econ test mod 52-56 - Custom Scholars
Home » Flash Cards » econ test mod 52-56

# econ test mod 52-56

question
profit formula
total revenue - total cost
question
explicit cost
a cost that involves spending an outlay of money
question
implicit cost
doesn't involve spending direct money, but it measures value (in \$) of benefits that were given up (opportunity cost)
question
accounting profit
Total revenue - explicit costs - depreciation
question
economic profit
total revenue - opportunity cost (which is explicit + implicit)

normally lower
question
implicit cost of capital
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
when economic profit is zero; the firm could not use its resources in a better alternative way
question
principle of marginal analysis
every activity should continue until marginal benefit equals marginal cost
question
marginal revenue
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
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
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
show relationship between MR and output
question
a firm's long run decision to produce or not is based on
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
benefit (demand) - consumer
cost (supply) - supplier/producer
question
production function
the relationship between how the quantity of output the firm produces depends on the quantity of inputs
question
fixed input
an input whose quantity is fixed for a period of time and cannot be varied
question
variable input
an input whose quantity the firm can vary at any time
question
long run
the time period in which all inputs can be varied
question
short run
the period of time during which at least one input is fixed
question
total product curve
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
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
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
a cost that does not change, no matter how much of a good is produced (overhead cost)
question
how to find fixed cost
look at value \$ when quantity is zero
question
variable cost
a cost that rises or falls depending on quantity
produced
question
total cost curve
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
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
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
formula: fixed / Q

falls as output rises because its the same cost spread out over larger Q
question
average variable cost
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
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
total product/Q of input
question
long-run average total cost curve
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
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
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
when long-run average total cost declines (bc of mass production techniques) as output and profit increases

sweet spot
question
increasing returns to scale
when output increases more than in proportion to an increase in all inputs
question
minimum efficient scale
the smallest quantity of output at which the long-run average cost reaches its lowest level
question
diseconomies of scale
when long-run average total costs increase as output increases and firm gets too big and difficult to manage
question
decreasing returns of scale
when output increases less than in proportion to an increase in all inputs
question
constant returns to scale
when output increases directly in proportion to an increase in all inputs

long run atc is as low as it gets
question
sunk costs
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
total revenue - total cost
question
explicit cost
a cost that involves spending an outlay of money
question
implicit cost
doesn't involve spending direct money, but it measures value (in \$) of benefits that were given up (opportunity cost)
question
accounting profit
Total revenue - explicit costs - depreciation
question
economic profit
total revenue - opportunity cost (which is explicit + implicit)

normally lower
question
implicit cost of capital
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
when economic profit is zero; the firm could not use its resources in a better alternative way
question
principle of marginal analysis
every activity should continue until marginal benefit equals marginal cost
question
marginal revenue
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
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
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
show relationship between MR and output
question
a firm's long run decision to produce or not is based on
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
benefit (demand) - consumer
cost (supply) - supplier/producer
question
production function
the relationship between how the quantity of output the firm produces depends on the quantity of inputs
question
fixed input
an input whose quantity is fixed for a period of time and cannot be varied
question
variable input
an input whose quantity the firm can vary at any time
question
long run
the time period in which all inputs can be varied
question
short run
the period of time during which at least one input is fixed
question
total product curve
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
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
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
a cost that does not change, no matter how much of a good is produced (overhead cost)
question
how to find fixed cost
look at value \$ when quantity is zero
question
variable cost
a cost that rises or falls depending on quantity
produced
question
total cost curve
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
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
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
formula: fixed / Q

falls as output rises because its the same cost spread out over larger Q
question
average variable cost
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
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
total product/Q of input
question
long-run average total cost curve
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
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
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
when long-run average total cost declines (bc of mass production techniques) as output and profit increases

sweet spot
question
increasing returns to scale
when output increases more than in proportion to an increase in all inputs
question
minimum efficient scale
the smallest quantity of output at which the long-run average cost reaches its lowest level
question
diseconomies of scale
when long-run average total costs increase as output increases and firm gets too big and difficult to manage
question
decreasing returns of scale
when output increases less than in proportion to an increase in all inputs
question
constant returns to scale
when output increases directly in proportion to an increase in all inputs

long run atc is as low as it gets
question
sunk costs
costs that are made in the past and cannot be recovered (ignored when making future decisions and cannot make back)

## Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
\$26
The price is based on these factors:
Number of pages
Urgency
Basic features
• Free title page and bibliography
• Unlimited revisions
• Plagiarism-free guarantee
• Money-back guarantee
On-demand options
• Writer’s samples
• Part-by-part delivery
• Overnight delivery
• Copies of used sources
Paper format
• 275 words per page
• 12 pt Arial/Times New Roman
• Double line spacing
• Any citation style (APA, MLA, Chicago/Turabian, Harvard)

## Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

### Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

### Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

### Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.