AP Econ Micro 3.1-3.4 Study Guide

question

Production Function

answer

Way firm combineds inputs to make outputs

question

Variable Inputs

answer

Can be changed in the Short Run

question

Fixed Inputs

answer

Cannot be changed in the Short Run

question

Short Run

answer

Period of time that is too short for a firm to change plant capacity

question

Plant Capacity

answer

Firm's maximum potential level of production

question

Total Product

answer

Total quantity of output made by a certain number of inputs

question

Marginal Product

answer

Additional output made by 1 more input

question

Marginal Product Equation

answer

MP = Change in Total Product/Change in Units of Labor

question

Average Product

answer

Average output made by 1 more input

question

Average Product Equation

answer

AP = Total Product/Units of Labor

question

Fixed Costs

answer

Costs that have to be paid even when the output is equal to 0

question

Variable Costs

answer

Costs that change as output changes

question

Marginal Costs Equation

answer

MC = Change in Total Costs/Change in Quantity

question

Average Fixed Costs Equation

answer

AFC = Fixed Costs/Quantity

question

Average Variable Costs

answer

AVC = Variable Costs/Quantity

question

Average Total Costs

answer

ATC = Total Costs/Quantity

question

Average Total Costs Alternate Formula

answer

ATC = AVC + AFC

question

What do AVC and ATC do as quantity increases?

answer

AVC and ATC get closer together, but never touch

question

Where does the Marginal Cost curve cross the ATC and AVC

answer

At the minimums of those curves

question

Increasing Returns to Scale

answer

Output increases at a faster rate than all inputs

question

Decreasing Returns to Scale

answer

Output increases at a slower rate than all inputs

question

Constant Returns to Scale

answer

Output increases at the same rate of all inputs

question

Economies of Scale

answer

Long Run Average Total Curve decreases as output increases

question

Diseconomies of Scale

answer

Long Run Average Total Curve increases as output increases

question

Minimum Efficient Scale

answer

Helps determine the number of firms in a market

question

Explicit Costs

answer

The price on materials, utilities, labor, rent, and capital

question

Implicit Costs

answer

The price value of one's opportunity cost

question

Accounting Profit Equation

answer

Total Revenue - Explicit Costs

question

Economic Profit Equation

answer

Total Revenue - (Explicit Costs + Implicit Costs)

question

Which of the following provides an example of the law of diminishing returns?

answer

As more of a variable input-for example, labor is used with a fixed number of machines-output increases but at a diminishing rate.

question

Assume the marginal product of labor first rises, reaches a maximum, and then falls. If the average product of labor is falling, which of the following is true?

answer

The marginal product of labor must be falling.

question

In the short run, assume diminishing marginal product of labor sets in with the hiring of the second worker. Which of the following will remain constant as a firm produces more output?

answer

Total fixed cost

question

Assume that the short-run marginal cost curve initially falls, and it then rises as quantity of output increases. Which of the following must be true?

answer

Initially the marginal product of labor increases but eventually marginal product of labor decreases.

question

Which of the following statements about short-run costs is true?

answer

Total fixed cost plus total variable cost equals total cost.

question

Assume a firm doubles its usage of each input, resulting in a doubling of the firm's output. Which of the following describes this result?

answer

Constant returns to scale.

question

Which of the following explains the difference between short-run and long-run costs?

answer

All costs are variable in the long run but not in the short run.

question

Which of the following statements regarding accounting profits, opportunity costs, and economic profits is true?

answer

If accounting profits are less than opportunity costs, there will be economic losses.

question

Assume Nadia voluntarily leaves a job with a salary of $100 per day to open and run a restaurant instead. After deducting all explicit costs from the restaurant revenues, Nadia has a gain of $120. Assuming there are no additional implicit costs, which of the following statements is true?

answer

Nadia has an economic profit of $20.

question

Ryan quit a job with a daily salary and opened a business. On a daily basis, the total revenue of the business is $200, and the explicit costs of the business are $120. If Ryan has zero economic profits, what must be the value of Ryan's implicit costs?

answer

$80

1 of 39

question

Production Function

answer

Way firm combineds inputs to make outputs

question

Variable Inputs

answer

Can be changed in the Short Run

question

Fixed Inputs

answer

Cannot be changed in the Short Run

question

Short Run

answer

Period of time that is too short for a firm to change plant capacity

question

Plant Capacity

answer

Firm's maximum potential level of production

question

Total Product

answer

Total quantity of output made by a certain number of inputs

question

Marginal Product

answer

Additional output made by 1 more input

question

Marginal Product Equation

answer

MP = Change in Total Product/Change in Units of Labor

question

Average Product

answer

Average output made by 1 more input

question

Average Product Equation

answer

AP = Total Product/Units of Labor

question

Fixed Costs

answer

Costs that have to be paid even when the output is equal to 0

question

Variable Costs

answer

Costs that change as output changes

question

Marginal Costs Equation

answer

MC = Change in Total Costs/Change in Quantity

question

Average Fixed Costs Equation

answer

AFC = Fixed Costs/Quantity

question

Average Variable Costs

answer

AVC = Variable Costs/Quantity

question

Average Total Costs

answer

ATC = Total Costs/Quantity

question

Average Total Costs Alternate Formula

answer

ATC = AVC + AFC

question

What do AVC and ATC do as quantity increases?

answer

AVC and ATC get closer together, but never touch

question

Where does the Marginal Cost curve cross the ATC and AVC

answer

At the minimums of those curves

question

Increasing Returns to Scale

answer

Output increases at a faster rate than all inputs

question

Decreasing Returns to Scale

answer

Output increases at a slower rate than all inputs

question

Constant Returns to Scale

answer

Output increases at the same rate of all inputs

question

Economies of Scale

answer

Long Run Average Total Curve decreases as output increases

question

Diseconomies of Scale

answer

Long Run Average Total Curve increases as output increases

question

Minimum Efficient Scale

answer

Helps determine the number of firms in a market

question

Explicit Costs

answer

The price on materials, utilities, labor, rent, and capital

question

Implicit Costs

answer

The price value of one's opportunity cost

question

Accounting Profit Equation

answer

Total Revenue - Explicit Costs

question

Economic Profit Equation

answer

Total Revenue - (Explicit Costs + Implicit Costs)

question

Which of the following provides an example of the law of diminishing returns?

answer

As more of a variable input-for example, labor is used with a fixed number of machines-output increases but at a diminishing rate.

question

Assume the marginal product of labor first rises, reaches a maximum, and then falls. If the average product of labor is falling, which of the following is true?

answer

The marginal product of labor must be falling.

question

In the short run, assume diminishing marginal product of labor sets in with the hiring of the second worker. Which of the following will remain constant as a firm produces more output?

answer

Total fixed cost

question

Assume that the short-run marginal cost curve initially falls, and it then rises as quantity of output increases. Which of the following must be true?

answer

Initially the marginal product of labor increases but eventually marginal product of labor decreases.

question

Which of the following statements about short-run costs is true?

answer

Total fixed cost plus total variable cost equals total cost.

question

Assume a firm doubles its usage of each input, resulting in a doubling of the firm's output. Which of the following describes this result?

answer

Constant returns to scale.

question

Which of the following explains the difference between short-run and long-run costs?

answer

All costs are variable in the long run but not in the short run.

question

Which of the following statements regarding accounting profits, opportunity costs, and economic profits is true?

answer

If accounting profits are less than opportunity costs, there will be economic losses.

question

answer

Nadia has an economic profit of $20.

question

answer

$80

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