econ test mod 52-56

question

profit formula

answer

total revenue - total cost

question

explicit cost

answer

a cost that involves spending an outlay of money

question

implicit cost

answer

doesn't involve spending direct money, but it measures value (in $) of benefits that were given up (opportunity cost)

question

accounting profit

answer

Total revenue - explicit costs - depreciation

question

economic profit

answer

total revenue - opportunity cost (which is explicit + implicit)

normally lower

question

implicit cost of capital

answer

the opportunity cost of the capital used by a 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

when economic profit is zero; the firm could not use its resources in a better alternative way

question

principle of marginal analysis

answer

every activity should continue until marginal benefit equals marginal cost

question

marginal revenue

answer

def: change in total revenue generated by one additional unit of output

formula: change in TR / change in Q of output

question

optimal output rule

answer

profit is maximized by producing the quantity of output at which the MR of the last unit produced is equal to its MC

on graph: shows that the profit-maximizing quantity is where the MC crosses MR

question

marginal cost curve

answer

Shows relationship between marginal cost and output

-nike swoosh because of the law of diminishing marginal returns; happens because MC = TC / Q and TC steepens as output rises due to law of diminishing returns to labor

question

marginal revenue curve

answer

show relationship between MR and output

question

a firm's long run decision to produce or not is based on

answer

economic profit

bc a firm knows to stay in business when they have normal profit and that is when economic = 0

question

marginal benefit vs marginal cost

answer

benefit (demand) - consumer
cost (supply) - supplier/producer

question

production function

answer

the relationship between how the quantity of output the firm produces depends on the quantity of inputs

question

fixed input

answer

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

question

variable input

answer

an 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 period of time during which at least one input is fixed

question

total product curve

answer

shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input

when MPC = 0 , TPC is as its max

question

marginal product of labor

answer

def: the change in quantity of output generated by adding one more worker

formula: change in Q output / change in Q of labor

slopes down/neg due to diminishing returns to labor

question

diminishing returns to an input

answer

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

question

fixed cost

answer

a cost that does not change, no matter how much of a good is produced (overhead cost)

question

how to find fixed cost

answer

look at value $ when quantity is zero

question

variable cost

answer

a cost that rises or falls depending on quantity
produced

question

total cost curve

answer

shows how total cost depends on the quantity of output

slopes upward because the variable cost is increasing
(it would slope down is VC decreased)

question

marginal cost

answer

def: change in total cost generated by one additional unit of output

formula: change in total cost / change in Q output

question

average total cost

answer

formula: total cost / Q output
AVC + AFC = AT

U shaped bc it is the sum of the AFC and AVC - and those components move in opposite directions as output rises

question

average fixed cost

answer

formula: fixed / Q

falls as output rises because its the same cost spread out over larger Q

question

average variable cost

answer

formula: variable / Q

increases as output rises bc the firm requires larger amt of variable costs to be producing more Q

question

minimum cost output

answer

the quantity of output at which the average total cost is lowest—the bottom of the U-shaped average total cost curve.

- ATC = MC
-at output less than min cost, MC is less than ATC and ATC is falling
-at output greater than min cost, MC is greater than ATC and ATC is rising

question

average product

answer

total product/Q of input

question

long-run average total cost curve

answer

shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output

question

long run costs

answer

all resources are variable, plant size can change

importance: used for planning and to identify which plant size results in lowest per unit cost

question

Long Run ATC

answer

a curve that shows the lowest cost at which a firm is able to produce a given quantity;its made up of all different short run ATC curves of various plant size

question

economies of scale

answer

when long-run average total cost declines (bc of mass production techniques) as output and profit increases

sweet spot

question

increasing returns to scale

answer

when output increases more than in proportion to an increase in all inputs

question

minimum efficient scale

answer

the smallest quantity of output at which the long-run average cost reaches its lowest level

question

diseconomies of scale

answer

when long-run average total costs increase as output increases and firm gets too big and difficult to manage

question

decreasing returns of scale

answer

when output increases less than in proportion to an increase in all inputs

question

constant returns to scale

answer

when output increases directly in proportion to an increase in all inputs

long run atc is as low as it gets

question

sunk costs

answer

costs that are made in the past and cannot be recovered (ignored when making future decisions and cannot make back)

