Chapter 8: Business Costs and Production

Question 1

results when total revenue is higher than total cost

Answer 1

profit

Question 2

results when total revenue is less than total cost

Answer 2

loss

Question 3

the amount a firm receives from the sale of goods and services

Answer 3

total revenue

Question 4

the amount a firm spends to produce and/or sell goods and services

Answer 4

total cost

Question 5

tangible out-of-pocket expenses

Answer 5

explicit costs

Question 6

the costs of the resources already owned, for which no out-of-pocket payment is made

Answer 6

implicit costs

Question 7

calculated by subtracting the explicit costs from total revenue

Answer 7

accounting profit

Question 8

calculated by subtracting both the explicit costs and implicit costs of business from total revenue

Answer 8

economic profit

Question 9

the product that the firm creates

Answer 9

output

Question 10

the inputs (land, labor, capital) used in producing goods and services

Answer 10

factors of production

Question 11

describes the relationship between the inputs a firm uses and the output it creates

Answer 11

production function

Question 12

the change in output associated with one additional unit of input

Answer 12

marginal product

Question 13

occurs when successive increases in outputs are associated with a slower rise in output

Answer 13

diminishing marginal product

Question 14

change with the rate of output

Answer 14

variable costs

Question 15

are unavoidable; do not vary with output in the short run, also known as overhead

Answer 15

fixed costs

Question 16

determined by dividing total variable cost by the output

Answer 16

average variable cost (AVC)

Question 17

determined by dividing total fixed cost by the output

Answer 17

average fixed cost (AFC)

Question 18

the sum of average variable cost and average fixed cost

Answer 18

average total cost (ATC)

Question 19

the increase in cost that occurs from producing one additional unit of output

Answer 19

marginal cost (MC)

Question 20

refers to the size of the production process

Answer 20

scale

Question 21

the output level that minimizes average total cost in the long run

Answer 21

efficient scale

Question 22

occur when long-run average total costs decline as output expands

Answer 22

economies of scale

Question 23

occur when long run average total costs rise as output expands

Answer 23

diseconomies of scale

Question 24

occur when long run average total costs remain constant as output expands

Answer 24

constant returns to scale