ECON 102 EXAM #2 PSU REVIEW NEWEST ACTUAL EXAM
WITH COMPLETE QUESTIONS AND CORRECT VERIFIED
ANSWERS (DETAILED ANSWERS) ALREADY GRADED A+
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elatively flat graph indicates
steep one indicates - <<ANSWER>>small change in price will cause a huge change in
quantity demanded
even with a very large price increase, Qd will only fall a small amount
Accounting profit formula - <<ANSWER>>Accounting Profit = TR - total explicit costs
explicit costs
examples - <<ANSWER>>costs that managers must take account of because they
must be paid
wages, taxes, raw materials, insurance
implicit costs - <<ANSWER>>expenses that managers do not have to pay out of pocket
and hence do not normally explicitly calculate
no direct payment
opportunity cost of capital is the... - <<ANSWER>>returns you give up by NOT investing
elsewhere
Accounting profits vs economic profits - <<ANSWER>>econ profits include opportunity
costs
formula for economic profits - <<ANSWER>>accounting profit - implicit costs
normal rate of return - <<ANSWER>>the costs of continuing to run your business
instead of doing something else
the goal of the firm - <<ANSWER>>profit maximization
, production - <<ANSWER>>any activity that results in the conversion of resources into
products that can be used in consumption
(using inputs to make goods and services)
production function - <<ANSWER>>given a quantity of inputs. how much output can we
make?
labor - <<ANSWER>>L
capital - <<ANSWER>>K
production function formula - <<ANSWER>>Q = f(K,L)
output (Q) is a function of inputs
in the short run for production what cannot be changed? - <<ANSWER>>capital
plant size - <<ANSWER>>the physical size or number of factories that a firm owns and
operates to produce its output
in the long run for production what can be changed? - <<ANSWER>>all factors of
production can be varied
total product - <<ANSWER>>TP: total amount of output produced by a firm for some
time period
elasticity - <<ANSWER>>the sensitivity between 2 variables
price elasticity of demand - <<ANSWER>>the sensitivity of the change in the qd of a
good in response to a change in the price of the good
demand is elastic when... - <<ANSWER>>the qd is relatively responsive to a change in
the products own price
demand is inelastic when... - <<ANSWER>>the qd is relatively unresponsive to
changes in price
elastic goods? - <<ANSWER>>goods with many substitutes, specific brand of cereal
inelastic goods - <<ANSWER>>gas, college tuition, no good substitutes, cigs, toilet
paper, life saving drugs
determinants of price elasticity of demand: - <<ANSWER>>1. the number and quality of
substitutes
2. share of income spent of a good directly relates to price elasticity of demand
3. passage of time
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