Econ Section 10 Vocab - Assignment Essays

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Explicit Cost

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Cost that involves actually laying out money

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Implicit Cost

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Does not require an outlay of money ; Measured by the value, in dollar terms of benefits that are forgone

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Accounting Profit

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A business is the business' total revenue minus the explicit cost and depreciation

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Economic Profit

answer

The business' total revenue minus the opportunity cost of its resources ; Usually less than the accounting profit

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Implicit Cost of Capital

answer

The opportunity cost of the capital used by a business ; the income the owner could have realized from that capital if it had been used in its next best alternative way

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Normal Profit

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An economic profit equal to zero

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Principle of Marginal Analysis

answer

Every activity should continue until marginal benefit equals marginal cost

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Marginal Revenue

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The change in total revenue generated by an additional unit of output

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Optimal Output Rule

answer

Profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost

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Marginal Cost Curve

answer

Shows how the cost of producing one more unit depends on the quantity that has already been produced

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Marginal Revenue Curve

answer

Shows how marginal revenue varies as output varies

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Production Function

answer

The relationship between the quantity of inputs a firm uses and the quantity of output it produces

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Fixed Input

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An input whose quantity is fixed for a period of time and cannot be varied

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Variable Input

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An input whose quantity the firm can vary at any time

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Long Run

answer

The time period in which all inputs can be varied

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Short Run

answer

The time period in which at least one input is fixed

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Total Product Curve

answer

Shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input

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Marginal Product

answer

The additional quantity of output produced by using one more unit of that input

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Diminishing Returns to an Input

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When an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input

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Fixed Cost

answer

A cost that does not depend on the quantity of output produced ; cost of the fixed input

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Variable Cost

answer

Cost that depends on the quantity of output produced ; the cost of the variable input

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Total Cost

answer

This of producing a given quantity of output is the sum of the fixed cost and the variable cost of producing that quantity of output

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Total Cost Curve

answer

Shows how total cost depends on the quantity of output

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Average Total Cost

answer

Similar to average total cost, but gives a broader view

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Average Cost

answer

Total cost divided by quantity of output produced

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U-Shaped Average Total Cost Curve

answer

Falls at low levels of output and then rises at higher levels

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Average Fixed Cost

answer

The fixed cost per unit of output

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Average Variable Cost

answer

The variable cost per unit of output

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Minimum-Cost Output

answer

The quantity of output at which average total cost is lowest ; corresponds to the bottom of the U-shaped average total cost curve

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Long-Run Average Total Cost Curve

answer

Shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output

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Economies of Scale

answer

When long-run average total cost declines as output increases

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Increasing Returns to Scale

answer

When output increases more than in proportion to an increase in all inputs ; ex: with increasing returns to scale, doubling all inputs would cause output to more than double

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Diseconomies of Scale

answer

When long-run average total cost increases as output increases

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Decreasing Returns to Scale

answer

When output increases less than in proportion to an increase in all inputs

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Constant Returns to Scale

answer

When output increases directly in proportion to an increase in all inputs

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Sunk Cost

answer

A cost that has already been incurred and is nonrecoverable ; should be ignored in a decision about future actions

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Price-Taking Firm

answer

A firm whose actions have no effect on the market price of the good or service it sells

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Price-Taking Consumer

answer

A consumer whose actions have no effect on the market price of the good or service he or she buys

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Perfectly Competitive Market

answer

A market in which all market participants are price-takers

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Perfectly Competitive Industry

answer

An industry in which firms are price-takers

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Market Share

answer

The fraction of the total industry output accounted for by that firm's output

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Standardized Product

answer

A product that consumers consider identical in all essential features to other products in the same market

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Commodity

answer

A product that is the same no matter who produces it, such as petroleum, notebook paper, or milk

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Free Entry and Exit

answer

When new firms can easily enter into the industry and existing firms can easily leave the industry

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Monopolist

answer

The only producer of a good that has no close substitutes

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Monopoly

answer

An industry controlled by a monopolist

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Barrier to Entry

answer

Something that prevents other firms from entering the industry ; a monopolist must be protected by this to earn economic profits

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Natural Monopoly

answer

Exists when economies of scale provide a large cost advantage to a single firm that produces all of an industry's output

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Patent

answer

Gives an inventor a temporary monopoly in the use or sale of an invention

question

answer

Gives the creator of a literary or artistic work the sole right to profit from that work

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Oligopoly

answer

An industry with only a small number of firms

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Oligopolist

answer

A producer in an oligopoly industry

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Imperfect Competition

answer

When no one firm has a monopoly, but producers nontheless realize that they can affect market prices

question

Concentration Ratios

answer

Measure the percentage of industry sales accounted for by the "X" largest firms ; ex.: the four-firm concentration ratio or the eight-firm concentration ratio

question

Herfindahl-Hirschman Index

answer

The square of each firm's share of market sales summed over the industry ; gives a picture of the industry market structure

question

Monopolistic Competition

answer

A market structure in which there are many competing firms in an industry, each firm sells a differentiated product, and there is free entry into and exit from the industry in the long run

