Ch. 7 Production & Costs - Assignment Essays

question

Firm

answer

an economic institution that transforms factors of production into goods and services

question

Sole Proprietorship

answer

one owner; basic form of business organization

question

Partnership

answer

two or more owners; subjected to unlimited liability

question

Corporations

answer

many stockholders; most legal rights of individuals; premier form of business organization in most of the world

question

Profits

answer

the difference between total revenue and total cost; profit = TR - TC

question

Total revenue

answer

amount of money a firm receives from the sales of its products; TR = price x quantity

question

Total cost

answer

includes both out-of-pocket expenses and opportunity cost

question

Economic costs

answer

sum of explicit and implicit costs

question

Explicit costs

answer

expenses paid directly to another economic entity, including wages, lease payments, taxes, and utilities

question

Implicit costs

answer

the opportunity costs of using resources that belong to the firm, including depreciation, depletion of business assets, and the opportunity cost of the firm's capital employed in the business.

question

Accounting profit

answer

calculated by including only explicit costs

question

Economic profit

answer

calculated using both explicit and implicit costs

question

Normal profit

answer

equal to zero economic profits; P = ATC; it is the return on capital necessary to keep investors satisfied and keep capital in business over the long run

question

Short Run

answer

A period of time over which at least one factor of production (resource) is fixed, or cannot be changed.

question

Suppose a car manufacturer discovers that the marginal cost of the last car produced was $15,000, while the marginal revenue was $14,000. In order to increase profits, the car manufacturer should __________ the quantity of cars produced

answer

decrease

question

Suppose a Mexican restaurant maximizes profits when it sells each meal at a price of $10. For the restaurant to remain open in the short run, its average variable costs should be __________ $10

answer

lower or equal to

question

Jared runs a personal training studio, earning $5000 last month. His fixed costs are $4000, and his variable costs are $3500. Should Jared shut down his business immediately?

answer

No, because $5000 covers his variable costs

question

Suppose apples sell in a perfectly competitive market at $2 per pound. Dimitri has several apple trees in his yard. If Dimitri sells apples at the local farmer's market, what is his total revenue and marginal revenue when he sells the 100th pound of apples?

answer

Total revenue is $200, marginal revenue is $2 (P X Q = $2 x 100 = $200)

question

Mara's Puzzle Factory is operating at a quantity at which marginal revenue is $20, marginal cost is $15, and average total cost is $10. What should Mara do to maximize profits?

answer

Increase her production of puzzles

question

If Will's Print Shop competes in a perfectly competitive market and he charges 410 per printing job, what is the marginal revenue of his 3rd print job?

answer

$10.00 (because a firm in perfectly competitive market does not have the power to set its own price)

question

Long run

answer

a period of time sufficient for firms to adjust all factors of production, including plant capacity

question

Suppose that producers in the market for pizza around Campustown are earning economic profits. In the long run then, we can expect the price of pizza to:

answer

decrease

question

The average total cost of manufacturing smartphones tends to decrease as more sellers enter the industry. Therefore, the long run supple curve for this industry will be:

answer

downward sloping

question

As an industry expands, more manufacturing companies are able to increase their productivity due to specialization. This industry is likely to be a(n);

answer

decreasing cost industry

question

In the long run, positive economic profits __________, while economic losses __________

answer

encourage market entry; encourage market exit

question

Which of the following is true in the long run for competitive industries?

answer

average total cost equals price

question

The appearance of the iPad market a new era in the highly competitive industry of tablets. As other sellers, such as Amazon and Samsung, realized the success of this product, they introduced their own tablets. All else equals, what should happen to the price of tablets in the next five years?

answer

Price will decrease

question

Roy makes so much money in his private tutoring business that all of his classmates start their tutoring businesses. What is the effect of competition on the market for tutoring?

answer

the supply curve will shift right, and the price will wall

question

Production

answer

process of converting resources (factors of production) - land, labor, capital, and entrepreneurial ability into goods and services

question

Relationship between marginal & average product

answer

(1) if marginal product > average product, then average increases
(2) if marginal product < average product, then average decrease
(3) if marginal product = average, then average stays unchanged

question

Marginal Product

answer

change in input that results from a change in labor

question

Average Product

answer

output per worker is found by dividing total output by the number of workers employed to produce the output

question

Increasing marginal returns

answer

a new worker hired adds more to total output than the previous worker hired, so that both average and marginal products are rising.

question

Diminishing marginal returns

answer

an additional worker adds to total output, but at a diminishing rate.

question

Fixed costs

answer

costs that do not change as a firm's output expands or contracts (FC)

question

Variable costs

answer

costs that vary with output fluctuations, including expenses such as labor and material costs (VC)

question

Sunk cost

answer

a cost that has been paid and cannot be recovered; therefore, it should not enter into decision making affecting the present or future

question

Marginal cost

answer

change in total costs arising from the production of additional units of output. Because fixed costs do not change with output, marginal costs are the change in variable costs associated with additional production

question

Average Fixed Cost (AFC)

answer

equal to total fixed cost divided by output (FC/Q)

question

Average Variable Cost (AVC)

answer

equal to total variable cost divided by output (VC/Q)

question

Average Total Cost (ATC)

answer

equal to total cost divided by output (TC/Q). Average total cost is also equal to AFC & AVC

question

Long-run average total cost

answer

in the long run, firms can adjust their plant sizes so that LRATC is the lowest unit cost at which any particular output can be produced in the long run

question

Economies of scale

answer

as a firm's output increases, its average total cost declines. This results from the specialization of labor and management, and potentially better use of capital and complementary production techniques

question

Constant return to scale

answer

a range of output where average total costs are relatively constraint

question

Diseconomies of scale

answer

a range of output where average total costs tend to increase

question

Economies of scope

answer

by producing a number of products that are interdependent firms are able to produce and market these goods at lower costs

