Chapter 7: cost and Industry Structure

question

Cost and Industry Structure (technology)

answer

the basic activity of a firm is to use inputs such as workers, machines, and natural resources or materials to produce output of goods and services

question

positive technological change

answer

if a firm improves its ability to turn inputs into outputs, we refer to this as a positive technological change

question

market structure table

answer

total revenue- total costs

question

profit

answer

the income from sales and is calculated by multiplying price and quantity or TR= P x Q

question

total revenue is

answer

out-of-pocket costs, that is, payments that are actually made (wages, rent, materials, etc)

question

explicit costs

answer

represent the opportunity cost of using resources already owned by the firm

question

implicit costs

answer

cash concept, calculated as total revenue minus explicit costs- the difference between dollars brought in and dollars paid out

question

accounting profit

answer

period of time during which at least one a firm's input is fixed

question

short run

answer

firm can vary all of its inputs, adopt new technology, and increase or decrease the size of its physical plant

question

long run

answer

the relationship between the inputs employed and the maximum output from those inputs

question

production function

answer

the additional output a firm produces as a result of hiring one more worker

question

marginal product of labor

answer

at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline

question

law of diminishing returns

answer

calculated as the total output produced by a firm divided by the quantity of workers

question

average product of labor

answer

costs that change as output changes

question

variable costs

answer

costs that do not change regardless of the level of production (stay constant)

question

fixed costs

answer

machinery, equipment, research and development costs, and advertising

question

examples of fixed costs:

answer

cost of all the inputs a firm uses in production

question

total cost

answer

fixed cost + variable cost

question

total cost formula

answer

change in a firm's total cost from producing one more unit of a good or product

question

marginal cost

answer

total cost/quantity

question

marginal cost equation

answer

Total cost
equals
fixed costs plus variable costs

question

total costs can be divided into fixed and variable costs:

answer

total cost/quantity
equals
fixed cost/quantity
plus
variable cost/quantity

question

dividing both sides by output (Q) gives a useful relationship:

answer

average total cost

question

the first value is

answer

fixed cost divided by the quantity of output produced

question

average fixed cost

answer

variable cost divided by the quantity of output produced

question

average variable cost

answer

average total cost
equals
average fixed cost
plus average variable cost

question

average variable cost equation

answer

question

Is there a distinction between fixed and variable costs?

answer

shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed

question

long-run average cost curve (LRAC)

answer

the firm's long-run average costs falling as it increases the quantity of output it produces

question

economies of scale

answer

the lowest level of output at which all economies of scale are exhausted

question

minimum efficient scale

answer

its long-run average cost unchanged as it increases output

question

constant returns to scale

answer

a situation in which a firm's long-run average costs rise as the firm increases output

question

diseconomies of scale

answer

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1 of 33

question

Cost and Industry Structure (technology)

answer

the basic activity of a firm is to use inputs such as workers, machines, and natural resources or materials to produce output of goods and services

question

positive technological change

answer

if a firm improves its ability to turn inputs into outputs, we refer to this as a positive technological change

question

market structure table

answer

total revenue- total costs

question

profit

answer

the income from sales and is calculated by multiplying price and quantity or TR= P x Q

question

total revenue is

answer

out-of-pocket costs, that is, payments that are actually made (wages, rent, materials, etc)

question

explicit costs

answer

represent the opportunity cost of using resources already owned by the firm

question

implicit costs

answer

cash concept, calculated as total revenue minus explicit costs- the difference between dollars brought in and dollars paid out

question

accounting profit

answer

period of time during which at least one a firm's input is fixed

question

short run

answer

firm can vary all of its inputs, adopt new technology, and increase or decrease the size of its physical plant

question

long run

answer

the relationship between the inputs employed and the maximum output from those inputs

question

production function

answer

the additional output a firm produces as a result of hiring one more worker

question

marginal product of labor

answer

at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline

question

law of diminishing returns

answer

calculated as the total output produced by a firm divided by the quantity of workers

question

average product of labor

answer

costs that change as output changes

question

variable costs

answer

costs that do not change regardless of the level of production (stay constant)

question

fixed costs

answer

machinery, equipment, research and development costs, and advertising

question

examples of fixed costs:

answer

cost of all the inputs a firm uses in production

question

total cost

answer

fixed cost + variable cost

question

total cost formula

answer

change in a firm's total cost from producing one more unit of a good or product

question

marginal cost

answer

total cost/quantity

question

marginal cost equation

answer

Total cost
equals
fixed costs plus variable costs

question

total costs can be divided into fixed and variable costs:

answer

total cost/quantity
equals
fixed cost/quantity
plus
variable cost/quantity

question

dividing both sides by output (Q) gives a useful relationship:

answer

average total cost

question

the first value is

answer

fixed cost divided by the quantity of output produced

question

average fixed cost

answer

variable cost divided by the quantity of output produced

question

average variable cost

answer

average total cost
equals
average fixed cost
plus average variable cost

question

average variable cost equation

answer

question

Is there a distinction between fixed and variable costs?

answer

shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed

question

long-run average cost curve (LRAC)

answer

the firm's long-run average costs falling as it increases the quantity of output it produces

question

economies of scale

answer

the lowest level of output at which all economies of scale are exhausted

question

minimum efficient scale

answer

its long-run average cost unchanged as it increases output

question

constant returns to scale

answer

a situation in which a firm's long-run average costs rise as the firm increases output

question

diseconomies of scale

answer

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