AP Microeconomics (section 10)

question

Profit

answer

Profit= Total Revenue- Total Cost
(Remember Total Revenue= Price (P)*Quantity(Q)

question

Explicit cost

answer

involves actually laying out money

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Implicit cost

answer

does not require an outlay of money; it is measured by the value, in dollar terms, of benefits that are forgone. (monetary version of opportunity cost value)

question

Depreciation

answer

reduction of value over a period or passage of time

question

accounting profit

answer

=TR- (explicit cost+depreciation)

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Total opportunity cost

answer

=Total explicit cost+ Total implicit cost

question

economic profit

answer

=TR- opportunity cost (less than accounting profit)

question

implicit cost of capital

answer

the opportunity cost of the capital used by the 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

answer

an economic profit equal to zero
an economic profit just high enough to keep a fir engaged in its current activity

question

PRINCIPLE OF MARGINAL ANALYSIS

answer

activity of a firm or business, etc. should continue until MARGINAL BENEFIT EQUALS MARGINAL COST

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Marginal revenue

answer

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

question

optimal output rule

answer

produce at the quantity where marginal revenue of the last unit produced is equal to its marginal cost, there, profit will maximize

question

marginal cost curve

answer

the cost of producing one more unit depends on the quantity that has already been produced (swoosh shaped)

question

marginal revenue curve

answer

marginal revenue varies as output varies (straight HORIZONTAL LINE AT MARKET PRICE)

question

marginal cost

answer

the change in total (opportunity?) cost generated by an addition unit of output
=change in total cost/change in quantity of output
straight UPWARDS SLOPING

question

production function

answer

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

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fixed input

answer

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

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variable input

answer

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

output depends on variable input (upwards sloping, slightly curved)

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marginal product

answer

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

question

diminishing returns to an input

answer

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

question

Marginal product of labor curve

answer

downwards sloping (change in quantity of output divided by change in quantity of labor)

question

fixed cost

answer

does not depend on quantity of output produced. The cost of the fixed input.

question

variable cost

answer

depends on the quantity of output produced. The cost of the variable input.

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total cost

answer

sum of the fixed and the variable cost of producing that quantity of output

question

total cost curve

answer

total cost depends on the quantity of output (slopes upwards curved)

question

average cost

answer

=total cost/quantity
U-shaped average total cost curves (norm for firms in many industries)

question

average fixed cost

answer

=fixed cost/quantity of output
downwards sloping bowed inwards, levels out to x-axis

question

average variable cost

answer

=variable cost/quantity of output
upwards sloping

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minimum-cost input

answer

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

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long-run average total cost curve

answer

the relationship between output and average total cost when fixed cost has chosen to minimize average total cost for each level of output
less than short term cost
sum of short run average total costs over a period of time
FIXED COST CAN BE CHOSEN IN THE LONG RUN

question

economies of scale

answer

long-run average total cost declines as output increases.
increasing returns to scale- output increases more than in proportion to an increase in all inputs.

question

sunk cost

answer

cost that has already been incurred and is nonrecoverable. (can be ignored for future decisions and actions)

question

diseconomies of scale

answer

long-run average total cost increases as output increases.
decreasing returns to scale- output increases less than in proportion to an increase in all inputs.

question

price-taking firm

answer

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 participants are price-takers

question

perfectly competitive industry

answer

industry in which firms are price takers

question

market share

answer

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

question

standardized products/commondities

answer

consumers regard the products of different firms as the same good
different firms selling the same good (perfectly competitive)

question

patent

answer

(n.) exclusive rights over an invention; copyright; (v.) to arrange or obtain such rights

question

oligopoly

answer

an industry with only a small number of firms (interdependence)
oligopolist

question

imperfect competition

answer

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

question

monopolistic competition

answer

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

1 of 46

question

Profit

answer

Profit= Total Revenue- Total Cost
(Remember Total Revenue= Price (P)*Quantity(Q)

question

Explicit cost

answer

involves actually laying out money

question

Implicit cost

answer

does not require an outlay of money; it is measured by the value, in dollar terms, of benefits that are forgone. (monetary version of opportunity cost value)

question

Depreciation

answer

reduction of value over a period or passage of time

question

accounting profit

answer

=TR- (explicit cost+depreciation)

question

Total opportunity cost

answer

=Total explicit cost+ Total implicit cost

question

economic profit

answer

=TR- opportunity cost (less than accounting profit)

question

implicit cost of capital

answer

the opportunity cost of the capital used by the 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
an economic profit just high enough to keep a fir engaged in its current activity

question

PRINCIPLE OF MARGINAL ANALYSIS

answer

activity of a firm or business, etc. 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

produce at the quantity where marginal revenue of the last unit produced is equal to its marginal cost, there, profit will maximize

question

marginal cost curve

answer

the cost of producing one more unit depends on the quantity that has already been produced (swoosh shaped)

question

marginal revenue curve

answer

marginal revenue varies as output varies (straight HORIZONTAL LINE AT MARKET PRICE)

question

marginal cost

answer

the change in total (opportunity?) cost generated by an addition unit of output
=change in total cost/change in quantity of output
straight UPWARDS SLOPING

question

production function

answer

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

question

fixed input

answer

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

question

variable input

answer

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

output depends on variable input (upwards sloping, slightly curved)

question

marginal product

answer

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

question

diminishing returns to an input

answer

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

question

Marginal product of labor curve

answer

downwards sloping (change in quantity of output divided by change in quantity of labor)

question

fixed cost

answer

does not depend on quantity of output produced. The cost of the fixed input.

question

variable cost

answer

depends on the quantity of output produced. The cost of the variable input.

question

total cost

answer

sum of the fixed and the variable cost of producing that quantity of output

question

total cost curve

answer

total cost depends on the quantity of output (slopes upwards curved)

question

average cost

answer

=total cost/quantity
U-shaped average total cost curves (norm for firms in many industries)

question

average fixed cost

answer

=fixed cost/quantity of output
downwards sloping bowed inwards, levels out to x-axis

question

average variable cost

answer

=variable cost/quantity of output
upwards sloping

question

minimum-cost input

answer

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

question

long-run average total cost curve

answer

question

economies of scale

answer

long-run average total cost declines as output increases.
increasing returns to scale- output increases more than in proportion to an increase in all inputs.

question

sunk cost

answer

cost that has already been incurred and is nonrecoverable. (can be ignored for future decisions and actions)

question

diseconomies of scale

answer

long-run average total cost increases as output increases.
decreasing returns to scale- output increases less than in proportion to an increase in all inputs.

question

price-taking firm

answer

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 participants are price-takers

question

perfectly competitive industry

answer

industry in which firms are price takers

question

market share

answer

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

question

standardized products/commondities

answer

consumers regard the products of different firms as the same good
different firms selling the same good (perfectly competitive)

question

patent

answer

(n.) exclusive rights over an invention; copyright; (v.) to arrange or obtain such rights

question

oligopoly

answer

an industry with only a small number of firms (interdependence)
oligopolist

question

imperfect competition

answer

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

question

monopolistic competition

answer

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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AP Microeconomics (section 10)

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