Microecon chapter 7

Question 1

Organizations of firms (6)

Answer 1

• Single proprietorship
• Ordinary partnership
• Limited partnership (general and limited)
• Corporation (private and public)
• State-owned enterprise (crown corporation)
• Non-profit organization

Question 2

Multinational entreprises (MNEs)

Answer 2

Firms that operate in more than one country

Question 3

Financial capital

Answer 3

Money firms raise for its business

Question 4

π meaning

Answer 4

Profit

Question 5

ATC formula

Answer 5

TC/Q

Question 6

AFC fromula

Answer 6

FC/Q

Question 7

AVC formula

Answer 7

VC/Q

Question 8

ATC alternative formula

Answer 8

AFC + AVC

Question 9

Why is our average cost U-shaped? (4)

Answer 9

• AVC falls initially as VC/Q is falling since workers are more productive at the margin
• AVC when ↑ as VC/Q is rising as increment workers are less productive

Question 10

Marginal cost on the graph

Answer 10

As the incremental workers are more and more productive, MC ↓ initially, and will rise as diminishing returns set in

Question 11

VC, MC and AVC relation

Answer 11

Positive (shift up/down)

Question 12

FC and ATC relation

Answer 12

Negative (shift up/down)

Question 13

TC formula

Answer 13

FC +VC

Question 14

MC formula

Answer 14

ΔTC/ΔQ = ΔVC/ΔQ

Question 15

Does FC have any Δ

Answer 15

No

Question 16

What does min. ATC represent?

Answer 16

Capacity of the firm: amount the firm can produce without encountering rising avg cost

Question 17

Goals of firms (2)

Answer 17

• Profit maximizing
• Single, consistent decision-making unit

Question 18

Inputs of production (4)

Answer 18

• Intermediate products
• By nature
• Service of labour
• Service of physical capital

Question 19

Average product (AP) formula

Answer 19

TP/L

Question 20

Marginal product (MP) formula

Answer 20

ΔTP/ΔL