AP Micro unit 3 test - Assignment Essays

question

production function

answer

the way in which a firm combines inputs (labor, capital, raw materials, land, etc.) to produce an output

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variable inputs

answer

those inputs that can be changed in the short run to change production (typically, labor and certain materials/supplies)

question

fixed inputs

answer

those inputs that cannot be changed in the short run to change production (typically, physical capital)

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plant capacity

answer

maximum potential level of production; depends on amount of physical capital

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short run

answer

the period of time too short for a firm to alter its plant capacity; the period of time during which there are fixed inputs

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long run

answer

a period of time long enough for a firm to alter all of its inputs, so all inputs become variable; plant capacity can be changed

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marginal product of labor (MPL)

answer

how much extra output is made when one more worker is added

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fixed cost (FC)

answer

a cost that doesn't change as output changes, a cost associated with the mere existence of a business, a cost that must be paid even when the firm's output is zero

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variable cost (VC)

answer

a cost that changes as output changes

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total cost (TC)

answer

the sum of fixed costs and variable costs

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increasing returns to scale

answer

output is increasing at a faster rate than all inputs (ex: inputs double --> outputs triple)

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decreasing returns to scale

answer

output is increasing at a slower rate than all inputs (ex: inputs double --> output increases by 50%)

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constant returns to scale

answer

output is increasing at the same rate as all inputs (ex: input doubles --> outputs double)

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explicit costs (accounting costs)

answer

costs that involve actually spending money (ex: rent, transportation, loans, payments, salaries, supplies, legal fees, etc.)

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implicit costs (economic costs)

answer

costs that don't involve paying money but rather are measured by the value of what is given up

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depreciation

answer

loss in value of physical capital due to wear and tear over time treated like an explicit cost

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normal profit

answer

business owner is no better off an and no worse off than their next best alternative (when economic profit = 0)

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answer

price

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answer

total product (quantity of output)

question

answer

marginal product

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pi symbol

answer

profit

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perfect competition characteristics

answer

- many firms in a market
- they produce standardized (identical) products
- free entry and exit in a perfectly competitive market

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positive economic profit

answer

you are doing better than you would be in your next best alternative

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negative economic profit

answer

you are doing worse than you would be in your next best alternative

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normal profit (zero economic profit)

answer

you are doing no better an no worse than you would be in your next best alternative

1 of 25

question

production function

answer

the way in which a firm combines inputs (labor, capital, raw materials, land, etc.) to produce an output

question

variable inputs

answer

those inputs that can be changed in the short run to change production (typically, labor and certain materials/supplies)

question

fixed inputs

answer

those inputs that cannot be changed in the short run to change production (typically, physical capital)

question

plant capacity

answer

maximum potential level of production; depends on amount of physical capital

question

short run

answer

the period of time too short for a firm to alter its plant capacity; the period of time during which there are fixed inputs

question

long run

answer

a period of time long enough for a firm to alter all of its inputs, so all inputs become variable; plant capacity can be changed

question

marginal product of labor (MPL)

answer

how much extra output is made when one more worker is added

question

fixed cost (FC)

answer

a cost that doesn't change as output changes, a cost associated with the mere existence of a business, a cost that must be paid even when the firm's output is zero

question

variable cost (VC)

answer

a cost that changes as output changes

question

total cost (TC)

answer

the sum of fixed costs and variable costs

question

increasing returns to scale

answer

output is increasing at a faster rate than all inputs (ex: inputs double --> outputs triple)

question

decreasing returns to scale

answer

output is increasing at a slower rate than all inputs (ex: inputs double --> output increases by 50%)

question

constant returns to scale

answer

output is increasing at the same rate as all inputs (ex: input doubles --> outputs double)

question

explicit costs (accounting costs)

answer

costs that involve actually spending money (ex: rent, transportation, loans, payments, salaries, supplies, legal fees, etc.)

question

implicit costs (economic costs)

answer

costs that don't involve paying money but rather are measured by the value of what is given up

question

depreciation

answer

loss in value of physical capital due to wear and tear over time treated like an explicit cost

question

normal profit

answer

business owner is no better off an and no worse off than their next best alternative (when economic profit = 0)

question

answer

price

question

answer

total product (quantity of output)

question

answer

marginal product

question

pi symbol

answer

profit

question

perfect competition characteristics

answer

- many firms in a market
- they produce standardized (identical) products
- free entry and exit in a perfectly competitive market

question

positive economic profit

answer

you are doing better than you would be in your next best alternative

question

negative economic profit

answer

you are doing worse than you would be in your next best alternative

question

normal profit (zero economic profit)

answer

you are doing no better an no worse than you would be in your next best alternative

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