ch 8 microeconomics notes - Assignment Essays

question

Cost of Capital as an Opportunity Cost

answer

Returns on investment must exceed Risk-Free Rate of Return

question

profit

answer

total revenue-total cost

question

Explicit Costs

answer

Input costs that require an outlay of money by the firm, tangible out of pocket expenses

question

Implicit Costs

answer

Input costs that require no outlay of money by the firm, the costs of resources already owned for which no out of pocket payment is made

question

Economic Profit

answer

includes both implicit and explicit costs, Economic Profit=total revenue-(explicit costs +implicit costs)

question

Accounting Profit

answer

includes just explicit costs ( calculated by subtracting only the explicit costs from total revnue) accounting profit=total revenue-explicit costs

question

Factors of Production

answer

the inputs, including labor, land, and capital

question

Production Function

answer

The relationship between the quantity of inputs used and the quantity of output.

question

Diminishing Marginal Input

answer

-Diminishing returns with each additional unit of input
-The law of Diminishing Returns appears throughout economics

question

Fixed Costs

answer

-Costs that do not vary with output
-Fixed costs are also known as overhead.
-Example: Rent

question

Variable Costs

answer

-Costs that do vary with output
-Example: Raw Materials

question

Average Total Cost

answer

- (Total Cost)/(Total Output)
the sum of average variable cost and average fixed cost.

question

Marginal Cost

answer

Increase in Total Cost for each additional unit produced

question

Economies of Scale

answer

Long-run average cost falls as output increases

question

Diseconomies of Scale

answer

Long-run average cost rises as output increases

question

Constant Returns to Scale

answer

No change in long-run average cost as output changes

question

total revenue

answer

a business is the amount the firm receives from the sale of goods and services. In the case of McDonald's, the total revenue is determined by the number of items sold and their prices.

question

total cost

answer

the amount a firm spends to produce and/or sell goods and services. To determine total cost, the firm adds the individual costs of the resources used in producing and/or selling the goods

question

profit

answer

occurs whenever total revenue is higher than total cost

question

loss

answer

occurs when total revenue is less than total cost. We can express this relationship as an equation: profit (or loss) = total revenue − total cost

question

output

answer

the product a firm creates.

question

factors of production

answer

labor, land, and capital. Each factor of production is an input, or a resource used in the production process to generate the firm's output.

question

production function

answer

describes the relationship between the inputs a firm uses and the output it creates

question

marginal product

answer

the change in output associated with one additional unit of an input.

question

diminishing marginal product.

answer

occurs when successive increases in inputs are associated with a slower rise in output.

question

average variable cost

answer

determined by dividing total variable cost by the output.

question

average fixed cost

answer

determined by dividing total fixed cost by the output.

question

scale

answer

the size of the production process.

question

efficient scale

answer

the output level that minimizes average total cost in the long run

question

Ecomomies of scale

answer

occur when long-run average total costs decline as output expands.

question

diseconomies of scale

answer

occur when long-run average total costs rise as output expands.

question

constant returns to scale

answer

occur when long-run average total costs remain constant as output expands.

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question

Cost of Capital as an Opportunity Cost

answer

Returns on investment must exceed Risk-Free Rate of Return

question

profit

answer

total revenue-total cost

question

Explicit Costs

answer

Input costs that require an outlay of money by the firm, tangible out of pocket expenses

question

Implicit Costs

answer

Input costs that require no outlay of money by the firm, the costs of resources already owned for which no out of pocket payment is made

question

Economic Profit

answer

includes both implicit and explicit costs, Economic Profit=total revenue-(explicit costs +implicit costs)

question

Accounting Profit

answer

includes just explicit costs ( calculated by subtracting only the explicit costs from total revnue) accounting profit=total revenue-explicit costs

question

Factors of Production

answer

the inputs, including labor, land, and capital

question

Production Function

answer

The relationship between the quantity of inputs used and the quantity of output.

question

Diminishing Marginal Input

answer

-Diminishing returns with each additional unit of input
-The law of Diminishing Returns appears throughout economics

question

Fixed Costs

answer

-Costs that do not vary with output
-Fixed costs are also known as overhead.
-Example: Rent

question

Variable Costs

answer

-Costs that do vary with output
-Example: Raw Materials

question

Average Total Cost

answer

- (Total Cost)/(Total Output)
the sum of average variable cost and average fixed cost.

question

Marginal Cost

answer

Increase in Total Cost for each additional unit produced

question

Economies of Scale

answer

Long-run average cost falls as output increases

question

Diseconomies of Scale

answer

Long-run average cost rises as output increases

question

Constant Returns to Scale

answer

No change in long-run average cost as output changes

question

total revenue

answer

a business is the amount the firm receives from the sale of goods and services. In the case of McDonald's, the total revenue is determined by the number of items sold and their prices.

question

total cost

answer

the amount a firm spends to produce and/or sell goods and services. To determine total cost, the firm adds the individual costs of the resources used in producing and/or selling the goods

question

profit

answer

occurs whenever total revenue is higher than total cost

question

loss

answer

occurs when total revenue is less than total cost. We can express this relationship as an equation: profit (or loss) = total revenue − total cost

question

output

answer

the product a firm creates.

question

factors of production

answer

labor, land, and capital. Each factor of production is an input, or a resource used in the production process to generate the firm's output.

question

production function

answer

describes the relationship between the inputs a firm uses and the output it creates

question

marginal product

answer

the change in output associated with one additional unit of an input.

question

diminishing marginal product.

answer

occurs when successive increases in inputs are associated with a slower rise in output.

question

average variable cost

answer

determined by dividing total variable cost by the output.

question

average fixed cost

answer

determined by dividing total fixed cost by the output.

question

scale

answer

the size of the production process.

question

efficient scale

answer

the output level that minimizes average total cost in the long run

question

Ecomomies of scale

answer

occur when long-run average total costs decline as output expands.

question

diseconomies of scale

answer

occur when long-run average total costs rise as output expands.

question

constant returns to scale

answer

occur when long-run average total costs remain constant as output expands.

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