Vocabulary: Unit Four

Question 1

Proprietorship

Answer 1

Sole owner

Question 2

Partnership

Answer 2

Two or more owners

Question 3

Corporation

Answer 3

A company with multiple owners; legally separate from the owners

Question 4

Dividends

Answer 4

A share of the corporation’s profits

Question 5

Stock

Answer 5

Shares in the company in exchange for the money invested; gives owners a right to vote on members of the Board of Directors and the possibility of dividends

Question 6

Production function

Answer 6

The maximum quantity the firm can produce with a given combination of resources

Question 7

Cost function

Answer 7

The relationship between output and the cost of producing that output

Question 8

Explicit costs

Answer 8

Opportunity costs of the resources that the firm pays for with cash

Question 9

Implicit costs

Answer 9

The opportunity costs of using the firm’s resources that are provided by the firm’s owners without a cash payment

Question 10

Total revenue

Answer 10

The price of the product multiplied by the total quantity sold

Question 11

Profit

Answer 11

Total revenue minus total costs

Question 12

Normal profit

Answer 12

The accounting profit earned when all resources used earn their opportunity cost; “breaking even”

Question 13

Economic profit

Answer 13

The income business owners receive after explicit and implicit costs have been subtracted from the total revenue

Question 14

Fixed resource

Answer 14

A resource that can’t be varied in the short run

Question 15

Variable resource

Answer 15

A resource that can be varied in order to increase or decrease the level of output in the short run

Question 16

Short run

Answer 16

The period when at least one of the firm’s resources is fixed

Question 17

Long run

Answer 17

The period when all resources used by the firm can be varied

Question 18

Fixed costs

Answer 18

Production costs independent of the level of output that don’t change in the short run

Question 19

Variable costs

Answer 19

Production costs that increase as the level of output increases

Question 20

Marginal

Answer 20

Incremental; adding or subtracting one more unit

Question 21

Marginal product

Answer 21

The additional output that can be produced by adding one more unit of a specific input

Question 22

Increasing marginal returns

Answer 22

The marginal product increases due to the use of one additional unit of a resource

Question 23

Diminishing marginal returns

Answer 23

A natural function of the production process

Question 24

Law of diminishing returns

Answer 24

In the production process, there is a point where an increase in a variable factor of production results in a decline in the additional production derived from one more unit of hat particular factor

Question 25

Marginal cost

Answer 25

The additional cost when one additional unit of output is added; inversely related to marginal product

Question 26

Total cost function

Answer 26

A summary picture of the firm's short run cost structure

Question 27

Least cost of production

Answer 27

The point where the short-run average cost curve and the long run average cost curve intersect

Question 28

Economies of scale

Answer 28

Experienced when a firm grows and simultaneously experiences a reduction in cost per unit

Question 29

Constant returns to scale

Answer 29

The average total cost neither increases or decreases with the change in the firm's output

Question 30

Diseconomies of scale

Answer 30

Experienced when a firm grows and simultaneously experiences an increase in cost per unit

Question 31

Accounting profit

Answer 31

Total revenue minus only explicit costs

Question 32

Diminishing marginal returns

Answer 32

Diminishing returns or diminishing marginal product; implies that costs are increasing per unit produced