ETG1 - Chpt 7 - Assignment Essays

question

What is Economic Cost

answer

Economic cost is the sum of all explicit and implicit (opportunity) costs of the business firm.

question

Take note:

answer

All of the resources that a firm uses - whether purchase from outside or already owned - have opportunity cost and thus economic costs.

question

What are Explicit Costs?

answer

the monetary payments it make to those from whom it must purchase resources that it does not own. (These are Opportunity Costs)

question

What are Implicit Costs?

answer

the Opportunity Costs of using the resources that it already owns to make the firms' own product rather than selling those resources to outsiders for cash.

question

A firms economic costs are:

answer

The sum of it's explicit costs and it's implicit costs.

Economic costs = explicit costs + implicit costs

question

What is the Accounting Profit

answer

Subtracting total explicit costs from total sales revenue.

Accounting Profit = Sales Revenue - Explicit Costs

question

How do you know if you have made a financially sound decisions when starting a new business?

answer

By taking into account all the opportunity costs - both implicit costs as well as explicit costs and subtracting it from total sales revenue.

question

What is Economic Profit?

answer

After subtracting implicit costs from accounting profit you are left with economic profit.

Economic Profit = Revenue - Explicit Costs - Implicit Costs

question

What does Economic Profit of $24,000 means?

answer

It means you are making $24,000 more than you could expect to make in your best alternative business venture.

question

In Microeconomics what is the 'Short Run: Fixed Plant'?

answer

it is a period too brief for a firm to alter its plant capacity, yet long enough to permit a change in the degree to which the plant's current capacity is used.

question

In Microeconomics what is the 'Long Run: Variable Plant'?

answer

it is a period long enough for it to adjust the quantities of all the resources that it employs, including plant capacity.

question

Explicit Costs are:

answer

money payments a firm makes to outside suppliers for resources.

question

Implicit Costs are

answer

the opportunity costs associated with a firm's use of resources it owns.

question

Normal Profit is:

answer

the implicit cost of entrepreneurship

question

Economic profit is:

answer

total revenue less all explicit and implicit costs, including normal profit.

question

T/F In the short run, a firm's plant capacity is fixed.

answer

TRUE

question

T/F In the long run, a firm can not vary it's plant size and firms can enter or leave the industry.

answer

FALSE

question

Total Product (TP) is:

answer

The total quantity, or total output, of a particular good or service produced.

question

Marginal Product (MP) is:

answer

the extra output or added product associated with adding a unit of variable resource, in this case labor, to the production process. Thus, Marginal product = change in total product / change in labor input.

question

Average Product (AP) is:

answer

also called labor productivity, is output per unit of labor input: Average product = total product / units of labor

question

What is the Law of Diminishing Returns?

answer

This law assumes that technology is fixed and thus the techniques of production do not change.

question

What does the Law of Diminishing Returns indicate?

answer

That beyond some point, output will increase by diminishing amounts as more units of a variable resource (labor) are added to fixed resource (capital).

question

In the short run, what is the Total Cost of any level of output?

answer

The Sum of fixed and variable costs (TC = TFC +TVC)

question

What are the Fixed, Variable, and total costs per unit of output?

answer

Average fixed, average variable, and average total costs.

question

What is Marginal Cost?

answer

It is the extra cost of producing one more unit of output.

question

Average fixed cost do what as output increases?

answer

Decline

question

How to the Average-Variable-Cost and Average-Total-Cost look on a graph?

answer

They are U-Shaped, reflecting increasing and then diminishing returns.

question

What does the marginal-cost do on a charted graph?

answer

its curve falls but then rises, intersecting both the average-variable-cost curve and the average-total-cost curve at their minimum points.

question

What do the U-shaped long-run average-total cost curves reflect?

answer

Economies and then diseconomies of sale.

question

What are economies of scale?

answer

The consequence of greater specialization of labor and management, more efficient capital equipment, and the spreading of start-up costs over more units of output.

question

What are diseconomies of scale caused by?

answer

The problems of coordination and the communication that arise in large firms.

question

What are Minimum efficient scale (MES) of output?

answer

The lowest level at which a firm's long-run average total cost is at a minimum.

question

What are 'Sunk Costs'?

answer

Cost that are incurred, that cannot be recovered.

question

What are 'Fixed Costs'?

answer

Cost that do not vary with changes in output.

question

What are 'Variable Costs'?

answer

A cost that in total increases when the firm increases its output and decreases when the firm reduces its output

question

What is 'Total Cost'?

answer

It is the sum of fixed cost and variable cost at each level of output: TC = TFC + TVC

question

What is the Average Total Cost? (ATC)

answer

A firm's total cost divided by output (the quantity of product produced); equal to average fixed cost plus average variable cost.

question

What is the Average Variable Cost? (AVC)

answer

A firm's total variable cost divided by output (the quantity of product produced).

question

What is Average Fixed Cost? (AFC)

answer

A firm's total fixed cost divided by output (the quantity of product produced).

question

What are Constant Returns to Scale?

answer

Unchanging average total cost of producing a product as the firm expands the size of its plant (its output) in the long run.

question

What are Natural Monopoly?

answer

An industry in which economies of scale are so great that a single firm can produce the product at a lower average total cost than would be possible if more than one firm produced the product.

