ECON RAT 4 - Assignment Essays

question

Accounting Cost

answer

The direct cost of operating a business, including costs for raw materials, wages paid to workers, rent paid for office or retail space, and the like

question

Economic Cost

answer

The sum of a producer's accounting and opportunity costs

question

Opportunity Cost

answer

The value of what a producer gives up by using an input

question

Economic Profit

answer

A firm's total revenue minus its economic cost

question

Accounting Profit

answer

A firm's total revenue minus its accounting cost

question

Fixed Cost

answer

An input cost that does not vary with the amount of output, even if it's zero

question

Sunk Cost

answer

A cost that, once paid, cannot be recovered

question

Operating Revenue

answer

The money a firm earns from selling its output

question

Operating Cost

answer

The cost a firm incurs in producing its output

question

Variable Cost

answer

The cost of inputs that change as the firm changes its quantity of output

question

Total Cost

answer

The sum of a firm's fixed and variable costs

question

Average Fixed Cost

answer

A firm's fixed cost per unit of output
AFC= FC/Q

question

Average Variable Cost

answer

A firm's per unit variable cost of production
AVC= VC/Q

question

Average Total Cost

answer

A firm's total cost per unit of output
ATC= TC/Q
OR ATC= AFC + AVC

question

Marginal Cost

answer

A firm's cost of producing one more unit of output
MC= (change in TC)/(change in Output)

question

Economies of Scale

answer

Total cost rises at a slower rate than output rises

question

Diseconomies of Scale

answer

Total cost rises at a faster rate than output rises

question

Economies of Scale vs. Returns to Scale

answer

Measure of economies of scale does not impose constant input ratios. Returns to scale do.

question

Perfect Competition

answer

A market (or industry) in which many firms produce an identical product and there are no barriers to entry
(1) no company holds a substantial market share
(2) the industry output is standardized
(3) there is freedom of entry and exit.

question

Market Structure

answer

The competitive environment in which firms operate

question

Profit

answer

The difference between a firm's revenue and its total cost

question

Marginal Revenue

answer

The additional revenue from selling one additional unit of output

question

Shut Down Decision

answer

Operate if TR>(or equal to)VC
Shut down if TR<VC
OR
Operate if P>(or equal to)AVC
Shut down if P<AVC

question

Free Entry

answer

The ability of a firm to enter an industry without encountering legal or technical barriers

question

Long-Run Competitive Equilibrium

answer

The point at which the market price is equal to the minimum average total cost and firms would gain no profits by entering the industry

question

Free Exit

answer

The ability of a firm to exit an industry without encountering legal or technical barriers

question

Constant Cost Industry

answer

An industry whose firms' total costs do not change with total industry output

question

Increasing Cost Industry

answer

An industry whose firms' total costs increase with increases in industry output

question

Decreasing Cost Industry

answer

An industry whose firm's total costs decrease with increases in industry output

question

Producer Surplus

answer

A firm's total revenue minus its variable cost

question

Short Run Supply Curve For A Competitive Firm

answer

Upward Sloping
As price increases, industry output increases

question

Profit Maximization by a Perfectly Competitive Firm

answer

Where marginal revenue equals marginal cost
A firm should increase production as long as revenue increases by more than cost, and vice versa (decreasing production)

question

Demand Facing a Perfectly Competitive Firm

answer

Perfectly elastic at the market equilibrium price

1 of 33

question

Accounting Cost

answer

The direct cost of operating a business, including costs for raw materials, wages paid to workers, rent paid for office or retail space, and the like

question

Economic Cost

answer

The sum of a producer's accounting and opportunity costs

question

Opportunity Cost

answer

The value of what a producer gives up by using an input

question

Economic Profit

answer

A firm's total revenue minus its economic cost

question

Accounting Profit

answer

A firm's total revenue minus its accounting cost

question

Fixed Cost

answer

An input cost that does not vary with the amount of output, even if it's zero

question

Sunk Cost

answer

A cost that, once paid, cannot be recovered

question

Operating Revenue

answer

The money a firm earns from selling its output

question

Operating Cost

answer

The cost a firm incurs in producing its output

question

Variable Cost

answer

The cost of inputs that change as the firm changes its quantity of output

question

Total Cost

answer

The sum of a firm's fixed and variable costs

question

Average Fixed Cost

answer

A firm's fixed cost per unit of output
AFC= FC/Q

question

Average Variable Cost

answer

A firm's per unit variable cost of production
AVC= VC/Q

question

Average Total Cost

answer

A firm's total cost per unit of output
ATC= TC/Q
OR ATC= AFC + AVC

question

Marginal Cost

answer

A firm's cost of producing one more unit of output
MC= (change in TC)/(change in Output)

question

Economies of Scale

answer

Total cost rises at a slower rate than output rises

question

Diseconomies of Scale

answer

Total cost rises at a faster rate than output rises

question

Economies of Scale vs. Returns to Scale

answer

Measure of economies of scale does not impose constant input ratios. Returns to scale do.

question

Perfect Competition

answer

question

Market Structure

answer

The competitive environment in which firms operate

question

Profit

answer

The difference between a firm's revenue and its total cost

question

Marginal Revenue

answer

The additional revenue from selling one additional unit of output

question

Shut Down Decision

answer

Operate if TR>(or equal to)VC
Shut down if TR<VC
OR
Operate if P>(or equal to)AVC
Shut down if P<AVC

question

Free Entry

answer

The ability of a firm to enter an industry without encountering legal or technical barriers

question

Long-Run Competitive Equilibrium

answer

The point at which the market price is equal to the minimum average total cost and firms would gain no profits by entering the industry

question

Free Exit

answer

The ability of a firm to exit an industry without encountering legal or technical barriers

question

Constant Cost Industry

answer

An industry whose firms' total costs do not change with total industry output

question

Increasing Cost Industry

answer

An industry whose firms' total costs increase with increases in industry output

question

Decreasing Cost Industry

answer

An industry whose firm's total costs decrease with increases in industry output

question

Producer Surplus

answer

A firm's total revenue minus its variable cost

question

Short Run Supply Curve For A Competitive Firm

answer

Upward Sloping
As price increases, industry output increases

question

Profit Maximization by a Perfectly Competitive Firm

answer

Where marginal revenue equals marginal cost
A firm should increase production as long as revenue increases by more than cost, and vice versa (decreasing production)

question

Demand Facing a Perfectly Competitive Firm

answer

Perfectly elastic at the market equilibrium price

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