Econ 2010 Midterm #2

question

economic costs (total business costs)

answer

the payment that must be made to obtain and retain the services of a resource

implicit costs + explicit costs

question

explicit/accounting costs

answer

the actual payments a firm makes to its factors of production and other suppliers

question

implicit costs

answer

indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur

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

short-run

answer

the period of time during which at least one of a firm's inputs is fixed

question

short run costs

answer

the wages, raw materials, etc. used for production in a fixed plant

question

production function

answer

the relationship between quantity of inputs used to make a good and the quantity of output of that good--output is varied by varying input

question

marginal product

answer

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

question

marginal product of labor

answer

the change in output from hiring one additional unit of labor (change in output/change in labor)

question

if labor used increases...

answer

marginal product of labor falls

question

diminishing marginal product

answer

the marginal product of an input declines as the quantity of the input increases

question

the law of diminishing returns

answer

the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline

question

the law of diminishing returns assumes all units of _____________ inputs are of _____________ quantity

answer

variable; equal

question

average product

answer

total product/units of labor

question

fixed costs

answer

costs that do not vary with the quantity of output produced

question

variable costs

answer

costs that vary with the quantity of output produced (materials, fuel, power, transportation, most labor, etc)

question

equation for total cost

answer

total cost = fixed cost + variable cost

question

equation for average total cost

answer

total cost/quantity (AFC + AVC)

question

equation for average fixed cost

answer

fixed costs/quantity

question

equation for average variable cost

answer

variable cost/quantity

question

equation for marginal cost

answer

change in total cost / change in quantity

question

why does marginal cost rise?

answer

because of diminishing marginal product

question

what shape is the average total cost curve and why?

answer

u-shaped; because AFC declines as output expands while AVC increases.

question

efficient scale

answer

the quantity of output that minimizes average total cost

question

if marginal cost is less than ATC...

answer

ATC is falling

question

if marginal cost is greater than ATC...

answer

ATC is rising

question

where does the marginal cost curve intersect the average total cost curve?

answer

at the minimum ATC

question

MC eventually ____ with output

answer

rises

question

what causes shifts in the cost curves?

answer

changes in resource prices, technology, or efficiency

question

long-run

answer

the time period in which all inputs can be varied

question

where does the long-run cost curve lie in relation to the short-run cost curve?

answer

the long-run cost curve lies along the lowest points of the short-run cost curves because there is more flexibility to deal with challenges

question

economies of scale

answer

long-run ATC falls as the quantity of output increases

question

factors of economies of scale

answer

labor specialization, managerial specialization, efficient capital, design, development, advertising

question

diseconomies of scale

answer

long-run ATC rises as the quantity of output increases

question

factors of diseconomies of scale

answer

communication breakdown, lack of motivation, lack of coordination, and loss of focus by the management and employees

question

constant returns to scale

answer

long-run ATC stays the same as the quantity of output changes

question

minimum efficient scale

answer

the smallest level of output at which a firm can minimize its average costs in the long run

question

consumer surplus

answer

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

question

willingness to pay

answer

the maximum amount that a buyer will pay for a good

question

where can consumer surplus be measured on the demand curve?

answer

below the demand curve and above the price

question

as price falls, consumer surplus...

answer

rises

question

cost

answer

the value of everything a seller must give up to produce a good

question

producer surplus

answer

the amount a seller is paid for a good minus the seller's cost of providing it

question

where can producer surplus be measured on the supply curve?

answer

above the supply curve and below the price

question

as price rises, producer surplus...

answer

rises

question

total surplus

answer

consumer surplus + producer surplus

the economic well-being of everyone in society

value to buyers - cost to sellers

question

efficiency

answer

resource allocation of maximizing the total surplus received by all members of society

question

total surplus is ____________ at the market equilibrium

answer

maximized

question

the individual firm will view its demand as...

answer

perfectly elastic

question

total revenue

answer

price x quantity

question

average revenue

answer

total revenue / quantity

question

marginal revenue

answer

change in total revenue / change in quantity

question

in the short run, if the loss is less than the fixed cost . . .

answer

the firm should produce

question

in the short run, the firm should produce that output at which it...

answer

maximizes its profit or minimizes its loss.

question

how to calculate profit and loss

answer

total revenue - total cost

question

if a firm shuts down in the short run...

answer

its loss equals its fixed cost.

question

if marginal revenue > marginal cost

answer

increase production to increase profit

question

if marginal revenue < marginal cost

answer

decrease production to increase profit

question

if marginal revenue = marginal cost

answer

profit is maximized

question

in the MR = MC rule,

answer

1. MR must be greater than or equal to minimum AVC
2. P = MC because P = MR

question

a firm should shut down if...

answer

P < AVC

question

profit equation

answer

profit = (P - ATC) x Q

question

sunk cost

answer

a cost that has already been committed and cannot be recovered

question

if a firm is earning profit, this will ___________ new firms. the price of the product will ____________ and profit will _____________.

