Micro Ch. 7 Production, cost, and industry

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 enterpise

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

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

Profit=

answer

total revenue - total cost

question

revenue

answer

the income a firm generates from selling its products

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

question

accounting profit=

answer

total revenue - explicit costs

question

economic profit

answer

includes both explicit and implicit costs

question

economic profit=

answer

total revenue - total cost

question

total costs=

answer

explicit costs + implicit costs

question

factors of production(inputs)

answer

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

answer

TP= f[L,K]

question

marginal product(MP)

answer

the addition output of one more worker

question

MP=

answer

change in TP/change in L

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 firms perspective)

* raw materials prices
* rent
* wages and salaries
* interest and dividends
* profit

question

variable costs

answer

cost 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 cost of production

*TC=

question

Average total cost (ATC)

answer

total cost divided by the quantity of output produced

question

ATC=

answer

TC/Q

question

Marginal cost (MC)

answer

the additional cost of producing one more unit of output

question

MC=

answer

change in TC/change in Q

question

Average variable cost

answer

variable cost divided by the quantity of output

question

Average total cost(ATC) graph curve

answer

typically U, shaped

question

Average variable cost (AVC) graph curve

answer

*lies below the average total cost curve
*typically U-shaped OR upward-sloping

question

Marginal cost (MC) graph curve

answer

generally upward- sloping

question

average profit/ profit margin=

answer

price-average cost

question

if the market price > average cost... then

answer

average profit will be positive

question

If price is< average cost... then

answer

profits will be negative.

question

In the long run all factors (including capital)

answer

are variable

question

Production Function Equation

answer

Q=f(L,K)

question

the long run production shows

answer

the most effect way of producing any level of output(because all factors 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

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 term average cost (SRAC)

answer

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

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

1 of 49

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 enterpise

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

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

Profit=

answer

total revenue - total cost

question

revenue

answer

the income a firm generates from selling its products

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

question

accounting profit=

answer

total revenue - explicit costs

question

economic profit

answer

includes both explicit and implicit costs

question

economic profit=

answer

total revenue - total cost

question

total costs=

answer

explicit costs + implicit costs

question

factors of production(inputs)

answer

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

answer

TP= f[L,K]

question

marginal product(MP)

answer

the addition output of one more worker

question

MP=

answer

change in TP/change in L

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 firms perspective)

* raw materials prices
* rent
* wages and salaries
* interest and dividends
* profit

question

variable costs

answer

cost 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 cost of production

*TC=

question

Average total cost (ATC)

answer

total cost divided by the quantity of output produced

question

ATC=

answer

TC/Q

question

Marginal cost (MC)

answer

the additional cost of producing one more unit of output

question

MC=

answer

change in TC/change in Q

question

Average variable cost

answer

variable cost divided by the quantity of output

question

Average total cost(ATC) graph curve

answer

typically U, shaped

question

Average variable cost (AVC) graph curve

answer

*lies below the average total cost curve
*typically U-shaped OR upward-sloping

question

Marginal cost (MC) graph curve

answer

generally upward- sloping

question

average profit/ profit margin=

answer

price-average cost

question

if the market price > average cost... then

answer

average profit will be positive

question

If price is< average cost... then

answer

profits will be negative.

question

In the long run all factors (including capital)

answer

are variable

question

Production Function Equation

answer

Q=f(L,K)

question

the long run production shows

answer

the most effect way of producing any level of output(because all factors 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

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 term average cost (SRAC)

answer

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

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

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