increases after a certain amount of time because additional costs are made to support the production of additional products.

Question 20

Long Run vs Short Run

Answer 20

All costs are variable in the long run.

Question 21

Price in a Competitve Market Situation

Answer 21

Horizontal Line labeled AR (Average Revenue) or MR (Marginal Revenue) or P (Price)

Question 22

Maximum Profit Considering Price

Answer 22

MR = MC

Question 23

Total Profit

Answer 23

(Sales Volume * Price) - (Sales Volume * Average Total Cost)

Question 24

Price in Monopoly Situation

Answer 24

MR = MC ; Monopolists also have to follow the market price

Question 25

Profit Graph for Monopoly

Answer 25

MC, ATC, Demand Curve, MR

Question 26

Economy of Scale

Answer 26

Costs decrease at higher production level. Cost of better tools are spread over more units. Larger purchases imply discounts. Operate at a flat part of the learning curve.

Question 27

Economy of Scope

Answer 27

Takes advantage of shared costs and capacities among varied products