AP Micro: Unit 3 - Assignment Essays

question

Production Function

answer

the way a firm combines inputs to produce an output

question

Variable Inputs

answer

inputs that CAN be changed in the short run
examples: dough, flour, labor, flavorings

question

Fixed Inputs

answer

Inputs that CANNOT be changed in the short term
examples: appliances, spatula, spatula, building

question

Short Run

answer

The period of time where there is fixed inputs and you cannot alter plant capacity

- Only variable inputs can be altered
- Some inputs are fixed
- Plant capacity is fixed
- There are both fixed and variable costs

question

Long Run

answer

The period of time where there is fixed inputs and you can alter plant capacity

- All inputs can be altered
- No inputs are fixed
- Plant Capacity can be altered
- All costs are variables

question

Total Product

answer

Total quantity of output produced by certain amount of inputs

question

Marginal Product

answer

the additional output produced by one more unit of a variable input, often labor
MP = change in the total product
----------------------------------
change in labor

question

Average Product

answer

the average quantity of output produced by one unit of a variable input, often labor
AP = Total Product
-------------------
Labor

question

specialization and division of labor

answer

Marginal Product increases initially
when different people in society take on specific roles or jobs that require unique skill sets

question

diminishing marginal returns

answer

MP decreases
a level of production in which the marginal product of labor decreases as the number of workers increases

question

Fixed Cost (FC)

answer

a cost that must be paid even when a firm's output is zero; a cost that is the same at all output levels
example: rent and lease costs

question

Variable Cost (VC)

answer

cost that changes as output changes
ex: wages and raw materials

question

Total Cost (TC)

answer

The sum of fixed costs and variable costs. TC = FC + VC

question

Marginal Cost (MC)

answer

The additional cost of producing one more unit of output

MC= Change in Total Cost
--------------------------
Change in Output

question

Marginal Cost depends on Marginal Price

answer

- Marginal cost decreases initially (specialization)
- Marginal cost eventually rises (diminishing returns)

question

Average Fixed Cost (AFC)

answer

the average per-unit fixed cost of production for a given quantity of output

AFC = Fixed Cost
--------------
Quantity

question

Average Variable Cost (AVC)

answer

The average per-unit variable cost of production for a given quantity of output

AVC =. Variable Cost
------------------
Quantity

question

Average Total Cost (ATC)

answer

The average per-unit total cost of production for a given quantity of output

ATC= Total Cost
--------------
Quantity

question

Increasing Returns to scale

answer

output is increasing at a faster rate than all inputs

question

Decreasing Returns to Scale

answer

output is increasing at a slower rate than all inputs

question

Constant Returns to Scale

answer

output is increasing at the same rate as all inputs

question

Economies of Scale

answer

long-run ATC decreases as output increases

question

Diseconomies of scale

answer

long-run ATC increases as output increases

question

Constant Returns to Scale (Efficient Scale)

answer

long run ATC is constant as output increases

question

Minimum Efficient Scale

answer

helps determine the number of firms in a market

question

explicit costs

answer

The actual payments a firm makes to its factors of production and other suppliers
"out of pocket expenses"
ex: materials, labor, rent, capital

question

implicit costs

answer

Indirect, non-purchased, or opportunity costs of resources
ex: open a donut shop and give up income from teaching

question

total revenue

answer

Price x Quantity

question

total costs

answer

fixed costs + variable costs

question

accounting profit

answer

total revenue - explicit costs

question

economic profit

answer

total revenue - explicit costs - implicit costs

question

normal profit

answer

reward to the entrepreneur
when a firm earns just enough revenue to pay for both explicit and implicit costs, they are said to be earning Normal Profit

question

Normal profit is when Total Revenue covers

answer

1.) Out of pocket expenses (Land, Labor, Capital)
2.) The Entrepreneur's foregone income

question

Profit Maximization Rule

answer

MR = MC

question

Marginal Revenue

answer

Change in Total Revenue
-----------------------------
Change in Quantity

question

Marginal Costs

answer

Change in Total Cost
------------------------
Change in Quantity

question

Profit

answer

Total Revenue - Total Cost

question

At the profit maximizing quantity where MR = MC

answer

if TR > TC, the firm earns an economic profit
if TR = TC, the firm breaks even; earns a normal profit
if TR < TC< the firm earns an economic loss
if price = MC --> no profit

question

MR and MC

answer

if the price and marginal revenue are greater than its marginal cost
--> the firm is producing to a little and should increases the output until P=MR=MC

question

Graphing Profit Maximization

answer

if MR>MC, the firm should produce more
if MR = MC, the firm maximizes profit
if MR < MC, the firm should produce less

