ECON 300 Exam Two - Assignment Essays

question

Short Run

answer

Period of time on which quantities of one or more production factors cannot be changed

question

Long Run

answer

Amount of time needed to make all production inputs variable

question

Average Product

answer

Output per unit of a particular input.
Average Product = Output/labor input

question

Marginal Cost

answer

Additional cost from an additional unit of output
change in TC/change in quantity

question

Marginal Product

answer

Additional output produced as an input is increased by one unit.
Marginal Product = Change in output/change in labor input

question

Law of Diminishing Return

answer

Principle that as the use of an input increases with other inputs fixed, the resulting additions to output will eventually decrease

question

Sunk Cost

answer

Expenditure that has been made and cannot be recovered

question

Total Cost (TC or C)

answer

Total economic cost of production, consisting of fixed and variable costs.
C = Variable cost + Fixed cost

question

Fixed Cost

answer

Cost that does not vary with the level of output and that can be eliminated only by shutting down

question

Variable Cost

answer

Cost that varies as output varies

question

Average Total Cost (ATC)

answer

Total cost per unit of output
ATC = TC/Q = AFC + AVC

question

Average Variable Cost (AVC)

answer

Variable cost divided by the level of output
AVC = VC/Q

question

Average Fixed Cost (AFC)

answer

Fixed cost divided by the level of output
AFC = FC/Q

question

Economies of Scale

answer

Situations in which output can be doubled for less than a doubling of cost, exists in the range where long-run average cost is decreasing. Ex: firms expanding output

question

Diseconomies of Scale

answer

Situation in which a doubling of output requires more than a doubling of cost, long-run average is increasing.
Ex: increasing firm size

question

Economies of Scope

answer

Cost advantages of producing multiple products in one firm

question

Diseconomies of Scope

answer

Situation in which joint output of a single firm is less than could be achieved by separate firms when each produces a single product

question

Examples of a Perfectly Competitive Firm

answer

Product homogeneity (similar to identical products), free entry and exit, many producers. A firm is perfectly competitive if it can sell any quantity it wants at the going market price. A firm is not perfectly competitive it to sell more of its product, it must lower the price

question

Free Entry (or exit)

answer

Condition under which there are no special costs that make it difficult for a firm to enter (or exit) an industry

question

Profit

answer

Difference between total revenue and total cost

question

Long-run Competitive Equilibrium

answer

All firms in an industry are maximizing profit, no firm has an incentive to enter or exit, and price is such that quantity supplied equals quantity demanded

question

Economic Rent

answer

The positive difference between the actual payment made for a factor of production (such as land, labor or capital) to its owner and the payment level expected by the owner, due to its exclusivity or scarcity.

question

Constant-cost industry

answer

As the industry changes size, firm costs do not change. Horizontal long run supply curve

question

Increasing-cost Industry

answer

As the industry increases in size with firm entry, input costs increase, upward sloping long run supply curve

question

Decreasing Cost Industry

answer

As the industry increases in size with firm entry, input costs decrease, downward sloping long run supply curve

question

Learning Economies

answer

Learning can occur: as individuals learn to perform tasks in less time; as firms learn how to make the entire organization more efficient

question

What happens in a perfectly competitive firm with price changes?

answer

In perfect competition a firm can sell as much as it wants at the going market price. So, to sell more the firm does not need to lower its price. However, if it tries to sell its product for any amount above the going market price, it will sell nothing at all.
More substitutes means more elastic, perfect substitutes means perfectly elastic

question

Minimum Efficient Scale (MES)

answer

Minimum output per period a plant (or firm) must produce to minimize long-term average cost

question

MC < ATC

answer

ATC is decreasing

question

MC = ATC

answer

ATC is at its minimum

question

MC > ATC

answer

AtC is increasing

question

MC < AVC

answer

AVC is decreasing

question

MC = AVC

answer

AVC is at its minimum

question

MC > AVC

answer

AVC is increasing

question

Which of the following will shift up the ATC curves and not the MC or AVC curves?

answer

In order for ATC to move and not MC or AVC is the change in a fixed cost or an increase in rental rates

question

What does zero economic profit mean?

answer

0 economic profit means they're doing as well as their next best alternative

question

What would it mean for negative economic profit?

answer

Business is not doing well and that firms would exit the industry in the long run

question

What would it mean for positive economic profit?

answer

Expect to see firms enter in the long run

question

Economic Profit Equation

answer

Total revenue - total costs

question

Capital

answer

Tools, machinery, plants, equipment

question

Marginal Product of Labor (MPl)

answer

Additional output from an extra unit of labor

question

Law of Diminishing Returns

answer

As more of an input like labor is added (holding all else constant) eventually the MP will begin to diminish, diminishing marginal returns implies that output is increasing at a decreasing rate.

