Chapter 4-5

Question 1

Utility

Answer 1

Utility- the satisfaction people have from their consumption activities.

Question 2

Marginal utility

Answer 2

Marginal utility- the additional utility gained from consuming an additional unit of a good.

Question 3

The law of diminishing marginal utility

Answer 3

The law of diminishing marginal utility- the tendency for the additional utility gained from consuming an extra unit of a good to diminish as consumption increases beyond some point.
- An example of this would be taking 3 bites of chocolate instead of 2 can make a larger difference than taking 20 bites instead of 19.
- Overall, there will be an increase, however, it will increase at a smaller rate each time- in regards to units and subjective value.
- This is an assumption

Question 4

Factors of production

Answer 4

• Factors of production- inputs used in the production of a good or service.

Question 5

Short run

Answer 5

• Short run- a period of time sufficiently short for at least some of the firms factors of production to be fixed.

Question 6

Long run

Answer 6

• Long run- a period of time of sufficient length for all the firms factors of production to become variable.

Question 7

Variable factor of production

Answer 7

• An input whose quantity can be altered in the short run.
  I.E. Unskilled labor

Question 8

Fixed factor of production

Answer 8

An input whose quantity cannot be altered in the short run
○ I.E. Specialized machine.

Question 9

Law of diminishing returns

Answer 9

• Increased production of a good eventually requires ever-larger increases in the variable factor when some factors of production are fixed.
  
  • In principle observable.

Question 10

Fixed cost (FC)

Answer 10

• The sum of all payments made to the firms fixed factors of production/ the payments that have to be made for the service of an input regardless of whether and how much production actually takes place.

Question 11

Variable cost (VC)

Answer 11

The sum of all payments made to the variable factors of production

Question 12

Total Cost

Answer 12

FC + VC (Fixed cost + Variable cost)

Question 13

Marginal cost

Answer 13

The change in total cost divided by the corresponding change in output.
- MC = Change in TC / Change in Output

Question 14

Average total cost (ATC)

Answer 14

• Total cost divided by total output.

Question 15

Average variable cost (AVC)

Answer 15

• Variable cost divided by total output.