Chapter 13 Midterm Study Guide set

question

total revenue

answer

TR = P × Q
• Amount a firm receives for the sale of its output
• Quantity of output the firm produces times the price at which it sells its output

question

total cost

answer

the market value of the inputs a firm uses in production

question

profit

answer

Profit = TR - TC
total revenue - total cost

question

explicit costs

answer

Input costs that require an outlay of money by the firm

question

implicit costs

answer

- Input costs that do not require an outlay of money by the firm
- Ignored by accountants

question

economics costs or opportunity costs

answer

The cost of something is what you give up to get it

question

accounting costs

answer

Accounting costs represent anything your business has paid for

question

economic profit

answer

Total revenue minus total costs (explicit and implicit costs)

question

accounting profit

answer

total revenue - total explicit costs

question

supply

answer

The ability and willingness to sell (produce) specific quantities of a good at alternative prices in a given time period, ceteris paribus

question

production function
- its shape
- What is its slope?

answer

Production Function: A technological relationship expressing the maximum quantity of a good attainable from different combinations of factor inputs.
* It tells us the maximum amount of output we can produce using different combinations of factor input
- Gets flatter as production rises
- slope of production function is the marginal product of labor

question

marginal product

answer

• Increase in output that arises from an additional unit of input
• Other inputs constant
• Slope of the production function

question

diminishing marginal product

answer

• Marginal product of an input declines as the quantity of the input increases
• Production function gets flatter as more inputs are being used
• The slope of the production function decreases

question

time horizon - long-run versus short-run

answer

Limited availability of capital and land is the cause for diminishing returns
• Short-Run: The period in which the quantity (and quality) of some inputs cannot be changed
• Some inputs are fixed (usually capital and machinery) and some inputs are variable (usually labor and natural resources)
• Long-Run: The period of time long enough for all inputs (quantity and quality) to be varied.
• There are no "fixed" (unchangeable quantities) of inputs in the long run

question

fixed costs

answer

Costs that do not vary with the quantity of output produced

question

variable costs

answer

costs that vary with the quantity of output produced

question

total cost

answer

the market value of the inputs a firm uses in production
implicit cost + explicit cost
fixed cost + variable cost

question

average fixed cost

answer

fixed cost divided by the quantity of output

question

average variable cost

answer

variable cost divided by the quantity of output

question

average total cost
- why is it u-shaped
- 2 reasons (or 4 reasons)
- two formulas

answer

• U-shaped average total cost curve
• ATC = AVC + AFC
• AFC - always declines as output rises • The bottom of the U-shape
• At quantity that minimizes average total cost
2 Reasons for U-Shaped ATC
1. ATC starts high due to high AFC initially.
• AFC then decreases as output (q) increases, as fixed costs spread over the output.
• So ATC decreases as AFC decreases
- When MC<ATC, ATC is decreasing (falling)
- When MC=ATC, ATC is at the lowest (minimum ATC)
2. When MC>ATC, ATC is increases (rising)

question

marginal cost
-why is it mostly increasing/rising?

answer

...

question

what is the relationship between MC and ATC?
What happens at MC=ATC

answer

• Relationship between MC and ATC
• When MC < ATC: average total cost (ATC) is falling
• When MC > ATC: average total cost (ATC) is rising
• The marginal-cost curve crosses the average-total-cost curve at its minimum.
-Quantity of output that minimizes ATC. This happens at MC = ATC

question

efficient scale

answer

the quantity of output that minimizes average total cost

question

economies of scale

answer

factors that cause a producer's average cost per unit to fall as output rises

question

diseconomies of scale

answer

increases in cost per unit when output increases

question

constant returns to scale

answer

when long-run average total cost is constant as output increases

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question

total revenue

answer

TR = P × Q
• Amount a firm receives for the sale of its output
• Quantity of output the firm produces times the price at which it sells its output

question

total cost

answer

the market value of the inputs a firm uses in production

question

profit

answer

Profit = TR - TC
total revenue - total cost

question

explicit costs

answer

Input costs that require an outlay of money by the firm

question

implicit costs

answer

- Input costs that do not require an outlay of money by the firm
- Ignored by accountants

question

economics costs or opportunity costs

answer

The cost of something is what you give up to get it

question

accounting costs

answer

Accounting costs represent anything your business has paid for

question

economic profit

answer

Total revenue minus total costs (explicit and implicit costs)

question

accounting profit

answer

total revenue - total explicit costs

question

supply

answer

The ability and willingness to sell (produce) specific quantities of a good at alternative prices in a given time period, ceteris paribus

question

production function
- its shape
- What is its slope?

answer

question

marginal product

answer

• Increase in output that arises from an additional unit of input
• Other inputs constant
• Slope of the production function

question

diminishing marginal product

answer

• Marginal product of an input declines as the quantity of the input increases
• Production function gets flatter as more inputs are being used
• The slope of the production function decreases

question

time horizon - long-run versus short-run

answer

question

fixed costs

answer

Costs that do not vary with the quantity of output produced

question

variable costs

answer

costs that vary with the quantity of output produced

question

total cost

answer

the market value of the inputs a firm uses in production
implicit cost + explicit cost
fixed cost + variable cost

question

average fixed cost

answer

fixed cost divided by the quantity of output

question

average variable cost

answer

variable cost divided by the quantity of output

question

average total cost
- why is it u-shaped
- 2 reasons (or 4 reasons)
- two formulas

answer

question

marginal cost
-why is it mostly increasing/rising?

answer

...

question

what is the relationship between MC and ATC?
What happens at MC=ATC

answer

question

efficient scale

answer

the quantity of output that minimizes average total cost

question

economies of scale

answer

factors that cause a producer's average cost per unit to fall as output rises

question

diseconomies of scale

answer

increases in cost per unit when output increases

question

constant returns to scale

answer

when long-run average total cost is constant as output increases

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