question

MPL > APL

answer

APL is increasing

question

MPL < APL

answer

APL decreases

question

MPL = APL

answer

APL is at its maximum

question

Opportunity or Economic Cost

answer

explicit costs + implicit costs

question

Explicit Costs

answer

Direct payment like paying wages, rent, or interest on materials

question

Implicit Costs

answer

An amount that is given up to use a resource that a firm already owns

1 of 48

question

Short Run

answer

Period of time on which quantities of one or more production factors cannot be changed

question

Long Run

answer

Amount of time needed to make all production inputs variable

question

Average Product

answer

Output per unit of a particular input.
Average Product = Output/labor input

question

Marginal Cost

answer

Additional cost from an additional unit of output
change in TC/change in quantity

question

Marginal Product

answer

Additional output produced as an input is increased by one unit.
Marginal Product = Change in output/change in labor input

question

Law of Diminishing Return

answer

Principle that as the use of an input increases with other inputs fixed, the resulting additions to output will eventually decrease

question

Sunk Cost

answer

Expenditure that has been made and cannot be recovered

question

Total Cost (TC or C)

answer

Total economic cost of production, consisting of fixed and variable costs.
C = Variable cost + Fixed cost

question

Fixed Cost

answer

Cost that does not vary with the level of output and that can be eliminated only by shutting down

question

Variable Cost

answer

Cost that varies as output varies

question

Average Total Cost (ATC)

answer

Total cost per unit of output
ATC = TC/Q = AFC + AVC

question

Average Variable Cost (AVC)

answer

Variable cost divided by the level of output
AVC = VC/Q

question

Average Fixed Cost (AFC)

answer

Fixed cost divided by the level of output
AFC = FC/Q

question

Economies of Scale

answer

Situations in which output can be doubled for less than a doubling of cost, exists in the range where long-run average cost is decreasing. Ex: firms expanding output

question

Diseconomies of Scale

answer

Situation in which a doubling of output requires more than a doubling of cost, long-run average is increasing.
Ex: increasing firm size

question

Economies of Scope

answer

Cost advantages of producing multiple products in one firm

question

Diseconomies of Scope

answer

Situation in which joint output of a single firm is less than could be achieved by separate firms when each produces a single product

question

Examples of a Perfectly Competitive Firm

answer

question

Free Entry (or exit)

answer

Condition under which there are no special costs that make it difficult for a firm to enter (or exit) an industry

question

Profit

answer

Difference between total revenue and total cost

question

Long-run Competitive Equilibrium

answer

All firms in an industry are maximizing profit, no firm has an incentive to enter or exit, and price is such that quantity supplied equals quantity demanded

question

Economic Rent

answer

question

Constant-cost industry

answer

As the industry changes size, firm costs do not change. Horizontal long run supply curve

question

Increasing-cost Industry

answer

As the industry increases in size with firm entry, input costs increase, upward sloping long run supply curve

question

Decreasing Cost Industry

answer

As the industry increases in size with firm entry, input costs decrease, downward sloping long run supply curve

question

Learning Economies

answer

Learning can occur: as individuals learn to perform tasks in less time; as firms learn how to make the entire organization more efficient

question

What happens in a perfectly competitive firm with price changes?

answer

question

Minimum Efficient Scale (MES)

answer

Minimum output per period a plant (or firm) must produce to minimize long-term average cost

question

MC < ATC

answer

ATC is decreasing

question

MC = ATC

answer

ATC is at its minimum

question

MC > ATC

answer

AtC is increasing

question

MC < AVC

answer

AVC is decreasing

question

MC = AVC

answer

AVC is at its minimum

question

MC > AVC

answer

AVC is increasing

question

Which of the following will shift up the ATC curves and not the MC or AVC curves?

answer

In order for ATC to move and not MC or AVC is the change in a fixed cost or an increase in rental rates

question

What does zero economic profit mean?

answer

0 economic profit means they're doing as well as their next best alternative

question

What would it mean for negative economic profit?

answer

Business is not doing well and that firms would exit the industry in the long run

question

What would it mean for positive economic profit?

answer

Expect to see firms enter in the long run

question

Economic Profit Equation

answer

Total revenue - total costs

question

Capital

answer

Tools, machinery, plants, equipment

question

Marginal Product of Labor (MPl)

answer

Additional output from an extra unit of labor

question

Law of Diminishing Returns

answer

As more of an input like labor is added (holding all else constant) eventually the MP will begin to diminish, diminishing marginal returns implies that output is increasing at a decreasing rate.

question

MPL > APL

answer

APL is increasing

question

MPL < APL

answer

APL decreases

question

MPL = APL

answer

APL is at its maximum

question

Opportunity or Economic Cost

answer

explicit costs + implicit costs

question

Explicit Costs

answer

Direct payment like paying wages, rent, or interest on materials

question

Implicit Costs

answer

An amount that is given up to use a resource that a firm already owns

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