definitions

Question 1

short run

Answer 1

the period of time when at leat one factor of production, such as land or capital, is fixed in the production process

Question 2

long run

Answer 2

the period of time when all factors of production are variable, so all costs of production are variable

Question 3

diminishing returns

Answer 3

occur in the short run when a variable factor input is successively added to a fixed factor, which eventually reduces the marginal and hence total output

Question 4

fixed costs

Answer 4

do not change with the level of output

Question 5

variable costs

Answer 5

continually rise with greater levels of output

Question 6

revenue

Answer 6

the money received from the sale of a firm’s output

Question 7

economic profit (abnormal)

Answer 7

exists when total revenue exceeds the economic costs of a transaction, thus creating incentives for firms to produce