1 of 46

question

Firm

answer

an economic institution that transforms factors of production into goods and services

question

Sole Proprietorship

answer

one owner; basic form of business organization

question

Partnership

answer

two or more owners; subjected to unlimited liability

question

Corporations

answer

many stockholders; most legal rights of individuals; premier form of business organization in most of the world

question

Profits

answer

the difference between total revenue and total cost; profit = TR - TC

question

Total revenue

answer

amount of money a firm receives from the sales of its products; TR = price x quantity

question

Total cost

answer

includes both out-of-pocket expenses and opportunity cost

question

Economic costs

answer

sum of explicit and implicit costs

question

Explicit costs

answer

expenses paid directly to another economic entity, including wages, lease payments, taxes, and utilities

question

Implicit costs

answer

the opportunity costs of using resources that belong to the firm, including depreciation, depletion of business assets, and the opportunity cost of the firm's capital employed in the business.

question

Accounting profit

answer

calculated by including only explicit costs

question

Economic profit

answer

calculated using both explicit and implicit costs

question

Normal profit

answer

equal to zero economic profits; P = ATC; it is the return on capital necessary to keep investors satisfied and keep capital in business over the long run

question

Short Run

answer

A period of time over which at least one factor of production (resource) is fixed, or cannot be changed.

question

answer

decrease

question

Suppose a Mexican restaurant maximizes profits when it sells each meal at a price of $10. For the restaurant to remain open in the short run, its average variable costs should be __________ $10

answer

lower or equal to

question

Jared runs a personal training studio, earning $5000 last month. His fixed costs are $4000, and his variable costs are $3500. Should Jared shut down his business immediately?

answer

No, because $5000 covers his variable costs

question

answer

Total revenue is $200, marginal revenue is $2 (P X Q = $2 x 100 = $200)

question

Mara's Puzzle Factory is operating at a quantity at which marginal revenue is $20, marginal cost is $15, and average total cost is $10. What should Mara do to maximize profits?

answer

Increase her production of puzzles

question

If Will's Print Shop competes in a perfectly competitive market and he charges 410 per printing job, what is the marginal revenue of his 3rd print job?

answer

$10.00 (because a firm in perfectly competitive market does not have the power to set its own price)

question

Long run

answer

a period of time sufficient for firms to adjust all factors of production, including plant capacity

question

Suppose that producers in the market for pizza around Campustown are earning economic profits. In the long run then, we can expect the price of pizza to:

answer

decrease

question

The average total cost of manufacturing smartphones tends to decrease as more sellers enter the industry. Therefore, the long run supple curve for this industry will be:

answer

downward sloping

question

As an industry expands, more manufacturing companies are able to increase their productivity due to specialization. This industry is likely to be a(n);

answer

decreasing cost industry

question

In the long run, positive economic profits __________, while economic losses __________

answer

encourage market entry; encourage market exit

question

Which of the following is true in the long run for competitive industries?

answer

average total cost equals price

question

answer

Price will decrease

question

Roy makes so much money in his private tutoring business that all of his classmates start their tutoring businesses. What is the effect of competition on the market for tutoring?

answer

the supply curve will shift right, and the price will wall

question

Production

answer

process of converting resources (factors of production) - land, labor, capital, and entrepreneurial ability into goods and services

question

Relationship between marginal & average product

answer

(1) if marginal product > average product, then average increases
(2) if marginal product < average product, then average decrease
(3) if marginal product = average, then average stays unchanged

question

Marginal Product

answer

change in input that results from a change in labor

question

Average Product

answer

output per worker is found by dividing total output by the number of workers employed to produce the output

question

Increasing marginal returns

answer

a new worker hired adds more to total output than the previous worker hired, so that both average and marginal products are rising.

question

Diminishing marginal returns

answer

an additional worker adds to total output, but at a diminishing rate.

question

Fixed costs

answer

costs that do not change as a firm's output expands or contracts (FC)

question

Variable costs

answer

costs that vary with output fluctuations, including expenses such as labor and material costs (VC)

question

Sunk cost

answer

a cost that has been paid and cannot be recovered; therefore, it should not enter into decision making affecting the present or future

question

Marginal cost

answer

question

Average Fixed Cost (AFC)

answer

equal to total fixed cost divided by output (FC/Q)

question

Average Variable Cost (AVC)

answer

equal to total variable cost divided by output (VC/Q)

question

Average Total Cost (ATC)

answer

equal to total cost divided by output (TC/Q). Average total cost is also equal to AFC & AVC

question

Long-run average total cost

answer

in the long run, firms can adjust their plant sizes so that LRATC is the lowest unit cost at which any particular output can be produced in the long run

question

Economies of scale

answer

question

Constant return to scale

answer

a range of output where average total costs are relatively constraint

question

Diseconomies of scale

answer

a range of output where average total costs tend to increase

question

Economies of scope

answer

by producing a number of products that are interdependent firms are able to produce and market these goods at lower costs

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