1 of 41

question

What is Economic Cost

answer

Economic cost is the sum of all explicit and implicit (opportunity) costs of the business firm.

question

Take note:

answer

All of the resources that a firm uses - whether purchase from outside or already owned - have opportunity cost and thus economic costs.

question

What are Explicit Costs?

answer

the monetary payments it make to those from whom it must purchase resources that it does not own. (These are Opportunity Costs)

question

What are Implicit Costs?

answer

the Opportunity Costs of using the resources that it already owns to make the firms' own product rather than selling those resources to outsiders for cash.

question

A firms economic costs are:

answer

The sum of it's explicit costs and it's implicit costs.

Economic costs = explicit costs + implicit costs

question

What is the Accounting Profit

answer

Subtracting total explicit costs from total sales revenue.

Accounting Profit = Sales Revenue - Explicit Costs

question

How do you know if you have made a financially sound decisions when starting a new business?

answer

By taking into account all the opportunity costs - both implicit costs as well as explicit costs and subtracting it from total sales revenue.

question

What is Economic Profit?

answer

After subtracting implicit costs from accounting profit you are left with economic profit.

Economic Profit = Revenue - Explicit Costs - Implicit Costs

question

What does Economic Profit of $24,000 means?

answer

It means you are making $24,000 more than you could expect to make in your best alternative business venture.

question

In Microeconomics what is the 'Short Run: Fixed Plant'?

answer

it is a period too brief for a firm to alter its plant capacity, yet long enough to permit a change in the degree to which the plant's current capacity is used.

question

In Microeconomics what is the 'Long Run: Variable Plant'?

answer

it is a period long enough for it to adjust the quantities of all the resources that it employs, including plant capacity.

question

Explicit Costs are:

answer

money payments a firm makes to outside suppliers for resources.

question

Implicit Costs are

answer

the opportunity costs associated with a firm's use of resources it owns.

question

Normal Profit is:

answer

the implicit cost of entrepreneurship

question

Economic profit is:

answer

total revenue less all explicit and implicit costs, including normal profit.

question

T/F In the short run, a firm's plant capacity is fixed.

answer

TRUE

question

T/F In the long run, a firm can not vary it's plant size and firms can enter or leave the industry.

answer

FALSE

question

Total Product (TP) is:

answer

The total quantity, or total output, of a particular good or service produced.

question

Marginal Product (MP) is:

answer

question

Average Product (AP) is:

answer

also called labor productivity, is output per unit of labor input: Average product = total product / units of labor

question

What is the Law of Diminishing Returns?

answer

This law assumes that technology is fixed and thus the techniques of production do not change.

question

What does the Law of Diminishing Returns indicate?

answer

That beyond some point, output will increase by diminishing amounts as more units of a variable resource (labor) are added to fixed resource (capital).

question

In the short run, what is the Total Cost of any level of output?

answer

The Sum of fixed and variable costs (TC = TFC +TVC)

question

What are the Fixed, Variable, and total costs per unit of output?

answer

Average fixed, average variable, and average total costs.

question

What is Marginal Cost?

answer

It is the extra cost of producing one more unit of output.

question

Average fixed cost do what as output increases?

answer

Decline

question

How to the Average-Variable-Cost and Average-Total-Cost look on a graph?

answer

They are U-Shaped, reflecting increasing and then diminishing returns.

question

What does the marginal-cost do on a charted graph?

answer

its curve falls but then rises, intersecting both the average-variable-cost curve and the average-total-cost curve at their minimum points.

question

What do the U-shaped long-run average-total cost curves reflect?

answer

Economies and then diseconomies of sale.

question

What are economies of scale?

answer

The consequence of greater specialization of labor and management, more efficient capital equipment, and the spreading of start-up costs over more units of output.

question

What are diseconomies of scale caused by?

answer

The problems of coordination and the communication that arise in large firms.

question

What are Minimum efficient scale (MES) of output?

answer

The lowest level at which a firm's long-run average total cost is at a minimum.

question

What are 'Sunk Costs'?

answer

Cost that are incurred, that cannot be recovered.

question

What are 'Fixed Costs'?

answer

Cost that do not vary with changes in output.

question

What are 'Variable Costs'?

answer

A cost that in total increases when the firm increases its output and decreases when the firm reduces its output

question

What is 'Total Cost'?

answer

It is the sum of fixed cost and variable cost at each level of output: TC = TFC + TVC

question

What is the Average Total Cost? (ATC)

answer

A firm's total cost divided by output (the quantity of product produced); equal to average fixed cost plus average variable cost.

question

What is the Average Variable Cost? (AVC)

answer

A firm's total variable cost divided by output (the quantity of product produced).

question

What is Average Fixed Cost? (AFC)

answer

A firm's total fixed cost divided by output (the quantity of product produced).

question

What are Constant Returns to Scale?

answer

Unchanging average total cost of producing a product as the firm expands the size of its plant (its output) in the long run.

question

What are Natural Monopoly?

answer

An industry in which economies of scale are so great that a single firm can produce the product at a lower average total cost than would be possible if more than one firm produced the product.

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ETG1 – Chpt 7

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