chapter 6

Question 1

explicit costs

Answer 1

paid in actual money, used in accounting profit

which is acct profit= tr -explicit costs

Question 2

implicit costs

Answer 2

cost of using owners resources, not required an expenditure of money

Question 3

sunk costs

Answer 3

historical costs that are non recoverable

Question 4

accounting profit

Answer 4

tr -explicit costs

Question 5

economic profit

Answer 5

tr -explicit costs-implicit costs

Question 6

normal profit

Answer 6

minimum profit earned to keep business running, economic profit =0

Question 7

TP

Answer 7

total product- total output at any quantity **MAX TP when MP=0 max output is the max amount that the firm can produce

Question 8

MP(L)

Answer 8

marginal product -measure of change in tp as a result of adding additional units of labour
MAX MP is the most productive unit
increased MP from division of labour and specialization, then after reaching max mp, mp starts to decrease due to the law of diminishing returns or since CAPITAL IS FIXED
formula: change in tp/ change in labour
min MC at max MP

Question 9

AP(L)

Answer 9

average product, TP/L total product divided by the quantity of labour.
** ALSO known as the PRODUCTIVITY of each worker
MAX AP when there is the most productive output
min AVC at max AP

Question 10

division of labour

Answer 10

divide production process into specialized tasks this allows 5 things. 1. best person for the tax. 2.increase skill of each worker. 3. time saved changing tools. 4. time saved changing tasks. 5. machine specialization

Question 11

law of diminishing returns

Answer 11

more variable input added to a fixed input at first will increase then at some point start to decrease (too many workers jammed into one tiny subway)
*when law of diminishing returns starts total product can still be increasing but the rate of increase (ALSO KNOWN AS MP) is decreasing

Question 12

Max AP

Answer 12

max productivity of output– for all workers, this is when AVC is at minimum

Question 13

max MP

Answer 13

most productive unit after this point law of diminishing returns starts
this is when mc is at minimum

Question 14

mp calculation

Answer 14

delta tp/delta q

Question 15

ap calculation

Answer 15

tp/q

Question 16

how are margins and averages related

Answer 16

margins move averages, when margins start to increase, averages follow. when margins start to decrease averages follow.

Question 17

when is AP maxed

Answer 17

when AP= MP

Question 18

TVC

Answer 18

total variable cost
=sum of all MC
=TC-TFC
=AVCxQ

Question 19

MC

Answer 19

marginal cost, change in TVC as a result of producing one more unit.
MC=delta TVC/delta Q
=delta TC/delta Q
when MC is at minimum MP is at max

Question 20

for costs what is q

Answer 20

q is not L q is the amount of production

Question 21

AVC

Answer 21

average variable cost – TVC/Q when AVC is at minimum AP is at max

Question 22

increase in MP

Answer 22

a decrease in MC will occur

Question 23

decrease in MP

Answer 23

an increase in MC will occur

Question 24

increase in ap

Answer 24

then avc decreases

Question 25

decrease in ap

Answer 25

then avc increases

Question 26

most productive unit

Answer 26

MC at min

Question 27

most productive output

Answer 27

AVC at min

Question 28

when does law of diminishing returns occur when looking at costs

Answer 28

when mp and ap start decreasing, the costs mc and avc start increasing after their lowest point

Question 29

tfc

Answer 29

total fixed cost = tc-tvc

Question 30

afc

Answer 30

average fixed cost =tfc/q

Question 31

tc

Answer 31

total cost tvc+ tfc

Question 32

atc

Answer 32

average total cost , tc /q *** when atc is at minimum the firm is producing at economic capacity

Question 33

mc

Answer 33

marginal cost- change in tvc or tc divided by change in q

Question 34

what are the 3 points of interest that you should learn how to draw lol

Answer 34

min mc= max mp = max productive unit
min avc= max ap= max productive output
min atc = economic capacity