chapter 7

Question 1

firms

Answer 1

a business concern, especially one involving a partnership of two or more people

Question 2

single proprietorship

Answer 2

firm w/one owner who is personally responsible for the firm’s actions/debts

Question 3

ordinary partnership

Answer 3

firm w/2 or more joint owners

Question 4

limited partnership

Answer 4

firm w/2 classes of owners: general and limited
general = managers and liable for firm’s actions/debts
limited = only risk is money they have invested

Question 5

corporation

Answer 5

firm that has a legal existence separate from that of the owners

Question 6

state-owned enterprise

Answer 6

firm owned by the gov’t

Question 7

non-profit

Answer 7

first that provide goods and services with the objective of just covering their costs; aka NGOs

Question 8

multinational enterprises

Answer 8

firms w/operations in more than one country

Question 9

dividends

Answer 9

profits paid out to shareholders of a corporation

Question 10

bond

Answer 10

debt instrument carrying a specified amount, a schedule of interest payments, and usually a date for redemption of its face value

Question 11

2 assumptions about firms

Answer 11

1. they are profit maximizers

2. each firm is a single, consistent decision-making unit

Question 12

what are the 4 categories of inputs?

Answer 12

1. outputs from some other firm
2. provided by nature
3. services of workers/managers
4. services from physical capital (e.g. facilities, machines)

Question 13

intermediate product

Answer 13

all outputs that are used as inputs by other producers in a further stage of production

Question 14

production function

Answer 14

a functional relation showing the maximum output that can be produced by any given combination of inputs

Question 15

economic profits

Answer 15

difference between the revenues received from the sale of output and the opportunity cost of the inputs used to make the output

Question 16

what’s a negative economic profit?

Answer 16

economic loss

Question 17

formula for accounting profits?

Answer 17

= revenue - explicit costs

Question 18

what’s an explicit cost?

Answer 18

involve a purchase of goods/services by the firm

Question 19

what’s an implicit cost?

Answer 19

items for which there is no market transaction but for which there is still an opportunity cost (time and capital)

Question 20

formula for economic profit?

Answer 20

revenues - (explicit costs + implicit costs)

= accounting profits - implicit costs

Question 21

short run

Answer 21

period of time in which the qtty of some inputs can’t be increased beyond the fixed amount that is available

Question 22

fixed factor

Answer 22

input whose qtty can’t be changed in the short run

Question 23

variable factor

Answer 23

input whose qtty can be changed over the time period under consideration

Question 24

long run

Answer 24

period of time in which all inputs may be varied, but the existing tech of production can’t be changed

Question 25

economic profits/losses play a crucial signaling role in….

Answer 25

workings of a free-market system

Question 26

very long run

Answer 26

period of time that’s long enough for the tech possibilities available to a firm to change

Question 27

total product (TP)

Answer 27

total amount produced by a firm during some time period

Question 28

average product

Answer 28

total product divided by # units of the variable factor used to produce it

TP/L

Question 29

marginal product

Answer 29

change in total output that results from using one more unit of a variable factor

Question 30

law of diminishing returns

Answer 30

if increasing quantities of a variable factor are applied to a given quantity of fixed factors, the marginal product of the variable factor will eventually decrease

Question 31

if increasing quantities of a variable factor are applied to a given quantity of fixed factors, the average product of the variable factor will eventually (increase/decrease)

Answer 31

decrease

Question 32

total cost

Answer 32

total cost of producing any given level of output; can be divided into total fixed and total variable cost

Question 33

total fixed cost

Answer 33

all costs of production that do not vary with the level of of output

Question 34

total variable cost

Answer 34

total costs of production that vary directly with the level of output

Question 35

average total cost

Answer 35

total cost of producing a given output divided by the number of units of output; can also be calculated as the sum of average fixed costs and average variable costs (unit or avg cost)

Question 36

average fixed cost

Answer 36

total fixed cost divided by the number of units of output

Question 37

average variable cost

Answer 37

total variable cost divided by the number of units of output

Question 38

marginal cost

Answer 38

increase in total cost resulting form increasing output by one unit

Question 39

diminishing average product of the variable factor implies eventually (increasing/decreasing) variable cost

Answer 39

increasing

Question 40

eventually diminishing marginal product of the variable factor implies eventually (increasing/decreasing) marginal costs

Answer 40

increasing

Question 41

what’s a firm’s profit?

Answer 41

difference between its total revenue and its total costs

Question 42

what does a production function relate?

Answer 42

inputs of factor services to output

Question 43

capacity

Answer 43

upper limit that cannot be exceeded