ECON 101 1st EditionEXAM 2 STUDY GUIDEMaterial Covered on the Exam: Chapters 7,8,10,14,21,29,35, relevant lecture material, exercises and all handoutsSome areas of the study guide will consist of problems you should be familiar will while other areas will focus primarily on terms, concepts and materials.Complete the practice exam before the exam 10/23*Be sure to first attempt the study guide without using notes so that you’re able to target areas that need more reviewingExam Prep:- Why is it necessary for a firm to equate marginal revenue and marginal cost in order to maximize its profits? What if the management of a firm discovers that marginal revenue is less than marginal cost? What does this mean and what should the firm do?HOW COST VARIES WITH OUTPUT:total opportunity cost: sum of all direct and implicit costtotal cost: TC(Q)average cost: AC= TC(Q)/Qtotal fixed cost: TfC= TfC(Q)/Qaverage variable cost: TVC(Q)/QMarginal cost: change in dTC(Q)/dQPractice Problems:1. Explain why a competitive firm’s demand curve is also its marginal revenue and its average revenue curve.2. Why will a firm continue to operate in the long run earning zero profits?3. Draw a figure showing a firm making supernormal profits.4. Assume a new innovation is developed that increases the cost of production for firms. What would be the effects on a competitive industry in the short run and long run? Poor:- Who, when referring to “the poor” are we speaking of?- HOW DO WE DEFINE POVERTY?Define the following concepts: Absolute concept of poverty-  Relative concept of poverty- Once we move from an absolute to a relative concept of poverty, any sharp distinction between the poor and the nonpoor start to blur. We are then away from the narrow problem of poverty and toward the broader problem of income inequality.- What are the causal factors of unequal income? Identify and explain. Hint: there are 8 referenced in the textbook.- What is economic discrimination? Explain. THE TRADE OFF BETWEEN EQUALITY AND EFFICIENCY: Policies that redistribute income often reduce the rewards of high-income earners while raising the rewards of low-income earners. Such policies reduce the incentive to earn high income. Such incentive effects five rise to a tradeoff that is one of the most fundamental in all of economy. (p455)- What are the lessons learned?1. 2. Why do people hold and use money? Explain each of the following phrases:-Money is a medium of exchange-Money is a store of value- Money is a unit of accountDemand for Money:- Money is a very valuable commodity but in order for you to physically hold money in your possession, there involves an opportunity cost. o *If you hold cash, or put your money in a checking account you forego the interest you could earn if you put the funds into a savings account or into a money market fund or lent it so someone.How is the quantity of money measured? Explain M1 and M2.Practice Problems:1. Explain what is meant by the phrase, “Money is a link between the past, present, and future.” Can you explain how the use of money serves to make the economy operate more smoothly through time?2. Suppose inflation is expected to decrease in the future. How does inflation affect the function of money as a medium of exchange, standard of value, and store of purchasing power?3. Explain what is meant by the “demand for money”. Money is not consumed so what are the “profits” of not spending all of one’s money as soon as it’s