econ 202 chapter 7 - Assignment Essays

question

Firm (or producer or business)

answer

- an organization that combines inputs of labor, capital, land, and raw or finished component materials to produce outputs.

question

Private enterprise

answer

- the ownership of businesses by private individuals

question

Production

answer

- the process of combining inputs to produce outputs, ideally of a value greater than the value of the inputs.

question

perfect competition

answer

—many firms are all trying to sell identical products.

question

monopoly

answer

—only one firm is selling the product, and this firm faces no competition.

question

Monopolistic competition

answer

is a situation with many firms selling similar, but not identical products.

question

Oligopoly

answer

is a situation with few firms that sell identical or similar products.

question

Revenue

answer

- the income a firm generates from selling its products. Total Revenue = Price × Quantity Sold

question

Explicit costs

answer

- out-of-pocket costs; actual payments.
• Wages, rent, etc.

question

Implicit costs

answer

- the opportunity cost of using resources that the firm already owns.
• Depreciation of goods, materials, and equipment

question

Accounting profit

answer

- the difference between dollars brought in and dollars paid out.
Accounting Profit = Total Revenue - Explicit Costs

question

Economic profit

answer

- includes both explicit and implicit costs. Economic Profit =Total Revenue - Total Costs
Total Costs = Explicit Costs + Implicit Costs

question

Categories of factors of production

answer

(inputs) - resources that firms use to produce their products,:
• Natural Resources (Land and Raw Materials)
• Labor
• Capital
• Technology
• Entrepreneurship

question

Production function

answer

- mathematical equation that tells how much output (Q) a firm can produce with given amounts of the inputs

question

Fixed inputs (K)

answer

- factors of production that can't be easily increased or decreased in a short period of time

question

Variable inputs (L)

answer

- factors of production that a firm can easily increase or decrease in a short period of time

question

Short run

answer

- period of time during which at least some factors of production are fixed.

question

Long run

answer

- period of time during which all factors are variable.

question

Marginal product (MP)

answer

- the additional output of one more worker.
MP = (ΔTP) / (ΔL)

question

Law of Diminishing Marginal Productivity

answer

- general rule that as a firm employs more labor, eventually the amount of additional output produced declines

question

Factor payments

answer

- what the firm pays for the use of the factors of production (aka costs, from the firm's perspective).
• Raw materials prices
• Rent
• Wages and salaries
• Interest and dividends
• Profit

question

Variable costs

answer

- costs of the variable inputs, like labor

question

Fixed costs

answer

- costs of the fixed inputs, like rent.
• Expenditure that a firm must make before production starts
• Do not change in the short run
• Do not change regardless of the level of production.

question

Total cost

answer

- the sum of fixed and variable costs of production

question

Average total cost (ATC)

answer

- total cost divided by the quantity of output produced. ATC = TC / Q

question

Marginal cost (MC)

answer

- the additional cost of producing one more unit of output. MC = ΔTC ./. ΔQ

question

Average variable cost

answer

- variable cost divided by quantity of output.
AVC = VC ./. Q

question

Average total cost (ATC)

answer

○ Typically U-shaped

question

Average variable cost (AVC)

answer

○ Lies below the average total cost curve and
○ Typically U-shaped or upward-sloping

question

Marginal cost (MC)

answer

○ Generally upwardsloping

question

Average Profit

answer

or profit margin = price - average cost

question

positive

answer

If the market price > average cost, then average profit will be ___________

question

negative

answer

If price is < average cost, then profits will be ____________

question

variable

answer

In the long run, all factors (including capital) are _________

question

long

answer

Because all factors are variable, the ____ run production function shows the most efficient way of producing any level of output.

question

long

answer

The ____ run is the period of time when all costs are variable

question

Production technologies

answer

- alternative methods of combining inputs to produce output

question

Economies of scale

answer

- the situation where, as the quantity of output goes up, the cost per unit goes down.

question

average costs

answer

Economies of scale exist because the larger scale of production leads to lower ________ ______

question

Long-run average cost (LRAC) curve

answer

- shows the lowest possible average cost of production, allowing all the inputs to production to vary so that the firm is choosing its production technology.

question

Short-run average cost (SRAC) curves

answer

- the average total cost curve in the short term; shows the total of the average fixed costs and the average variable costs.

question

bottom

answer

The long-run average cost (LRAC) curve shows the lowest cost for producing each quantity of output when fixed costs can vary, and so it is formed by the _______ edge of the family of SRAC curves.

question

Constant returns to scale

answer

- when expanding all inputs proportionately does not change the average cost of production.

question

Diseconomies of scale

answer

- the long-run average cost of producing each individual unit increases as total output increases

question

large

answer

A firm or a factory can grow so ______ that it becomes very difficult to manage or run efficiently.

question

long-run

answer

The shape of the ______-___ average cost curve has implications for:
• how many firms will compete in an industry
• whether the firms in an industry have many different sizes
• or if they will tend to be the same size.

question

higher

answer

When the LRAC curve has a clear minimum point, then any firm producing a different quantity will have ____ costs.

