Chapter 8

Question 1

The overriding goal of the firm is to what?

Answer 1

maximize profits

Question 2

Profits =

Answer 2

Total revenue - Total cost

TR - TC

Question 3

Total revenue =

Answer 3

Price * Quantity

P* Q

Question 4

Short run

Answer 4

a time period when at least 1 resource is fixed

Question 5

Long run

Answer 5

A time period when all resources can vary

Question 6

Production

Answer 6

The transformation of resources into G/S

Question 7

TPP stands for what

Answer 7

Total Physical Production

Question 8

What is Total Physical Production?

Answer 8

The maximum output that can be produced when variable resources are added to fixed amounts of other resources

Question 9

APP stands for what?

Answer 9

Average Physical Production

Question 10

What is Average Physical Production?

Answer 10

Average out put per worker

TPP/L

Question 11

What does MPP stand for?

Answer 11

Marginal Physical production?

Question 12

What is Marginal physical Production?

Answer 12

The additional output produced by adding one more worker.

Change in TPP/ Change in L

Question 13

Law of Diminishing Marginal Returns

Answer 13

When equal amounts of a variable resource (labor) are combined with a fixed resource (land), increases in total output will eventually decline.

Question 14

AP tells you what?

Answer 14

average output per worker

Question 15

MP tells you what?

Answer 15

the additional output by adding one worker

Question 16

If MP > AP then what happens to AP?

Answer 16

AP increases

Question 17

If MP = AP then what happens to AP?

Answer 17

AP is maximized

Question 18

If MP < AP then what happens AP?

Answer 18

AP decreases

Question 19

What does TFC stand for?

Answer 19

Total fixed cost

Question 20

What is total fixed cost?

Answer 20

The cost the firm has to pay wheter it produces or not

Question 21

What does TVC stand for?

Answer 21

Total variable cost

Question 22

What is TVC?

Answer 22

Cost that rises and falls as production rises and falls.

Question 23

Rent, insurance and lease payments are examples of what?

Answer 23

Total Fixed cost

Question 24

Labor and fuel are examples of what?

Answer 24

Total variable cost.

Question 25

TC means what?

Answer 25

Total cost

Question 26

What is TC?

Answer 26

Sum of Total Variable Cost + Total Fixed Cost | TVC + TFC

Question 27

Variable cost can be controlled or altered in the short-run how?

Answer 27

By changing production techniques but not fixed cost.

Question 28

What does AFC stand for?

Answer 28

Average Fixed Cost

Question 29

What does AFC mean?

Answer 29

Total fixed cost / Output | TFC / Q

Question 30

AFC always does what as output increases?

Answer 30

AFC increases as output increases

Question 31

What does AVC stand for?

Answer 31

Average variable cost

Question 32

What is Average variable cost?

Answer 32

Total variable cost/ Output | TVC/Q

Question 33

AVC first decreases reaches a minimum and does what?

Answer 33

then increases as output increases

Question 34

ATC stands for what?

Answer 34

Average Total cost

Question 35

What is average total cost?

Answer 35

Total cost/ Output | TC/Q) or (AFC + AVC

Question 36

ATC first decreases reaches a minimum and then does what?

Answer 36

increases as output increases

Question 37

What does MC mean?

Answer 37

Marginal cost

Question 38

How do you find MC?

Answer 38

Change in total cost/ change in quantity of output | Change in TC / Change in quantity

Question 39

What is MC?

Answer 39

The additional cost of 1 more unit of output | -cost a firm can control directly and immediately

Question 40

AVC, ATC and MC have their shape cure because of what?

Answer 40

Law of diminishing returns

Question 41

SRATC stands for what?

Answer 41

short run average total cost curve

Question 42

MC intersects AVC where?

Answer 42

At AVC 's minimum

Question 43

MC intersects ATC where?

Answer 43

At ATC's minimum

Question 44

AVC is identified by what roman numeral?

Answer 44

I

Question 45

ATC is identified by what roman numeral?

Answer 45

II

Question 46

MC is identified by what roman numeral?

Answer 46

III

Question 47

Law of Diminishing Returns does not apply when?

Answer 47

Does not apply when all resources are variable thus does not apply in the long run.

Question 48

What is scale?

Answer 48

Size; when all resources change the scale of the firm has changed.

Question 49

Once a scale is chosen the firm is not working in what?

Answer 49

Long-run because then atleast one resource is fixed

Question 50

What is economies of scale?

Answer 50

Cost per unit decreases as unit increases

Question 51

Diseconomies of scale is what?

Answer 51

Cost per unit increases as output increases

Question 52

What is constant Returns to scale?

Answer 52

Cost per unit remains constant as output increases

Question 53

MES stands for what

Answer 53

Minimum Efficient scale

Question 54

What is minimum efficient scale?

Answer 54

the minimum point on the Long Run Average Total Cost Curve; the output level at which the cost per unit is the lowest.

Question 55

What is the reasons for economies of scale ?

Answer 55

1) specialization | 2) Larger machinery

Question 56

How is specialization important for economies of scale?

Answer 56

Large firms are able to specialize allowing each worker to now have one task to perform instead of 5 or 6

Question 57

How is Larger machinery important for economies of scale?

Answer 57

It allows more output per quantity of resources. - For example blast furnace produces twice the amount but not twice the cost to operate - Explains downward slope of LRATC

Question 58

What is the reason for DIseconomies of scale?

Answer 58

Size can be an issue

Question 59

How can size be a reason for diseconomies of scale?

Answer 59

- More red tape, "passing the buck" - Difficulty of efficiency controlling and coordinating a firm's operation as it becomes a larger scale producer. - Additional managers needed which can lead to supervision problems and coordination problems - meetings are held more often