Behavior of Firms

Question 1

Firm

Answer 1

An organization dedicated to producing goods or services in order to meet demands and make money.

Question 2

Profit

Answer 2

The difference between total cost and total revenue.

Question 3

Total Revenue

Answer 3

quantity sold x price

Question 4

Total Cost

Answer 4

The total of out-of-pocket costs and opportunity cost of all factors of production.

Question 5

Normal Rate of Return

Answer 5

A rate of return that is just enough to keep investors satisfied. (for example, if it is a risk-free firm, then rate of return should be slightly more than government bonds)

Question 6

Short Run

Answer 6

The period of time for which (1) the firm is operating under a fixed scale of production, and (2) new firms cannot enter or exit the industry.

Question 7

Long Run

Answer 7

Time frame in which nothing is fixed. gProjects could go global. Starbucks could go out of business.

Question 8

Production Function or Total Product Function

Answer 8

A mathematical relationship between inputs and outputs. Units of output as a function of inputs.

Question 9

Marginal Product

Answer 9

The additional output that can be produced by adding one more unit of a specific input, ceteris paribus.

Question 10

Law of diminishing returns

Answer 10

When additional units of a variable input are added to fixed inputs after a certain point, the marginal product of the variable input declines.

Question 11

Average Product

Answer 11

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