Topic 3

Question 1

The _____ states that as you try to expand output, your marginal productivity (the extra output associated with extra inputs) eventually declines.

Answer 1

law of diminishing marginal returns

Question 2

_____often arise when more workers, or any variable input, must share a fixed amount of a complementary input.

Answer 2

Bottlenecks

Question 3

Diminishing marginal productivity implies increasing _____.

Answer 3

marginal cost

Question 4

Increasing marginal costs eventually lead to increasing____.

Answer 4

average costs

Question 5

If long-run average costs are constant with respect to output, then you have _____.

Answer 5

constant returns to scale

Question 6

If long-run average costs rise with output, you have _____

Answer 6

decreasing returns to scale or diseconomies of scale

Question 7

If long-run average costs fall with output, you have ______

Answer 7

increasing returns to scale or economies of scale.

Question 8

If long-run average costs fall with output, you have ______.

Answer 8

increasing returns to scale or economies of scale

Question 9

____a proportionate saving gained by producing two or more distinct goods, when the cost of doing so is less than that of producing each separately.

Answer 9

Econmies of Scope

Question 10

____ is to produce to the same thing in larger and larger volumes. It’s doing the same thing over and over again

Answer 10

Scale

Question 11

____ on the other hand is a way to get to large volume by adding variety to the mix. Scope means doing a lot of things that are different by share some apects.

Answer 11

Scope

Question 12

Which of the following helps explain why marginal cost eventually increases as output increases?

Answer 12

The law of diminishing returns

Question 13

Constant returns to scale means that as all inputs are increased,

Answer 13

total output increasess

Question 14

Learning curves describe a relationship between

Answer 14

Average cost and units

Question 15

Diseconomies of scale imply that

Answer 15

the firm should consider a reduction in production.

Question 16

_____firm experiences increasing marginal costs per additional unit of output.

Answer 16

Diseconomies of scale

Question 17

Economies of scope exist when

Answer 17

changing the mix of products produced reduces average cost.

Question 18

Increasing complexity of management and challenges of coordination as firms produce a wider variety of products can be a source of

Answer 18

diseconmies of scope

Question 19

Econmies of scale characteristics(2)

Answer 19

Decline Average cost

Cost declines with production

Question 20

_______when firms, economic profit is zero , firms break even, and price equals average cost (i.e., no one wants to enter or leave the industry).

Answer 20

Long-run equilibrium

Question 21

A competitive firm can earn positive or negative economic profit in the_____ but only until entry or exit occurs.

Answer 21

short run

Question 22

In the____, competitive firms earn only an average rate of return.

Answer 22

long run

Question 23

_____ tends to revert to zero

Answer 23

Economic profit

Question 24

_____suggests that performance eventually moves back toward the mean or average.

Answer 24

Mean Reversion

Question 25

If we are analyzing an increase in demand in an industry, price and quantity will increase in the____, and firms will earn above-average profit.

Answer 25

Short term

Question 26

In the____, these above-average profits will attract new assets into the industry, which will increase supply until profits fall back to the average.

Answer 26

Long Run

Question 27

______if an asset is mobile, then in long-run equilibrium, the asset will be indifferent about where it is used; that is, it will make the same profit no matter where it goes.

Answer 27

Indifferent Principle

Question 28

_______differences in wages that reflect differences in the inherent attractiveness of various professions or jobs (once equilibrium has been reached).

Answer 28

Comensating Wage ifferentials

Question 29

_____higher expected rates of return that compensate investors in risky assets. In equilibrium, differences in the rate of return reflect differences in the riskiness of an investment.

Answer 29

Risk Premium

Question 30

_____a firm that is the single seller in its market. Monopolies have market power because they produce a product or service without close substitutes, they have no rivals, and barriers to entry prevent other firms from entering the industry.

Answer 30

Monopoly