Chapter 11

Question 1

Explicit costs are what?

Answer 1

opportunity costs of production that require a monetary payment (out of pocket expenses that pay for services, materials, transportation, etc)

Question 2

Implicit costs are what?

Answer 2

opportunity costs of production that do not require a monetary payment (the salary you’d be giving up if you decided to work for yourself instead of for someone else)

Question 3

Firms try to maximize the difference between ______ and the _______

Answer 3

their total costs (explicit and implicit); their total revenues (the amount they receive for goods)

Question 4

Profit =

Answer 4

total revenues - total costs

Question 5

Accounting profit =

Answer 5

total revenues - total explicit costs

Question 6

Economic profit =

Answer 6

total revenue - total explicit and implicit costs

Question 7

A zero economic profit is a _____ profit

Answer 7

normal

Question 8

At zero economic profit, economic profits are ___ but accounting profits are _______

Answer 8

zero; positive

Question 9

Sunk costs are what?

Answer 9

costs that have already been incurred and cannot be recovered

Question 10

This cost is an opportunity cost and an out of pocket expense

Answer 10

Explicit cost

Question 11

T/F: if a firm has any implicit costs, its economic profits exceed its accounting profits

Answer 11

False

Question 12

______ look at implicit costs

Answer 12

economists

Question 13

Short run means what?

Answer 13

a period is too brief for some inputs to be varied (ex. you can’t get a bigger factory overnight)

Question 14

Inputs such as buildings and equipment that do not change with output are called…

Answer 14

fixed inputs

Question 15

Long run means what?

Answer 15

a period in which a firm can adjust all inputs (all inputs are variable. There are no fixed costs)

Question 16

The length of the long run can vary from

Answer 16

industry to industry

Question 17

Production function is what?

Answer 17

the relationship between quantity of inputs (workers) and the quantity of outputs (bagels)

Question 18

Total product is what?

Answer 18

the total amount of output

Question 19

The change in total output of a good that results from a ONE UNIT change in input

Answer 19

Marginal product

Question 20

As a variable input increases, with other inputs fixed, a point will be reached where the additions to output will eventually decline (paper folding example from macro)

Answer 20

Diminishing marginal product

Question 21

Fixed costs are what?

Answer 21

Costs that do not vary with the level of output

Question 22

Total fixed costs are what?

Answer 22

the sum of the firm’s fixed costs

Question 23

Variable costs are what?

Answer 23

costs that vary with the level of output

Question 24

Total variable costs are what?

Answer 24

the sum of the firm’s variable costs

Question 25

Total costs are what?

Answer 25

the sum of the firm’s total fixed and variable costs

Question 26

Average total cost is what?

Answer 26

a per-unit cost of operation; total cost divided by output

short run only

Question 27

Average fixed cost is what?

Answer 27

a per unit measure of fixed costs; fixed costs divided by output

Question 28

Average variable cost is what?

Answer 28

a per unit measure of variable costs; VC divided by output

long run only (no fixed costs)

Question 29

Marginal cost is what?

Answer 29

the change in total costs resulting from a one unit change in output

change in TC / change in quantity

Question 30

Which short run curve typically declines continuously as output expands?

Answer 30

Average fixed cost

Question 31

Marginal revenue and marginal cost have an ______ relationship

Answer 31

inverse

Question 32

When the marginal cost is larger than the average, the average will ____ and vice versa

Answer 32

rise

Question 33

ATC =

Answer 33

AFC + AVC

Question 34

If a midget joined your class, your average class height would…

Answer 34

decrease

Question 35

LRATC curve lies _____ or ____ SRATC curves

Answer 35

equal to or below

Question 36

Economies of scale

Answer 36

occur in an output range where LRATC falls as output decreases

Question 37

Diseconomies of scale

Answer 37

occur in an output range where LRATC rises at output expands

Question 38

Constant returns to scale

Answer 38

occur in an output range where LRATC doesn’t change as output varies

Question 39

Minimum efficient scale

Answer 39

the output level where economies of scale are exhausted and constant returns to scale begin