AP Econ Test #3 - Assignment Essays

question

Costs & Profits

answer

Economic cost = opportunity cost
Economic profit(TR - EC(implicit+explicit costs)
Normal Profit = part of op. cost

question

In the short run, 3 variables are measured

answer

Total Product(TP)
Marginal Product(MP)
Average Product(AP)
Marginal Revenue

question

Explicit Costs

answer

The money paid to buy stuff (ranging from materials to labor)

question

Implicit Costs

answer

How much money a business could have made by selling its resources (opportunity cost)

question

Law of Diminishing Marginal Returns

answer

As more of a variable resource is added to a given amount of a fixed resource, marginal product eventually declines and could become negative

question

Fixed Costs

answer

Do not vary with changes in output

question

Variable Costs

answer

Change with the level of output

question

Average Fixed Costs

answer

TFC(total fixed cost)/ Q(quantity of output)
Always decreases over time as production increases

question

Average Variable Cost

answer

TVC (total variable cost) / Q

question

Marginal Cost

answer

the cost of producing one more unit of a good

question

What can shift the cost curves (short run)?

answer

Change in resource prices
Change in technology

question

What are the reasons for economies of scale?

answer

Labor specialization, managerial specialization, and efficient capital

question

Why do marginal costs begin to rise as production increases?

answer

Growth of management leads to more employees making high salaries but contributing nothing to production directly

question

Constant-Cost Industry

answer

The resource prices do not change according to expansion or contraction of the industry

question

Decreasing & increasing cost industries

answer

Most industries are increasing cost industries
Decreasing see lower resource costs as an industry expands

question

Where you want to produce?

answer

Firms want to produce where AVC is lowest

question

Where to produce?

answer

Producing above or at you AVC means you are paying off fixed costs

question

Production

answer

When MR=D=AR=P is above min. AVC, you are making a normal profit
When it is above min. you are making an economic profit

question

Pure competition the market operates under the following 4 assumptions:

answer

Very large number of sellers
Standardized product
No control over price(price taker)
Free entry and exit

question

Break even point

answer

When TR = TC

question

Long Run equilibrium in pure competition

answer

In the short run the number of firms in an industry do not change, but in the long run it can change

Firms will enter an industry if price exceeds ATC

Will eventually produce at P=min. AVC

Quantity Supplies will be found at MR[P]=MC=min. AVC

question

Productive efficiency in pure competition

answer

P = Minimum ATC

question

Allocative efficiency

answer

P = MC

question

Underallocation Efficiency

answer

P > MC

question

Overallocation Efficiency

answer

P < MC

1 of 25

question

Costs & Profits

answer

Economic cost = opportunity cost
Economic profit(TR - EC(implicit+explicit costs)
Normal Profit = part of op. cost

question

In the short run, 3 variables are measured

answer

Total Product(TP)
Marginal Product(MP)
Average Product(AP)
Marginal Revenue

question

Explicit Costs

answer

The money paid to buy stuff (ranging from materials to labor)

question

Implicit Costs

answer

How much money a business could have made by selling its resources (opportunity cost)

question

Law of Diminishing Marginal Returns

answer

As more of a variable resource is added to a given amount of a fixed resource, marginal product eventually declines and could become negative

question

Fixed Costs

answer

Do not vary with changes in output

question

Variable Costs

answer

Change with the level of output

question

Average Fixed Costs

answer

TFC(total fixed cost)/ Q(quantity of output)
Always decreases over time as production increases

question

Average Variable Cost

answer

TVC (total variable cost) / Q

question

Marginal Cost

answer

the cost of producing one more unit of a good

question

What can shift the cost curves (short run)?

answer

Change in resource prices
Change in technology

question

What are the reasons for economies of scale?

answer

Labor specialization, managerial specialization, and efficient capital

question

Why do marginal costs begin to rise as production increases?

answer

Growth of management leads to more employees making high salaries but contributing nothing to production directly

question

Constant-Cost Industry

answer

The resource prices do not change according to expansion or contraction of the industry

question

Decreasing & increasing cost industries

answer

Most industries are increasing cost industries
Decreasing see lower resource costs as an industry expands

question

Where you want to produce?

answer

Firms want to produce where AVC is lowest

question

Where to produce?

answer

Producing above or at you AVC means you are paying off fixed costs

question

Production

answer

When MR=D=AR=P is above min. AVC, you are making a normal profit
When it is above min. you are making an economic profit

question

Pure competition the market operates under the following 4 assumptions:

answer

Very large number of sellers
Standardized product
No control over price(price taker)
Free entry and exit

question

Break even point

answer

When TR = TC

question

Long Run equilibrium in pure competition

answer

question

Productive efficiency in pure competition

answer

P = Minimum ATC

question

Allocative efficiency

answer

P = MC

question

Underallocation Efficiency

answer

P > MC

question

Overallocation Efficiency

answer

P < MC

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