AP Microeconomics Chapter 22

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Posted on

May 24th, 2023

question

Economic costs

answer

The payments a firm must make, or the incomes it must provide, to attract the resources it needs away from alternative production opportunities.

question

Explicit costs

answer

A type of economic cost. The monetary payments (or cash expenditures) a firm makes to those who supply labor, services, materials, fuel, transportation services, and the like.

question

Implicit costs

answer

A type of economic cost. The opportunity costs of using a firm's self-owned, self-employed resources. To the firm, implicit costs are the money payments that self-employed resources could have earned in their best alternative use.

question

Normal profit

answer

The payment made by a firm to obtain and retain entrepreneurial ability; the minimum income entrepreneurial ability must receive to induce it to perform entrepreneurial functions for a firm.

question

Economic profit

answer

The total revenue of a firm minus its economic costs (including implicit and explicit costs); also called "pure profit" and "above normal profit".

question

Accounting profit

answer

Total revenue minus explicit costs.

question

Short run

answer

A period too brief for a firm to alter its plant capacity, yet long enough to permit a change in the degree to which the fixed plant is used. (hourly labor, fuel, raw materials, and power)

question

Long run

answer

A period long enough for it to adjust the quantities of all the resources that it employs, including plant capacity.

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Total product

answer

The total quantity, or total output, of a particular good produced.

question

Marginal product

answer

The extra output or added product associated with adding a unit of a variable resource to the production process.
_____ = change in TP/ change in labor input

question

Average Product

answer

AKA labor productivity. Output per unit of labor input.
_____ = total product/units of labor

question

Law of Diminishing Returns

answer

As successive units of a variable resource (say, labor) are added to a fixed resource (say, capital or land), beyond some point the extra, or marginal, product that can be attributed to each additional unit of the variable resource will decline.

question

Fixed costs

answer

Those costs that in total do not vary with changes in output. (Ex. rent, interest on debts, depreciation on equipment and buildings, insurance premiums)

question

Variable costs

answer

Those costs that change with the level of output. (Ex. payments for materials, fuel, power, transportation services, most labor)

question

Total cost

answer

The sum of fixed cost and variable cost at each level of output.

question

Average Fixed Cost

answer

_____ = Total Fixed Cost/Quantity
Declines as output increases

question

Average Variable Cost

answer

_____ = Total Variable Cost/Quantity
Reflects the Law of Diminishing Returns

question

Average Total Cost

answer

_____ = Total Cost/Quantity

question

Marginal cost

answer

The extra, or additional, cost of producing 1 more unit of output.
_____ = Change in Total Cost/Change in Quantity

question

Economies of Scale

answer

AKA Economies of mass production. As plant size increases, certain factors will for a time lead to lower average costs of production. These factors are specialization of labor, managerial specialization, efficient capital.

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Diseconomies of Scale

answer

The difficulty of efficiently controlling and coordinating a firm's operations as it becomes a large-scale producer.

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Constant Returns to Scale

answer

A rather wide range of output between the output at which economies of scale end and the output at which diseconomies of scale begin.

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Minimum efficient scale

answer

The lowest level of output at which a firm can minimize long-run average costs.

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Natural monopoly

answer

A relatively rare market situation in which average total cost is minimized when only one firm produces the particular good or service.

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question

Economic costs

answer

The payments a firm must make, or the incomes it must provide, to attract the resources it needs away from alternative production opportunities.

question

Explicit costs

answer

A type of economic cost. The monetary payments (or cash expenditures) a firm makes to those who supply labor, services, materials, fuel, transportation services, and the like.

question

Implicit costs

answer

question

Normal profit

answer

The payment made by a firm to obtain and retain entrepreneurial ability; the minimum income entrepreneurial ability must receive to induce it to perform entrepreneurial functions for a firm.

question

Economic profit

answer

The total revenue of a firm minus its economic costs (including implicit and explicit costs); also called "pure profit" and "above normal profit".

question

Accounting profit

answer

Total revenue minus explicit costs.

question

Short run

answer

A period too brief for a firm to alter its plant capacity, yet long enough to permit a change in the degree to which the fixed plant is used. (hourly labor, fuel, raw materials, and power)

question

Long run

answer

A period long enough for it to adjust the quantities of all the resources that it employs, including plant capacity.

question

Total product

answer

The total quantity, or total output, of a particular good produced.

question

Marginal product

answer

The extra output or added product associated with adding a unit of a variable resource to the production process.
_____ = change in TP/ change in labor input

question

Average Product

answer

AKA labor productivity. Output per unit of labor input.
_____ = total product/units of labor

question

Law of Diminishing Returns

answer

question

Fixed costs

answer

Those costs that in total do not vary with changes in output. (Ex. rent, interest on debts, depreciation on equipment and buildings, insurance premiums)

question

Variable costs

answer

Those costs that change with the level of output. (Ex. payments for materials, fuel, power, transportation services, most labor)

question

Total cost

answer

The sum of fixed cost and variable cost at each level of output.

question

Average Fixed Cost

answer

_____ = Total Fixed Cost/Quantity
Declines as output increases

question

Average Variable Cost

answer

_____ = Total Variable Cost/Quantity
Reflects the Law of Diminishing Returns

question

Average Total Cost

answer

_____ = Total Cost/Quantity

question

Marginal cost

answer

The extra, or additional, cost of producing 1 more unit of output.
_____ = Change in Total Cost/Change in Quantity

question

Economies of Scale

answer

question

Diseconomies of Scale

answer

The difficulty of efficiently controlling and coordinating a firm's operations as it becomes a large-scale producer.

question

Constant Returns to Scale

answer

A rather wide range of output between the output at which economies of scale end and the output at which diseconomies of scale begin.

question

Minimum efficient scale

answer

The lowest level of output at which a firm can minimize long-run average costs.

question

Natural monopoly

answer

A relatively rare market situation in which average total cost is minimized when only one firm produces the particular good or service.

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