1 of 40

question

Production Function

answer

the way a firm combines inputs to produce an output

question

Variable Inputs

answer

inputs that CAN be changed in the short run
examples: dough, flour, labor, flavorings

question

Fixed Inputs

answer

Inputs that CANNOT be changed in the short term
examples: appliances, spatula, spatula, building

question

Short Run

answer

question

Long Run

answer

The period of time where there is fixed inputs and you can alter plant capacity

- All inputs can be altered
- No inputs are fixed
- Plant Capacity can be altered
- All costs are variables

question

Total Product

answer

Total quantity of output produced by certain amount of inputs

question

Marginal Product

answer

the additional output produced by one more unit of a variable input, often labor
MP = change in the total product
----------------------------------
change in labor

question

Average Product

answer

the average quantity of output produced by one unit of a variable input, often labor
AP = Total Product
-------------------
Labor

question

specialization and division of labor

answer

Marginal Product increases initially
when different people in society take on specific roles or jobs that require unique skill sets

question

diminishing marginal returns

answer

MP decreases
a level of production in which the marginal product of labor decreases as the number of workers increases

question

Fixed Cost (FC)

answer

a cost that must be paid even when a firm's output is zero; a cost that is the same at all output levels
example: rent and lease costs

question

Variable Cost (VC)

answer

cost that changes as output changes
ex: wages and raw materials

question

Total Cost (TC)

answer

The sum of fixed costs and variable costs. TC = FC + VC

question

Marginal Cost (MC)

answer

The additional cost of producing one more unit of output

MC= Change in Total Cost
--------------------------
Change in Output

question

Marginal Cost depends on Marginal Price

answer

- Marginal cost decreases initially (specialization)
- Marginal cost eventually rises (diminishing returns)

question

Average Fixed Cost (AFC)

answer

the average per-unit fixed cost of production for a given quantity of output

AFC = Fixed Cost
--------------
Quantity

question

Average Variable Cost (AVC)

answer

The average per-unit variable cost of production for a given quantity of output

AVC =. Variable Cost
------------------
Quantity

question

Average Total Cost (ATC)

answer

The average per-unit total cost of production for a given quantity of output

ATC= Total Cost
--------------
Quantity

question

Increasing Returns to scale

answer

output is increasing at a faster rate than all inputs

question

Decreasing Returns to Scale

answer

output is increasing at a slower rate than all inputs

question

Constant Returns to Scale

answer

output is increasing at the same rate as all inputs

question

Economies of Scale

answer

long-run ATC decreases as output increases

question

Diseconomies of scale

answer

long-run ATC increases as output increases

question

Constant Returns to Scale (Efficient Scale)

answer

long run ATC is constant as output increases

question

Minimum Efficient Scale

answer

helps determine the number of firms in a market

question

explicit costs

answer

The actual payments a firm makes to its factors of production and other suppliers
"out of pocket expenses"
ex: materials, labor, rent, capital

question

implicit costs

answer

Indirect, non-purchased, or opportunity costs of resources
ex: open a donut shop and give up income from teaching

question

total revenue

answer

Price x Quantity

question

total costs

answer

fixed costs + variable costs

question

accounting profit

answer

total revenue - explicit costs

question

economic profit

answer

total revenue - explicit costs - implicit costs

question

normal profit

answer

reward to the entrepreneur
when a firm earns just enough revenue to pay for both explicit and implicit costs, they are said to be earning Normal Profit

question

Normal profit is when Total Revenue covers

answer

1.) Out of pocket expenses (Land, Labor, Capital)
2.) The Entrepreneur's foregone income

question

Profit Maximization Rule

answer

MR = MC

question

Marginal Revenue

answer

Change in Total Revenue
-----------------------------
Change in Quantity

question

Marginal Costs

answer

Change in Total Cost
------------------------
Change in Quantity

question

Profit

answer

Total Revenue - Total Cost

question

At the profit maximizing quantity where MR = MC

answer

if TR > TC, the firm earns an economic profit
if TR = TC, the firm breaks even; earns a normal profit
if TR < TC< the firm earns an economic loss
if price = MC --> no profit

question

MR and MC

answer

if the price and marginal revenue are greater than its marginal cost
--> the firm is producing to a little and should increases the output until P=MR=MC

question

Graphing Profit Maximization

answer

if MR>MC, the firm should produce more
if MR = MC, the firm maximizes profit
if MR < MC, the firm should produce less

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