Week 4

Question 1

Accounting costs

Answer 1

direct, out of pocket payments for inputs to its production process within a given time period (explicit costs)

Question 2

opportunity cost

Answer 2

relict only a forgone opportunity rather than explicit correct expenditure (implicit)

Question 3

economic costs

Answer 3

sum of accounting costs and opportunity costs

Question 4

fixed cost

Answer 4

production expense not varying with input

Question 5

variable cost

Answer 5

changes with the quantity of output

Question 6

total cost

Answer 6

vertical sum of the variable cost and the fixed cost

Question 7

marginal cost

Answer 7

tangent to the total cost line
lowest point of average variable curve

Question 8

why does arc fall as output increases

Answer 8

approaches zero as output gets large because fixed cost is spread over many units of output

Question 9

average cost

Answer 9

vertical sum of the afc and avc

Question 10

why are the short run average cost curves downward sloping

Answer 10

because the average fixed cost curve is downward sloping
spreading the fixed cost over more units of output lowers the average fixed cost per unit

Question 11

production function

Answer 11

determines the shape of the firms cost curves
shows the amount of inputs needed to produce a given level of output
by using variable cost labels the labour curve becomes a variable cost curve

Question 12

how do we know how much extra labour we need to produce one more unit of output

Answer 12

production function
marginal product of labour mpl=ch in q/ch in l
the extra labour we need to produce one more unit of output
mc=w/mpl