unit 4

Question 1

Law of Diminishing Marginal Returns

Answer 1

As variable resources are added, the additional output produced from each new resource will eventually fall

Question 2

Increasing Marginal Returns

Answer 2

marginal product increasing, total product increasing at increasing rate

Question 3

decreasing marginal returns

Answer 3

marginal product falls, total product increasing at a decreasing rate

Question 4

negative marginal returns

Answer 4

marginal product is negative, total product decreasing

Question 5

“Short Run”

Answer 5

period in which at least one resource is fixed

• When a fixed cost changes, our marginal cost DOES NOT CHANGE

Question 6

“Long Run”

Answer 6

all resources are variable

• When the variable cost changes, the marginal cost WILL CHANGE

Question 7

Economies of Scale

Answer 7

Long run average cost falls because mass production techniques are used (1st third)

Question 8

Constant Returns to Scale

Answer 8

the long-run atc is as low as it can get (2nd third)

Question 9

Diseconomies of Scale

Answer 9

Long run cost increase as the firm gets too big and difficult to manage

Question 10

Accounting profit

Answer 10

business’s total revenue minus the explicit cost and depreciation

• EXPLICIT COSTS!!!!!!

Question 11

Economic Profit

Answer 11

business’s total revenue minus the opportunity cost of its resources, usually less than accounting profit

• EXPLICIT and IMPLICIT COSTS!!!!!

Question 12

Barriers to entry and profit

Answer 12

are the factors that prevent new firms from entering a given market

Question 13

low barriers

Answer 13

market with more competition and individual firms make less profit

Question 14

High barriers

Answer 14

market has less competition and individual firms make more profit

Question 15

Normal Profit

Answer 15

firms that have identical products will make a normal profit, break even and make NO ECONOMIC PROFIT

Question 16

Short - Run Profit Maximization

Answer 16

firms continue to product the right output until the marginal revenue from each new output equals the additional cost

Question 17

Profit Maximizing Rule

Answer 17

MR = MC

Question 18

explicit cost

Answer 18

a cost that involves actually laying out money

Question 19

implicit cost

Answer 19

does not require an outlay of money, it is measured by its value of benefits that are forgone

Question 20

implicit cost of capital

Answer 20

opportunity cost of the capital used by a business

Question 21

principle of marginal analysis

Answer 21

every activity should continue until marginal benefit equals marginal cost

Question 22

marginal revenue

Answer 22

the change in total revenue generated by an additional unit of output

Question 23

marginal cost curve

Answer 23

shows how the cost of producing one more unit depends on the quantity that has already been produced

Question 24

marginal revenue curve

Answer 24

shows how marginal revenue varies as output varies

Question 25

production function

Answer 25

the relationship between the quantity of inputs a firm uses and the quantity of ourput it produces

Question 26

fixed input

Answer 26

an input whose quantity is fixed for a period of time and cannot be varied

Question 27

variable input

Answer 27

input whose quantity the firms can vary at any time

Question 28

total product curve

Answer 28

shows how the quantity of output depends on the quantity of the variable input for a given quantity of the fixed input

Question 29

marginal product

Answer 29

the additional quantity of output produced by using one more unit of that input

Question 30

diminishing returns to an input

Answer 30

when an increase in the quantity of that input leads to a decline in the marginal product of that input

Question 31

average total cost

Answer 31

total cost divided by quantity of output produced

Question 32

average fixed cost

Answer 32

fixed cost per unit of output

Question 33

average variable cost

Answer 33

variable cost per unity of output

Question 34

minimum-cost output

Answer 34

quantity of output at which average total cost is lowest

Question 35

average product

Answer 35

total product divided by the quantity of the input

Question 36

average product curve

Answer 36

shows the relationship between the average product and the quantity of the input

Question 37

price-taking firm

Answer 37

a firm whose actions have no effect on the market price of the good or service if it sells

Question 38

price-taking consumer

Answer 38

consumer whose actions have no effect on the market price of the good or service they buy

Question 39

perfectly competitive market

Answer 39

market in which all market participants are price-takers

Question 40

perfectly competitive inductry

Answer 40

an industry in which firms are price-takers

Question 41

market share

Answer 41

the fraction of the total industry output accounted for by that firms output

Question 42

standardized product/commodity

Answer 42

when consumers regard the products of different firms as the same good

Question 43

free entry and exit

Answer 43

when firms can easily enter into the industry and existing firms can easily leave the industry

Question 44

monopolist/monopoly

Answer 44

the only producer/industry of a good that has no close substitutes

Question 45

natural monopoly

Answer 45

exists when economies of scale provide a large cost advantage to a single firm that produces all of an industry's output

Question 46

oligopoly

Answer 46

an industry with a small number of firms

Question 47

imperfect competition

Answer 47

when no one firm has a monopoly, but producers realize that they can affect market prices

Question 48

concentration ratios

Answer 48

measure the percentage of industry sales accounted for by the largest firms

Question 49

Herfindahl-Hirschman Index (HHI)

Answer 49

the square of each firm's share of market sales, summed over the industry

Question 50

monopolistic competition

Answer 50

market structure in which there are many competing firms in an industry, each firms sells a differentiated product, and there is free entry into and exit from the industry