1 of 47

question

Firm (or producer or business)

answer

- an organization that combines inputs of labor, capital, land, and raw or finished component materials to produce outputs.

question

Private enterprise

answer

- the ownership of businesses by private individuals

question

Production

answer

- the process of combining inputs to produce outputs, ideally of a value greater than the value of the inputs.

question

perfect competition

answer

—many firms are all trying to sell identical products.

question

monopoly

answer

—only one firm is selling the product, and this firm faces no competition.

question

Monopolistic competition

answer

is a situation with many firms selling similar, but not identical products.

question

Oligopoly

answer

is a situation with few firms that sell identical or similar products.

question

Revenue

answer

- the income a firm generates from selling its products. Total Revenue = Price × Quantity Sold

question

Explicit costs

answer

- out-of-pocket costs; actual payments.
• Wages, rent, etc.

question

Implicit costs

answer

- the opportunity cost of using resources that the firm already owns.
• Depreciation of goods, materials, and equipment

question

Accounting profit

answer

- the difference between dollars brought in and dollars paid out.
Accounting Profit = Total Revenue - Explicit Costs

question

Economic profit

answer

- includes both explicit and implicit costs. Economic Profit =Total Revenue - Total Costs
Total Costs = Explicit Costs + Implicit Costs

question

Categories of factors of production

answer

(inputs) - resources that firms use to produce their products,:
• Natural Resources (Land and Raw Materials)
• Labor
• Capital
• Technology
• Entrepreneurship

question

Production function

answer

- mathematical equation that tells how much output (Q) a firm can produce with given amounts of the inputs

question

Fixed inputs (K)

answer

- factors of production that can't be easily increased or decreased in a short period of time

question

Variable inputs (L)

answer

- factors of production that a firm can easily increase or decrease in a short period of time

question

Short run

answer

- period of time during which at least some factors of production are fixed.

question

Long run

answer

- period of time during which all factors are variable.

question

Marginal product (MP)

answer

- the additional output of one more worker.
MP = (ΔTP) / (ΔL)

question

Law of Diminishing Marginal Productivity

answer

- general rule that as a firm employs more labor, eventually the amount of additional output produced declines

question

Factor payments

answer

- what the firm pays for the use of the factors of production (aka costs, from the firm's perspective).
• Raw materials prices
• Rent
• Wages and salaries
• Interest and dividends
• Profit

question

Variable costs

answer

- costs of the variable inputs, like labor

question

Fixed costs

answer

- costs of the fixed inputs, like rent.
• Expenditure that a firm must make before production starts
• Do not change in the short run
• Do not change regardless of the level of production.

question

Total cost

answer

- the sum of fixed and variable costs of production

question

Average total cost (ATC)

answer

- total cost divided by the quantity of output produced. ATC = TC / Q

question

Marginal cost (MC)

answer

- the additional cost of producing one more unit of output. MC = ΔTC ./. ΔQ

question

Average variable cost

answer

- variable cost divided by quantity of output.
AVC = VC ./. Q

question

Average total cost (ATC)

answer

○ Typically U-shaped

question

Average variable cost (AVC)

answer

○ Lies below the average total cost curve and
○ Typically U-shaped or upward-sloping

question

Marginal cost (MC)

answer

○ Generally upwardsloping

question

Average Profit

answer

or profit margin = price - average cost

question

positive

answer

If the market price > average cost, then average profit will be ___________

question

negative

answer

If price is < average cost, then profits will be ____________

question

variable

answer

In the long run, all factors (including capital) are _________

question

long

answer

Because all factors are variable, the ____ run production function shows the most efficient way of producing any level of output.

question

long

answer

The ____ run is the period of time when all costs are variable

question

Production technologies

answer

- alternative methods of combining inputs to produce output

question

Economies of scale

answer

- the situation where, as the quantity of output goes up, the cost per unit goes down.

question

average costs

answer

Economies of scale exist because the larger scale of production leads to lower ________ ______

question

Long-run average cost (LRAC) curve

answer

- shows the lowest possible average cost of production, allowing all the inputs to production to vary so that the firm is choosing its production technology.

question

Short-run average cost (SRAC) curves

answer

- the average total cost curve in the short term; shows the total of the average fixed costs and the average variable costs.

question

bottom

answer

The long-run average cost (LRAC) curve shows the lowest cost for producing each quantity of output when fixed costs can vary, and so it is formed by the _______ edge of the family of SRAC curves.

question

Constant returns to scale

answer

- when expanding all inputs proportionately does not change the average cost of production.

question

Diseconomies of scale

answer

- the long-run average cost of producing each individual unit increases as total output increases

question

large

answer

A firm or a factory can grow so ______ that it becomes very difficult to manage or run efficiently.

question

long-run

answer

question

higher

answer

When the LRAC curve has a clear minimum point, then any firm producing a different quantity will have ____ costs.

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