Chapter 7: Producers in the Short Run

Question 1

Single proprietorship

Answer 1

A firm that has one or more owner who is personally responsible for the firm’s actions and debts

Question 2

Ordinary parternship

Answer 2

A firm that has two or more joint owners, each of whom is personally responsible for the firm’s actions and debts

Question 3

Limited partnership

Answer 3

A firm that has:

1) General partners who manage the firm and are personally liable for the firm’s actions and debts
2) Limited partners who only risk the money they have personally invested

Question 4

Corporation

Answer 4

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

Question 5

State-owned enterprise

Answer 5

A firm that is owned by the government (Crown corporations in Canada)

Question 6

Non-profit organisations

Answer 6

Firms that provide goods and services with the objective of just covering their costs

Question 7

Multinational enterprises (MNEs)

Answer 7

Firms that have operations in more than one country

Question 8

Dividends

Answer 8

Profits paid out to shareholders of a corporation

Question 9

Bond

Answer 9

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

Question 10

Intermediate products

Answer 10

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

Question 11

Production function

Answer 11

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

Question 12

Economic profits

Answer 12

The difference between the revenues received from the sale of output and the opportunity cost of the inputs used to make the output. Negative economic profits are called economic losses

Question 13

Short run

Answer 13

A period of time in which the quantity of some inputs cannot be increased beyond the fixed amount that is available

Question 14

Fixed factor

Answer 14

An input whose quantity cannot be changed in the short run

Question 15

Variable factor

Answer 15

An input whose quantity can be changed over the time period under consideration

Question 16

Long run

Answer 16

A period of time in which all inputs may be varied, but the existing technology of production cannot be changed

Question 17

Very long run

Answer 17

A period of time that is long enough for the technological possibilities available to a firm to change

Question 18

Total product (TP)

Answer 18

Total amount produced by a firm during some time period

Question 19

Average product (AP)

Answer 19

Total product divided by the number of units of the variable factor used in its production

Question 20

Marginal product (MP)

Answer 20

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

Question 21

Law of diminishing returns

Answer 21

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

Question 22

Total cost (TC)

Answer 22

The total cost of producing any given level of output

TC = TFC + TVC

Question 23

Total fixed cost (TFC)

Answer 23

All costs of production that do not vary with level of output

Question 24

Total variable cost (TVC)

Answer 24

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

Question 25

Average total cost (ATC)

Answer 25

Total cost of producing a given output divided by the number of units of output; also the sum of AFC and AVC

ATC = TC/Q
ATC = AFC + AVC

Question 26

Average fixed cost (AFC)

Answer 26

Total fixed cost divided by the number of units of output

AFC = TFC/Q

Question 27

Average variable cost (AVC)

Answer 27

Total variable cost divided by the number of units of output

AVC = TVC/Q

Question 28

Marginal cost (MC)

Answer 28

The increase in total cost resulting from increasing output by one unit

MC = (Change in)TC / (Change in)Q