Theory of the firm pt 1

Question 1

Fixed factor

Answer 1

An input than cannot be changed in supply immediately (in the short-run)

Question 2

Variable factor

Answer 2

An input that can be changed in supply within a given time (long run)

Question 3

Productivity

Answer 3

The amount of output per input, being more productive means making more from the same amount of resources

Question 4

Short Run

Answer 4

The period of time that at least one factor is fixed, this depends on the industry

Question 5

Law of diminishing returns

Answer 5

When one or more factors are fixed, there will be a point beyond which the extra output from additional units of the variable factor will diminish

Question 6

Fixed costs

Answer 6

Total costs do not vary with the amount of output

Question 7

Variable costs

Answer 7

Total costs do vary with the amount of output produced

Question 8

Total costs

Answer 8

Fixed costs + Variable Costs

Question 9

Average costs

Answer 9

total costs divided by quantity

Question 10

Average variable costs

Answer 10

total variable costs divided by quantity

Question 11

Average fixed costs

Answer 11

total fixed costs divided by quantity

Question 12

Marginal Costs

Answer 12

The increase in total costs of producing an extra unit of output
change in total costs/change in quantity

Question 13

Long run

Answer 13

The period of time that all factors are variable

Question 14

Constant returns to scale

Answer 14

when an increase in inputs leads to the same increase in the output

Question 15

Increasing returns to scale

Answer 15

when an increase in inputs creates a larger amount of outputs than what was inputted

Question 16

Decreasing returns to scale

Answer 16

when an increase in inputs lead to the smalls increase in outputs

Question 17

Economies of scale

Answer 17

When increasing the scale of production will lead to lower cost per unit

Question 18

Diseconomies of scale

Answer 18

when the cost per unit of output increases scale of production

Question 19

Long run marginal costs

Answer 19

The cost of producing one more unit of output, but assuming that all factors are variable and find the lowest cost of production

Question 20

Total revenue

Answer 20

total earnings

price x quantity

Question 21

Average revenue

Answer 21

the amount a film earns per unit sold

total revenue / quantity

Question 22

Marginal revenue

Answer 22

the change in total revenue / change in quantity

Question 23

Price taker

Answer 23

a firm that is too small to influence the market

Question 24

Price maker

Answer 24

a firm that has some power to dictate the price changes for its product

Question 25

Profit

Answer 25

total revenue - total costs

Question 26

Profit maximisation

Answer 26

when mc=mr and has the biggest gap between tc and tr

Question 27

Normal Profit

Answer 27

Earnings needed to keep a firm operating

Profit is needed to cover variable costs and opportunity costs

Question 28

Supernormal factor

Answer 28

any profit larger than normal profit

Question 29

Economic costs

Answer 29

accounting costs and opportunity costs

Question 30

Allocative efficiency

Answer 30

when resources are allocated to satisfy consumers as much as possible when MC =AC

Question 31

Productive efficiency

Answer 31

When a firm has the lowest possible average cost curve