Chapter 8 Flashcards

1
Q

What is the total cost?

A

The amount a firm spends in order to produce the goods and services it producers.
Implicit Costs + Explicit Costs

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2
Q

What is accounting profit?

A

Profit calculated by subtracting the explicit costs from total revenue.

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3
Q

What is economic profit?

A

Profit calculated by subtracting both the explicit and implicit costs of business from total revenue. Economic profit is always less than account profit.

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4
Q

What are the three factors of production?

A

Labor, land and capital.

-the inputs used in producing goods and services.

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5
Q

What is the production function?

A

The relationship between inputs a firm uses and the output it creates.
-Used to keep costs down in the production process.

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6
Q

What is marginal product?

A

The change in output associated with one additional unit of an input.
-e.g. adding another cook in a restaurant will increase the number of meals made.

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7
Q

What is negative marginal product?

A

Occurs when the gains from specialization start to decline.

-e.g. if too many cooks are added, the wages paid will outweigh benefits of meals cooked.

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8
Q

What is diminishing marginal product?

A

Occurs when successive increases in inputs are associated with a slower rise in output.

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9
Q

What are variable costs?

A

Costs that change with the rate of output.

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10
Q

What are fixed costs?

A

Unavoidable - costs that do not vary with output in the short run.

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11
Q

What is average variable cost?

A

Costs determined by dividing total variable costs by the output.

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12
Q

What is average fixed cost?

A

Costs determined by dividing total fixed costs by the output.

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13
Q

What is marginal cost?

A

The increase in cost that occurs from producing additional output.

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14
Q

What is the efficient scale?

A

The output level that minimizes the average total cost.

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15
Q

What are economies of scale?

A

They occur when costs decline as output expands in the long run.

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16
Q

What are diseconomies of scale?

A

They occur when costs rise as output expands in the long run.

17
Q

What are constant returns to scale?

A

They occur when costs remain constant as output expands in the long run.