Chapter 34 - Types of cost, revenue and profit, short-run and long-run production

Question 1

Economies of Scale

Answer 1

The benefits gained from falling long-run average costs as the scale of output increases.

Question 2

Isoquant

Answer 2

A Curve showing combinations of labor and capital to produce a given level of output.

Question 3

Total Product

Answer 3

The same as total output.

Question 4

Production Function

Answer 4

The maximum possible output from a given set of factor inputs.

Question 5

Marginal Product

Answer 5

The change in output arising form the use of one more unit of a factor of production.

Question 6

Law Of Diminishing Returns

Answer 6

Where the output from an additional unit of input leads to a fall in the marginal product; also known as the law of variable proportions.

Question 7

Average Product

Answer 7

Total product divided by the number of workers employed; a simple measure of productivity

Question 8

Profit maximization

Answer 8

The assumed objective of a firm; the difference between total revenue and total cost is at a maximum.

Question 9

Fixed Costs

Answer 9

Costs that are independent of output in the short run.

Question 10

Variable Costs

Answer 10

Costs that vary directly with output in the short run.

Question 11

Average Fixed Cost

Answer 11

Total Fixed Cost / Output

Question 12

Average Variable Cost

Answer 12

Total Variable Cost / Output

Question 13

Average Total Cost

Answer 13

Total Cost / Output

Question 14

Marginal Cost

Answer 14

Change In Total Cost / Change In Output

Question 15

Marginal Product

Answer 15

Marginal Product Of A / Price Of Factor A = Marginal Product Of B / Price Of Factor B = Marginal Product Of C / Price Of Factor C

Question 16

Isocosts

Answer 16

Lines of constant relative costs for factors of production.

Question 17

Increasing Returns To Scale

Answer 17

Where output increases at a proportionately faster rate than the increase in factor inputs.

Question 18

Decreasing Returns To Scale

Answer 18

Where factor inputs increase at a proportionately faster rate than the increase in output.

Question 19

Minimum Efficient Scale

Answer 19

Lowest level of output at which costs are minimized.

Question 20

Diseconomies Of Scale

Answer 20

Where long-run average costs increase as the scale of output increases.

Question 21

External Economies Of Scale

Answer 21

Cost savings accruing to all firms as the scale of the industry increases.

Question 22

Total Revenue

Answer 22

A firm’s total sales or earning over a given period of time.
Total Revenue = Price * Number of Units Sold

Question 23

Average Revenue

Answer 23

Revenue per unit of output.
Average Revenue = Total Revenue / Per Unit of Output

Question 24

Marginal Revenue

Answer 24

The additional or extra revenue gained from the sale of one more unit of output.
Marginal Revenue = Change In Total Revenue / Change In Output

Question 25

Price Taker

Answer 25

A firm that is not able to influence market price.

Question 26

Price Maker

Answer 26

A firm that can choose what price to sell its goods in the market.

Question 27

Profit

Answer 27

The difference between total revenue and total costs.

Question 28

Normal Profit

Answer 28

A cost of production that is just sufficient for a firm to keep operating in a particular industry.

Question 29

Super Normal Profit / Abnormal Profit

Answer 29

That which is earned above normal profit.

Question 30

Subnormal Profit

Answer 30

That which is earned below normal profit.