Chapter 7

Question 1

explicit/accounting costs

Answer 1

Out of the pocket costs that accountants would calculate.

Question 2

Economic costs/implict

Answer 2

Include the opportunity cost

Question 3

normal rate of return

Answer 3

A rate of return on capital that is just sufficient to keep owners and investors satisfied. For relatively risk free firms, it should be nearly the same as the rate on risk-free gov bonds.

Question 4

rate of return

Answer 4

The annual flow of net income generated by an investment expressed as a % of total investment.

Question 5

short run

Answer 5

The period of time for which (1) the firm is operating under a fixed scale of production and (2) firms can neither enter nor exit and industry

Question 6

long run

Answer 6

Period of time which there are no fixed factors of production: firms can adjust the scale of operation, new firms can enter/exit the industry.