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# 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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