PEREGRINE EXAM: MICROECONOMICS
REVIEW QUESTIONS AND ANSWERS
100% CORRECT
Consumer Surplus (CS) - ANSWER-- (Maximum Buying Price)-(Price Paid)
- Difference between the max price a buyer is willing to pay for a good or service and
they price paid
Producer Surplus (PS) - ANSWER-- (Price Received)-(Minimum Selling Price)
- Difference between price received for a good or service and the minimum selling price
Price Ceiling - ANSWER-When governments place a limit on how high a producer may
charge for his product
Price Floor - ANSWER-A legal minimum on the price at which a good can be sold
Fixed Costs (FC) - ANSWER-Costs that do not vary with output
Variable Costs (VC) - ANSWER-Costs that vary with output
Total Cost (TC) - ANSWER-- The sum of fixed costs and variable costs
- TC = TFV + TVC
Marginal Cost (MC) - ANSWER-The change in total cost that results from a change in
output
Average Fixed Cost Curve - ANSWER-Decrease due to spending
Average Variable Cost Curve - ANSWER-Decrease due to gains from specialization,
then increase due to diminishing marginal returns
Average Total Cost Curve - ANSWER-- U-shaped in the short run (reflects decreasing
costs due to spreading versus increasing costs due to diminishing marginal returns)
- Flatten out in long run (fixed costs become variable in the long run)
Marginal Cost Curve - ANSWER-Moves with Average Total Cost
- Decrease due to gains from specialization
- Increase due to diminishing marginal returns
If Marginal Cost is LESS than ATC - ANSWER-ATC decreasing --> More gains from
specialization
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