apmicro

question

characteristics of a perfectly competitive firm?

answer

Having many firms, homogeneous products, price takers, no barriers to entry and perfect knowledge.

question

what does total cost include?

answer

out of pocket costs, a normal rate of return on capital, and opportunity cost of each factor of production.

question

normal rate of return?

answer

a rate that just keeps owners and investors satisfied. It should be nearly the same as the interest rate on risk free government bonds.

question

short-run is

answer

when the firm is operating under a fixed factor of production and firms can neither enter nor exit the industry.

question

long-run is

answer

when there are no fixed factors of production. Firms can increase or decrease their scale of operations; new firms may enter and existing firms may exit.

question

optimal method of production is

answer

the production method that minimizes cost and therefore maximizes profit.

question

marginal product is

answer

the additional output that can be produced by adding one more unit of a specific input.

question

average product is

answer

the average amount produced by each unit of a variable factor of production.

question

what is an isoquant?

answer

a graph that shows all combinations of capital and labor that can be used to produce a given level of output.

question

What is MRTS?

answer

the rate at which a firm can substitute capital for labor and keep the same level of output

question

what is an isocost line?

answer

a graph that shows all the combinations of capital and labor that are available for a given total cost.

question

What are fixed costs?

answer

any cost that does not depend on the firms level of output, firms cannot avoid or change these costs.

question

what are variable costs?

answer

any costs that does depend on the level of production - cost that change as output changes.

question

production function

answer

A mathematical expression of a relationship between inputs and outputs- units of our total product as a function of units of input.

question

law of dmr

answer

When additional units of a variable input are added to fixed inputs eventually the additional output from the additional input is going to fall.

question

total costs

answer

The total of my fixed costs added to the total of my variable costs.

question

Net operating revenue

answer

the amount that will reduce my losses

question

increasing returns

answer

An increase in a firm's scale of production leads to lower average costs per unit produced.

question

constant return to scale

answer

An increase in a firm's scale production has no effect on average costs per unit produced

question

decreasing returns

answer

An increase in a firm's scale of production leads to higher average costs per unit produced, average costs increases with scale of production

question

Sources of economies of scale

answer

Technology, size- large companies buy inputs in volume at discounted price

question

constant returns

answer

If a firm doubles inputs then it would double output. Average costs does not change with scale

question

optimal scale of plant

answer

The scale of plant that minimizes average cost

question

why does a perfectly competitive market have no control over price?

answer

if they raise price they will lose all consumers to other firms

question

what happens if a firm tries to raise price over market price?

answer

they will earn profits

question

where must we be operating if we experience diminishing returns?

answer

where marginal return is maximized

question

what causes an isocost line to rotate

answer

change in price of factor-input

question

what causes an isocost line to shift parallel

answer

changes in price of both inputs by equal proportion

question

what is true about the slop of a isoquant line and slope of isocost line at tangent point

answer

the isocost line must equal the isoquant line

question

example of fixed costs

answer

rent or mortgage payment

question

what happens to average fixed costs when output increases

answer

it decreases

question

example of variable costs

answer

cost of goods sold

question

what do diminishing returns imply about marginal cost

answer

marginal cost will rise as output increases

question

if marginal cost is above average cost then what does it imply about average cost

answer

average cost is increasing

question

what is the firms short run supply curve

answer

the portion of its marginal cost curve that lies above its average variable cost curve.

question

what will happen in the long run of a perfectly competitive market

answer

profits and loses are eliminated

question

why do costs increase in the long run

answer

all costs become variable costs

question

why do costs increase in the short run

answer

cost increases as firms produce higher quantities of output

1 of 38

question

characteristics of a perfectly competitive firm?

answer

Having many firms, homogeneous products, price takers, no barriers to entry and perfect knowledge.

question

what does total cost include?

answer

out of pocket costs, a normal rate of return on capital, and opportunity cost of each factor of production.

question

normal rate of return?

answer

a rate that just keeps owners and investors satisfied. It should be nearly the same as the interest rate on risk free government bonds.

question

short-run is

answer

when the firm is operating under a fixed factor of production and firms can neither enter nor exit the industry.

question

long-run is

answer

when there are no fixed factors of production. Firms can increase or decrease their scale of operations; new firms may enter and existing firms may exit.

question

optimal method of production is

answer

the production method that minimizes cost and therefore maximizes profit.

question

marginal product is

answer

the additional output that can be produced by adding one more unit of a specific input.

question

average product is

answer

the average amount produced by each unit of a variable factor of production.

question

what is an isoquant?

answer

a graph that shows all combinations of capital and labor that can be used to produce a given level of output.

question

What is MRTS?

answer

the rate at which a firm can substitute capital for labor and keep the same level of output

question

what is an isocost line?

answer

a graph that shows all the combinations of capital and labor that are available for a given total cost.

question

What are fixed costs?

answer

any cost that does not depend on the firms level of output, firms cannot avoid or change these costs.

question

what are variable costs?

answer

any costs that does depend on the level of production - cost that change as output changes.

question

production function

answer

A mathematical expression of a relationship between inputs and outputs- units of our total product as a function of units of input.

question

law of dmr

answer

When additional units of a variable input are added to fixed inputs eventually the additional output from the additional input is going to fall.

question

total costs

answer

The total of my fixed costs added to the total of my variable costs.

question

Net operating revenue

answer

the amount that will reduce my losses

question

increasing returns

answer

An increase in a firm's scale of production leads to lower average costs per unit produced.

question

constant return to scale

answer

An increase in a firm's scale production has no effect on average costs per unit produced

question

decreasing returns

answer

An increase in a firm's scale of production leads to higher average costs per unit produced, average costs increases with scale of production

question

Sources of economies of scale

answer

Technology, size- large companies buy inputs in volume at discounted price

question

constant returns

answer

If a firm doubles inputs then it would double output. Average costs does not change with scale

question

optimal scale of plant

answer

The scale of plant that minimizes average cost

question

why does a perfectly competitive market have no control over price?

answer

if they raise price they will lose all consumers to other firms

question

what happens if a firm tries to raise price over market price?

answer

they will earn profits

question

where must we be operating if we experience diminishing returns?

answer

where marginal return is maximized

question

what causes an isocost line to rotate

answer

change in price of factor-input

question

what causes an isocost line to shift parallel

answer

changes in price of both inputs by equal proportion

question

what is true about the slop of a isoquant line and slope of isocost line at tangent point

answer

the isocost line must equal the isoquant line

question

example of fixed costs

answer

rent or mortgage payment

question

what happens to average fixed costs when output increases

answer

it decreases

question

example of variable costs

answer

cost of goods sold

question

what do diminishing returns imply about marginal cost

answer

marginal cost will rise as output increases

question

if marginal cost is above average cost then what does it imply about average cost

answer

average cost is increasing

question

what is the firms short run supply curve

answer

the portion of its marginal cost curve that lies above its average variable cost curve.

question

what will happen in the long run of a perfectly competitive market

answer

profits and loses are eliminated

question

why do costs increase in the long run

answer

all costs become variable costs

question

why do costs increase in the short run

answer

cost increases as firms produce higher quantities of output

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