Chapter 13

Question 1

Total cost

Answer 1

The market value of all inputs used in production; calculated as Total Fixed Cost + Total Variable Cost

Question 2

Fixed cost

Answer 2

Costs that do not vary with the quantity of output produced; examples include rent and salaries

Question 3

Variable cost

Answer 3

Costs that vary with the quantity of output produced; examples include costs of materials and labor that change with production

Question 4

Average total cost

Answer 4

Total cost divided by the quantity of output (ATC = TC/Q); represents the cost per unit of output.

Question 5

Average fixed cost

Answer 5

Fixed cost divided by the quantity of output (AFC = FC/Q); decreases as output increases.

Question 6

Average variable cost

Answer 6

Variable cost divided by the quantity of output (AVC = VC/Q); typically varies with production levels.

Question 7

Marginal cost

Answer 7

The increase in total cost that arises from an extra unit of production (MC = ΔTC/ΔQ); crucial for production and pricing decisions.

Question 8

Diminishing marginal product

Answer 8

The property whereby the marginal product of an input declines as the quantity of the input increases, holding other inputs constant.

Question 9

Marginal product of labor

Answer 9

The additional output produced by adding one more unit of labor, holding other inputs constant

Question 10

Economies of scale

Answer 10

The property where long-run average total cost falls as the quantity of output increases, due to factors like bulk buying and operational efficiency.

Question 11

Diseconomies of scale

Answer 11

The property where long-run average total cost rises as the quantity of output increases, often due to coordination and management difficulties.

Question 12

Constant returns to scale

Answer 12

When long-run average total cost remains constant as output increases, indicating a proportional relationship between input and output.

Question 13

Short run costs

Answer 13

Costs that are incurred in a period where at least one input (typically capital) is fixed; variable costs adjust with output in the short run.

Question 14

long run costs

Answer 14

Costs when all inputs are variable, allowing the firm to choose the scale of production that minimizes cost.

Question 15

Total revenue

Answer 15

The total amount of money a firm receives by selling goods or services (TR = Price × Quantity).

Question 16

Profit

Answer 16

The difference between total revenue and total cost (Profit = TR - TC); the key measure of financial gain for a firm

Question 17

Explicit costs

Answer 17

Direct, out-of-pocket payments for inputs like wages, rent, and materials, recorded in accounting.

Question 18

Implicit costs

Answer 18

The opportunity costs of using resources owned by the firm, such as the owner’s time and capital.

Question 19

Accounting profit

Answer 19

Total revenue minus explicit costs, reflecting only out-of-pocket expenses and income.

Question 20

Economic profit

Answer 20

Total revenue minus both explicit and implicit costs; provides a more complete picture of profitability