Chapter 7

Question 1

Average Fixed Cost

Answer 1

Total fixed cost divided by the quantity of output produced

Question 2

Average total cost

Answer 2

Total cost divided by the quantity of output produced

Question 3

Average variable cost

Answer 3

Total variable cost divided by the quantity of output produced

Question 4

Business firm

Answer 4

An organization, owned and operated by private individuals, that specializes in production

Question 5

Constant returns to scale

Answer 5

Long run average total cost is unchanged as output increases

Question 6

Diminishing Marginal Returns to Labor

Answer 6

The marginal product of labor decreases as more labor is hired

Question 7

Diseconomies of Scale

Answer 7

Long run average total cost increases as output increases

Question 8

Economies of Scale

Answer 8

Long-run average total cost decreases as output increases

Question 9

Fixed Costs

Answer 9

Costs of fixed inputs, which remain constant as output changes

Question 10

Fixed Input

Answer 10

An input whose quantity must remain constant over some time period

Question 11

Increasing marginal returns to labor

Answer 11

The marginal product of labor increases as more labor is hired

Question 12

Law of diminishing (marginal) returns

Answer 12

As more and more of any input is added to a fixed amount of other inputs, its marginal product will eventually decline

Question 13

Least Cost Rule

Answer 13

A firm produces any given output level using the lowest cost combination of inputs available

Question 14

Long Run

Answer 14

A time horizon long enough for a firm to vary all of its inputs

Question 15

Long Run average total cost

Answer 15

The cost per unit of producing each quantity of output in the long run, when all inputs are variable

Question 16

Long Run total cost

Answer 16

The cost of producing each quantity of output when all inputs are variable and the least cost input mix is chosen

Question 17

Lumpy input

Answer 17

An input whose quantity cannot be increased gradually as output increases, but must instead be adjusted in large jumps

Question 18

Marginal cost

Answer 18

The increase in total cost from producing one more unit of input

Question 19

Marginal Product of Labor

Answer 19

The additional output produced when one more worker is hired

Question 20

Minimum Efficient Scale

Answer 20

The lowest output level at which the firms’s LRATC curve hits bottom

Question 21

Plant

Answer 21

The collection of fixed inputs at a firm’s disposal

Question 22

Profit

Answer 22

Total revenue minus total cost

Question 23

Short run

Answer 23

A time horizon during which at least one of the firms inputs cannot be varied

Question 24

Sunk Cost

Answer 24

A cost that has been paid or must be paid, regardless of any future action being considered

Question 25

Technology

Answer 25

The methods available for combining inputs to produce a good or service

Question 26

Total Cost

Answer 26

The costs of all inputs-fixed and variable-used to produce a given output level in the short run

Question 27

Total fixed cost

Answer 27

The cost of all inputs that are fixed in the short run

Question 28

Total Product

Answer 28

The maximum quantity of output that can be produced from a given combination of inputs

Question 29

Total variable cost

Answer 29

The cost of all variable inputs used in producing a particular level of input

Question 30

Variable costs

Answer 30

Costs of variable inputs, which change with output

Question 31

Variable Input

Answer 31

An input whose usage can change over some time period