Microeconomics Test 3 Study Guide

question

Goal of a firm

answer

maximize profit

question

Total revenue

answer

the amount a firm receives for the sale of its output (quantity sold x price)

question

Total cost

answer

the market value of the inputs a firm uses in production

question

Profit

answer

total revenue minus total cost

question

Costs include all of the opportunity costs of inputs used in

answer

production, total opportunity costs

question

Explicit Costs

answer

input costs that require an outlay of money by the firm (direct costs)

question

Implicit Costs

answer

Do not require an outlay of money by the firm

question

Accountants focus on only

answer

explicit costs

question

Economists examine

answer

explicit and implicit costs

question

Economic profit

answer

total revenue minus total cost, including both explicit and implicit costs

question

Accounting profit

answer

total revenue minus total explicit cost

question

If implicit costs are greater than zero

answer

accounting profit will always exceed economic profit

question

Accounting profit=

answer

economic profit + implicit costs

question

Production Function

answer

the relationship between quantity of inputs used to make a good and the quantity of output of that good (determined by technology)

question

Marginal Product

answer

the increase in output that arises from an additional unit of input (labor)

question

Marginal product of labor=

answer

change in quantity/change in labor

question

As the amount of labor used increases

answer

the marginal product of labor falls

question

Diminishing Marginal Product

answer

Marginal product down, quantity up

Exists when the total cost curve becomes steeper as outputs increase and when the production function becomes flatter as input increases

question

Total cost=

answer

Fixed cost + variable cost

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Fixed Costs

answer

Costs that do not vary with the quantity of output produced

question

Variable Costs

answer

costs that do vary with the quantity of output produced

question

Average total costs

answer

total cost divided by the quantity of output

question

Average fixed cost

answer

fixed cost divided by the quantity of output

question

Average variable cost

answer

variable cost up

question

marginal Cost

answer

the increase in total cost that arises from an extra unit of production

question

Marginal cost=

answer

change in total cost / change in output

question

Diminishing marginal product affects marginal cost which can affect

answer

Average total cost

question

As marginal cost goes up, diminishing marginal product

answer

occurs

question

Low level input and high level output create

answer

rising marginal cost

question

Some costs are fixed in short term, but all costs are

answer

variable in long term

question

LATC

answer

Lowest points of the short-run average-total-cost curves (firm has more flexibility in the long run)

question

Economies of Scale

answer

the property whereby long-run average total cost falls as the quantity of output increases

Major reason: specification

question

Diseconomies of Scale

answer

the property whereby long-run average total cost rises as the quantity of output increases

Major reason: Diminishing marginal product

question

constant returns to scale

answer

the property whereby long-run average total cost stays the same as the quantity of output changes

1 of 34

question

Goal of a firm

answer

maximize profit

question

Total revenue

answer

the amount a firm receives for the sale of its output (quantity sold x price)

question

Total cost

answer

the market value of the inputs a firm uses in production

question

Profit

answer

total revenue minus total cost

question

Costs include all of the opportunity costs of inputs used in

answer

production, total opportunity costs

question

Explicit Costs

answer

input costs that require an outlay of money by the firm (direct costs)

question

Implicit Costs

answer

Do not require an outlay of money by the firm

question

Accountants focus on only

answer

explicit costs

question

Economists examine

answer

explicit and implicit costs

question

Economic profit

answer

total revenue minus total cost, including both explicit and implicit costs

question

Accounting profit

answer

total revenue minus total explicit cost

question

If implicit costs are greater than zero

answer

accounting profit will always exceed economic profit

question

Accounting profit=

answer

economic profit + implicit costs

question

Production Function

answer

the relationship between quantity of inputs used to make a good and the quantity of output of that good (determined by technology)

question

Marginal Product

answer

the increase in output that arises from an additional unit of input (labor)

question

Marginal product of labor=

answer

change in quantity/change in labor

question

As the amount of labor used increases

answer

the marginal product of labor falls

question

Diminishing Marginal Product

answer

Marginal product down, quantity up

Exists when the total cost curve becomes steeper as outputs increase and when the production function becomes flatter as input increases

question

Total cost=

answer

Fixed cost + variable cost

question

Fixed Costs

answer

Costs that do not vary with the quantity of output produced

question

Variable Costs

answer

costs that do vary with the quantity of output produced

question

Average total costs

answer

total cost divided by the quantity of output

question

Average fixed cost

answer

fixed cost divided by the quantity of output

question

Average variable cost

answer

variable cost up

question

marginal Cost

answer

the increase in total cost that arises from an extra unit of production

question

Marginal cost=

answer

change in total cost / change in output

question

Diminishing marginal product affects marginal cost which can affect

answer

Average total cost

question

As marginal cost goes up, diminishing marginal product

answer

occurs

question

Low level input and high level output create

answer

rising marginal cost

question

Some costs are fixed in short term, but all costs are

answer

variable in long term

question

LATC

answer

Lowest points of the short-run average-total-cost curves (firm has more flexibility in the long run)

question

Economies of Scale

answer

the property whereby long-run average total cost falls as the quantity of output increases

Major reason: specification

question

Diseconomies of Scale

answer

the property whereby long-run average total cost rises as the quantity of output increases

Major reason: Diminishing marginal product

question

constant returns to scale

answer

the property whereby long-run average total cost stays the same as the quantity of output changes

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