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question

Explicit Cost

answer

Cost that involves actually laying out money

question

Implicit Cost

answer

Does not require an outlay of money ; Measured by the value, in dollar terms of benefits that are forgone

question

Accounting Profit

answer

A business is the business' total revenue minus the explicit cost and depreciation

question

Economic Profit

answer

The business' total revenue minus the opportunity cost of its resources ; Usually less than the accounting profit

question

Implicit Cost of Capital

answer

The opportunity cost of the capital used by a business ; the income the owner could have realized from that capital if it had been used in its next best alternative way

question

Normal Profit

answer

An economic profit equal to zero

question

Principle of Marginal Analysis

answer

Every activity should continue until marginal benefit equals marginal cost

question

Marginal Revenue

answer

The change in total revenue generated by an additional unit of output

question

Optimal Output Rule

answer

Profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost

question

Marginal Cost Curve

answer

Shows how the cost of producing one more unit depends on the quantity that has already been produced

question

Marginal Revenue Curve

answer

Shows how marginal revenue varies as output varies

question

Production Function

answer

The relationship between the quantity of inputs a firm uses and the quantity of output it produces

question

Fixed Input

answer

An input whose quantity is fixed for a period of time and cannot be varied

question

Variable Input

answer

An input whose quantity the firm can vary at any time

question

Long Run

answer

The time period in which all inputs can be varied

question

Short Run

answer

The time period in which at least one input is fixed

question

Total Product Curve

answer

Shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input

question

Marginal Product

answer

The additional quantity of output produced by using one more unit of that input

question

Diminishing Returns to an Input

answer

When an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input

question

Fixed Cost

answer

A cost that does not depend on the quantity of output produced ; cost of the fixed input

question

Variable Cost

answer

Cost that depends on the quantity of output produced ; the cost of the variable input

question

Total Cost

answer

This of producing a given quantity of output is the sum of the fixed cost and the variable cost of producing that quantity of output

question

Total Cost Curve

answer

Shows how total cost depends on the quantity of output

question

Average Total Cost

answer

Similar to average total cost, but gives a broader view

question

Average Cost

answer

Total cost divided by quantity of output produced

question

U-Shaped Average Total Cost Curve

answer

Falls at low levels of output and then rises at higher levels

question

Average Fixed Cost

answer

The fixed cost per unit of output

question

Average Variable Cost

answer

The variable cost per unit of output

question

Minimum-Cost Output

answer

The quantity of output at which average total cost is lowest ; corresponds to the bottom of the U-shaped average total cost curve

question

Long-Run Average Total Cost Curve

answer

Shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output

question

Economies of Scale

answer

When long-run average total cost declines as output increases

question

Increasing Returns to Scale

answer

When output increases more than in proportion to an increase in all inputs ; ex: with increasing returns to scale, doubling all inputs would cause output to more than double

question

Diseconomies of Scale

answer

When long-run average total cost increases as output increases

question

Decreasing Returns to Scale

answer

When output increases less than in proportion to an increase in all inputs

question

Constant Returns to Scale

answer

When output increases directly in proportion to an increase in all inputs

question

Sunk Cost

answer

A cost that has already been incurred and is nonrecoverable ; should be ignored in a decision about future actions

question

Price-Taking Firm

answer

A firm whose actions have no effect on the market price of the good or service it sells

question

Price-Taking Consumer

answer

A consumer whose actions have no effect on the market price of the good or service he or she buys

question

Perfectly Competitive Market

answer

A market in which all market participants are price-takers

question

Perfectly Competitive Industry

answer

An industry in which firms are price-takers

question

Market Share

answer

The fraction of the total industry output accounted for by that firm's output

question

Standardized Product

answer

A product that consumers consider identical in all essential features to other products in the same market

question

Commodity

answer

A product that is the same no matter who produces it, such as petroleum, notebook paper, or milk

question

Free Entry and Exit

answer

When new firms can easily enter into the industry and existing firms can easily leave the industry

question

Monopolist

answer

The only producer of a good that has no close substitutes

question

Monopoly

answer

An industry controlled by a monopolist

question

Barrier to Entry

answer

Something that prevents other firms from entering the industry ; a monopolist must be protected by this to earn economic profits

question

Natural Monopoly

answer

Exists when economies of scale provide a large cost advantage to a single firm that produces all of an industry's output

question

Patent

answer

Gives an inventor a temporary monopoly in the use or sale of an invention

question

answer

Gives the creator of a literary or artistic work the sole right to profit from that work

question

Oligopoly

answer

An industry with only a small number of firms

question

Oligopolist

answer

A producer in an oligopoly industry

question

Imperfect Competition

answer

When no one firm has a monopoly, but producers nontheless realize that they can affect market prices

question

Concentration Ratios

answer

Measure the percentage of industry sales accounted for by the "X" largest firms ; ex.: the four-firm concentration ratio or the eight-firm concentration ratio

question

Herfindahl-Hirschman Index

answer

The square of each firm's share of market sales summed over the industry ; gives a picture of the industry market structure

question

Monopolistic Competition

answer

A market structure in which there are many competing firms in an industry, each firm sells a differentiated product, and there is free entry into and exit from the industry in the long run

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