Midterm 2

Question 1

Entrepreneurship

Answer 1

creating, maintaining, and assuming responsibility for a business eterprise

Question 2

Production Function

Answer 2

the relationship that describes how inputs like capital and labor are transformed into output

Question 3

Long Run

Answer 3

the shortest period of time required to alter the amounts of all inputs used in a production process

Question 4

Short Run

Answer 4

the longeset period of time during whcih at least one of the inputs used ina production process cannot be varied

Question 5

Variable Input

Answer 5

an input that can be varied in the short run

Question 6

Fixed Input

Answer 6

an input that cannot vary in the short run

Question 7

Law of Diminishing Returns

Answer 7

if other inputs are fixed, the increase in output from an increase in the variable input must eventually decline

Question 8

Total Product Curve

Answer 8

a curve showing the amount of output as a function of the amount of variable input

Question 9

Marginal Product

Answer 9

the change in the total product that occurs in response to a 1-unit change in the variable input (all other inputs held fixed); geometrically, the marginal product at any point is simply the slope of the total product curve at that point

Question 10

Marginal Product of Labour

Answer 10

MPL; ΔQ / ΔL

Question 11

Average Product

Answer 11

total output divided by the quantity of the variable input

Question 12

Isoquants

Answer 12

the set of all input combinations that yield a given level of output

Question 13

Marginal Rate of Technical Substitution

Answer 13

the rate at which one input can be exchanged for another without altering the total level of output

Question 14

Increasing Returns to Scale

Answer 14

the property of a production process whereby a proportional increase in every input yields a more than proportional increase in output

Question 15

Fixed Cost

Answer 15

(FC) cost that does not vary with the level of ouptut in the short run (the cost of all fixed factors of production)

Question 16

Variable Cost

Answer 16

(VC) cost that variers with the level of output in the short run (the cost of all variable factors of production); labour, for example

Question 17

Total Cost

Answer 17

the sum of variable cost and fixed cost - all costs of production

Question 18

Average Fixed Cost

Answer 18

(AFC) fixed cost divided by the quantity of output

Question 19

Average Variable Cost

Answer 19

(AVC) variable cost divided by the quantity of ouput

Question 20

Average Total Cost

Answer 20

(ATC) total cost divided by the quantity of output

Question 21

Marginal Cost

Answer 21

(MC) the change in total cost that results from a 1-unit change in output

Question 22

Isocost Line

Answer 22

a set of input bundles each of which costs the same amount

Question 23

Output Expansion Path

Answer 23

the locus of tangencies traced out by an isocost line of given slope as it shifts outward into the isoquant map for a production process

Question 24

Natural Monopoly

Answer 24

an industry whose market output is produced at the lowest cost when production is concentrated in the hands of a single firm

Question 25

Marginal Revenue

Answer 25

the change in total revenue that occurs as a result of a 1-unit change in sales

Question 26

Shutdown Condition

Answer 26

if price falls below the minimum of average variable cost, the firm should shut down in the short run

Question 27

Allocative Efficiency

Answer 27

a condition from which all possible gains from exchange are realized

Question 28

Producer Surplus

Answer 28

the dollar amount by which a firm benefits by producing a profit-maximmizing level of output

Question 29

Pecuniary Diseconomy

Answer 29

a rise in production cost that occurs when an expansion of industry output causes a rise in the prices of inputs

Question 30

Price Elasticity of Supply

Answer 30

the percentage change in quantity supplied that occurs in response to a 1 percent change in product price