Cost of Production

Question 1

firm’s goal

Answer 1

maximize profits

Question 2

formula to find profit

Answer 2

total revenue - total cost

Question 3

total revenue

Answer 3

amount a firm recieves from the sales of its output (what people pay for goods)

Question 4

total cost

Answer 4

the market value of the inputs a firm uses for production

Question 5

solving total revenue

Answer 5

quantity of output x price it sells

Question 6

Explicit costs

Answer 6

requires an outlay of money (paying wages, buying ingredients)

Question 7

Implicit costs

Answer 7

do not require a cost outlay

Question 8

Production Function

Answer 8

relationship between the quantity of inputs used to produce a good and the quantity of output of that good

Question 9

Marginal product

Answer 9

increase in total output arising from an additional unit of that input

Question 10

what is the notation of marginal product?

Answer 10

delta (change in)

Question 11

Finding marginal product of labor (MPL)

Answer 11

change in quantity divided by change in labor

Question 12

as labor increases, what happens to MPL?

Answer 12

the MPL decreases (the curve will get flatter)

Question 13

Diminishing marginal product

Answer 13

the marginal product of an input declines as the quantity of input increases

Question 14

finding average total cost

Answer 14

total cost divided by the quantity of output

Question 15

average fixed cost

Answer 15

fixed cost divided by the quantity of output

Question 16

average variable cost

Answer 16

variable cost divided by the quantity of output

Question 17

marginal cost

Answer 17

increase in total cost that arises from an extra unit of production

Question 18

relationship with rising marginal cost

Answer 18

marginal cost rises as the quantity of output produced decreases

Question 19

solving for total cost

Answer 19

Fixed cost plus variable cost

Question 20

average total cost (ATC)

Answer 20

total cost divided by the quantity of output

Question 21

When Marginal Cost is greater than ATC

Answer 21

the ATC is falling

Question 22

when the ATC is greater than Marginal Costs

Answer 22

the ATC is rising

Question 23

Efficient scale

Answer 23

the quantity that minimizes the ATC (the lowest ATC point)

Question 24

Economies of scale

Answer 24

ATC falls as output increases

Question 25

Constant return to scale

Answer 25

ATC stays the same as output increases

Question 26

If a production function shows declining marginal product of an input as the quantity of input increases, then the production function exhibits

Answer 26

decreasing marginal product

Question 27

When adding another unit of labor leads to an increase in output that is smaller than the increase in output that resulted from adding previous units of labor, the firm is experiencing

Answer 27

diminishing marginal product