CH9: business and cost of production

Question 1

Implicit cost

Answer 1

is the opportunity cost of using the resources that it already owns rather than selling those resources to outsiders for cash. These are implicit because they are present but not obvious.

Question 2

Explicit cost

Answer 2

are payments made by firms to purchase resources from others. This cost involves opportunity cost because any money used to purchase product X could be used to purchase another good.

Question 3

what is constant returns to scale

Answer 3

when you double the resources and this results in double amount of output

Question 4

what is increasing returns to scale

Answer 4

when you double the resources and results in more than the double amount of output

Question 5

What is decreasing returns to scale

Answer 5

when you double the resources and output increase but doesn’t doble

Question 6

Diminishing marginal product

Answer 6

occurs when add more and more of one type of product while holding everything else constant will result in smaller increases in the final output.

Question 7

Accounting profit

Answer 7

Total revenue-total explicit costs

Question 8

Economic profit

Answer 8

revenue-explicit costs-implicit costs

Question 9

What’s the relation between marginal product and marginal cost

Answer 9

they are inversely related

Question 10

What’s the difference between short run and long run?

Answer 10

short run is when all the costs are fixed.
in the long run, all costs are variable

Question 11

Economies of scale

Answer 11

when the average total costs of firm decreases in the long run as firm produces more output.

Question 12

Diseconomies of scale

Answer 12

when the average total costs of firm increase in the long run as firms produce more product

Question 13

what is minimum efficient scale

Answer 13

lowest level of output at which firms can minimize long run average total costs.