Chapter 8

Question 1

What’re explicit costs?

Answer 1

explicit costs are direct, purchased, out of pocket costs

Question 2

What’s accounting profit?

Answer 2

accounting profit equals total revenue minus explicit costs

Question 3

What’re implicit costs?

Answer 3

indirect, non-purchased, OPPURTUNITY COSTS

Question 4

What’s economic profit?

Answer 4

economic profit equals Total revenue - explicit costs - implicit costs

Question 5

What’s the short run?

Answer 5

when the production of one input is fixed and can’t change

Question 6

What’s the long run?

Answer 6

when the production of all inputs are variable (they can be changed)

Question 7

What happens to marginal product as successive units of a variable resource are added to a fixed resource?

Answer 7

it DECREASES

Question 8

What’s marginal product?

Answer 8

the change in total product once one more unit of labor is added

Question 9

What happens when the marginal product of labor is equal to the average product of labor?

Answer 9

average product of labor is at its PEAK.

Question 10

What’re total fixed costs?

Answer 10

total fixed costs are those costs that AREN’T AFFECTED when short-run output changes

Question 11

What’re total variable costs?

Answer 11

total variable costs are those costs that ARE AFFECTED when short-run output changes

Question 12

How do you calculate the TOTAL COST?

Answer 12

total cost = total variable cost + total fixed cost.

Question 13

How do you calculate the average fixed cost?

Answer 13

average fixed cost:
total fixed cost
———————
quantity produced

Question 14

What’s the average variable cost?

Answer 14

quantity produced

Question 15

What’s the average total cost?

Answer 15

quantity produced

Question 16

As the marginal product of labor increases, ____

Answer 16

As the marginal product of labor increases, there are diminishing marginal returns, and the marginal cost increases

Question 17

as the marginal product of labor decreases, ______

Answer 17

As the marginal product of labor decreases, there are increasing marginal returns, and the marginal cost decreases

Question 18

As the average product of labor increases, ____

Answer 18

As the average product of labor increases, average variable cost is decreasing

Question 19

As the average product of labor decreases, ____

Answer 19

As the average product of labor decreases, average variable cost is increasing

Question 20

What’s economies of scale?

Answer 20

the prices of inputs decrease as you produce more

Question 21

what’re diseconomies of scale?

Answer 21

the prices of inputs increase as you produce more