answer

attract; fall; decline

1 of 65

question

economic costs (total business costs)

answer

the payment that must be made to obtain and retain the services of a resource

implicit costs + explicit costs

question

explicit/accounting costs

answer

the actual payments a firm makes to its factors of production and other suppliers

question

implicit costs

answer

indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur

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

short-run

answer

the period of time during which at least one of a firm's inputs is fixed

question

short run costs

answer

the wages, raw materials, etc. used for production in a fixed plant

question

production function

answer

the relationship between quantity of inputs used to make a good and the quantity of output of that good--output is varied by varying input

question

marginal product

answer

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

question

marginal product of labor

answer

the change in output from hiring one additional unit of labor (change in output/change in labor)

question

if labor used increases...

answer

marginal product of labor falls

question

diminishing marginal product

answer

the marginal product of an input declines as the quantity of the input increases

question

the law of diminishing returns

answer

question

the law of diminishing returns assumes all units of _____________ inputs are of _____________ quantity

answer

variable; equal

question

average product

answer

total product/units of labor

question

fixed costs

answer

costs that do not vary with the quantity of output produced

question

variable costs

answer

costs that vary with the quantity of output produced (materials, fuel, power, transportation, most labor, etc)

question

equation for total cost

answer

total cost = fixed cost + variable cost

question

equation for average total cost

answer

total cost/quantity (AFC + AVC)

question

equation for average fixed cost

answer

fixed costs/quantity

question

equation for average variable cost

answer

variable cost/quantity

question

equation for marginal cost

answer

change in total cost / change in quantity

question

why does marginal cost rise?

answer

because of diminishing marginal product

question

what shape is the average total cost curve and why?

answer

u-shaped; because AFC declines as output expands while AVC increases.

question

efficient scale

answer

the quantity of output that minimizes average total cost

question

if marginal cost is less than ATC...

answer

ATC is falling

question

if marginal cost is greater than ATC...

answer

ATC is rising

question

where does the marginal cost curve intersect the average total cost curve?

answer

at the minimum ATC

question

MC eventually ____ with output

answer

rises

question

what causes shifts in the cost curves?

answer

changes in resource prices, technology, or efficiency

question

long-run

answer

the time period in which all inputs can be varied

question

where does the long-run cost curve lie in relation to the short-run cost curve?

answer

the long-run cost curve lies along the lowest points of the short-run cost curves because there is more flexibility to deal with challenges

question

economies of scale

answer

long-run ATC falls as the quantity of output increases

question

factors of economies of scale

answer

labor specialization, managerial specialization, efficient capital, design, development, advertising

question

diseconomies of scale

answer

long-run ATC rises as the quantity of output increases

question

factors of diseconomies of scale

answer

communication breakdown, lack of motivation, lack of coordination, and loss of focus by the management and employees

question

constant returns to scale

answer

long-run ATC stays the same as the quantity of output changes

question

minimum efficient scale

answer

the smallest level of output at which a firm can minimize its average costs in the long run

question

consumer surplus

answer

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

question

willingness to pay

answer

the maximum amount that a buyer will pay for a good

question

where can consumer surplus be measured on the demand curve?

answer

below the demand curve and above the price

question

as price falls, consumer surplus...

answer

rises

question

cost

answer

the value of everything a seller must give up to produce a good

question

producer surplus

answer

the amount a seller is paid for a good minus the seller's cost of providing it

question

where can producer surplus be measured on the supply curve?

answer

above the supply curve and below the price

question

as price rises, producer surplus...

answer

rises

question

total surplus

answer

consumer surplus + producer surplus

the economic well-being of everyone in society

value to buyers - cost to sellers

question

efficiency

answer

resource allocation of maximizing the total surplus received by all members of society

question

total surplus is ____________ at the market equilibrium

answer

maximized

question

the individual firm will view its demand as...

answer

perfectly elastic

question

total revenue

answer

price x quantity

question

average revenue

answer

total revenue / quantity

question

marginal revenue

answer

change in total revenue / change in quantity

question

in the short run, if the loss is less than the fixed cost . . .

answer

the firm should produce

question

in the short run, the firm should produce that output at which it...

answer

maximizes its profit or minimizes its loss.

question

how to calculate profit and loss

answer

total revenue - total cost

question

if a firm shuts down in the short run...

answer

its loss equals its fixed cost.

question

if marginal revenue > marginal cost

answer

increase production to increase profit

question

if marginal revenue < marginal cost

answer

decrease production to increase profit

question

if marginal revenue = marginal cost

answer

profit is maximized

question

in the MR = MC rule,

answer

1. MR must be greater than or equal to minimum AVC
2. P = MC because P = MR

question

a firm should shut down if...

answer

P < AVC

question

profit equation

answer

profit = (P - ATC) x Q

question

sunk cost

answer

a cost that has already been committed and cannot be recovered

question

if a firm is earning profit, this will ___________ new firms. the price of the product will ____________ and profit will _____________.

answer

attract; fall; decline

Continue to order Get a quote

Econ 2010 Midterm #2

Recent Posts

Recent Comments

Calculate the price of your order

Our guarantees

Money-back guarantee

Zero-plagiarism guarantee

Free-revision policy

Privacy policy

Fair-cooperation guarantee