1 of 42

question

profit formula

answer

total revenue - total cost

question

explicit cost

answer

a cost that involves spending an outlay of money

question

implicit cost

answer

doesn't involve spending direct money, but it measures value (in $) of benefits that were given up (opportunity cost)

question

accounting profit

answer

Total revenue - explicit costs - depreciation

question

economic profit

answer

total revenue - opportunity cost (which is explicit + implicit)

normally lower

question

implicit cost of capital

answer

the opportunity cost of the capital used by a 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

when economic profit is zero; the firm could not use its resources in a better alternative way

question

principle of marginal analysis

answer

every activity should continue until marginal benefit equals marginal cost

question

marginal revenue

answer

def: change in total revenue generated by one additional unit of output

formula: change in TR / change in Q of output

question

optimal output rule

answer

profit is maximized by producing the quantity of output at which the MR of the last unit produced is equal to its MC

on graph: shows that the profit-maximizing quantity is where the MC crosses MR

question

marginal cost curve

answer

question

marginal revenue curve

answer

show relationship between MR and output

question

a firm's long run decision to produce or not is based on

answer

economic profit

bc a firm knows to stay in business when they have normal profit and that is when economic = 0

question

marginal benefit vs marginal cost

answer

benefit (demand) - consumer
cost (supply) - supplier/producer

question

production function

answer

the relationship between how the quantity of output the firm produces depends on the quantity of inputs

question

fixed input

answer

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

question

variable input

answer

an 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 period of time during which at least one input is fixed

question

total product curve

answer

shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input

when MPC = 0 , TPC is as its max

question

marginal product of labor

answer

def: the change in quantity of output generated by adding one more worker

formula: change in Q output / change in Q of labor

slopes down/neg due to diminishing returns to labor

question

diminishing returns to an input

answer

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

question

fixed cost

answer

a cost that does not change, no matter how much of a good is produced (overhead cost)

question

how to find fixed cost

answer

look at value $ when quantity is zero

question

variable cost

answer

a cost that rises or falls depending on quantity
produced

question

total cost curve

answer

shows how total cost depends on the quantity of output

slopes upward because the variable cost is increasing
(it would slope down is VC decreased)

question

marginal cost

answer

def: change in total cost generated by one additional unit of output

formula: change in total cost / change in Q output

question

average total cost

answer

formula: total cost / Q output
AVC + AFC = AT

U shaped bc it is the sum of the AFC and AVC - and those components move in opposite directions as output rises

question

average fixed cost

answer

formula: fixed / Q

falls as output rises because its the same cost spread out over larger Q

question

average variable cost

answer

formula: variable / Q

increases as output rises bc the firm requires larger amt of variable costs to be producing more Q

question

minimum cost output

answer

question

average product

answer

total product/Q of input

question

long-run average total cost curve

answer

shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output

question

long run costs

answer

all resources are variable, plant size can change

importance: used for planning and to identify which plant size results in lowest per unit cost

question

Long Run ATC

answer

a curve that shows the lowest cost at which a firm is able to produce a given quantity;its made up of all different short run ATC curves of various plant size

question

economies of scale

answer

when long-run average total cost declines (bc of mass production techniques) as output and profit increases

sweet spot

question

increasing returns to scale

answer

when output increases more than in proportion to an increase in all inputs

question

minimum efficient scale

answer

the smallest quantity of output at which the long-run average cost reaches its lowest level

question

diseconomies of scale

answer

when long-run average total costs increase as output increases and firm gets too big and difficult to manage

question

decreasing returns of scale

answer

when output increases less than in proportion to an increase in all inputs

question

constant returns to scale

answer

when output increases directly in proportion to an increase in all inputs

long run atc is as low as it gets

question

sunk costs

answer

costs that are made in the past and cannot be recovered (ignored when making future decisions and cannot make back)

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econ test mod 52-56

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