Econ Chapter 13 Flashcards
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Questions and Answers

Total revenue equals the quantity of output the firm produces times the price at which it sells its output.

True

Wages and salaries paid to workers are an example of implicit costs of production.

False

If total revenue is $100, explicit costs are $50, and implicit costs are $30, then accounting profit equals $50.

True

If there are implicit costs of production, accounting profits will exceed economic profits.

<p>True</p> Signup and view all the answers

When a production function gets flatter, the marginal product is increasing.

<p>False</p> Signup and view all the answers

If a firm continues to employ more workers within the same size factory, it will eventually experience diminishing marginal product.

<p>True</p> Signup and view all the answers

If the production function for a firm exhibits diminishing marginal product, the corresponding total-cost curve for the firm will become flatter as the quantity of output expands.

<p>False</p> Signup and view all the answers

Fixed costs plus variable costs equal total costs.

<p>True</p> Signup and view all the answers

Average total costs are total costs divided by marginal costs.

<p>False</p> Signup and view all the answers

When marginal costs are below average total costs, average total costs must be falling.

<p>True</p> Signup and view all the answers

If, as the quantity produced increases, a production function first exhibits increasing marginal product and later diminishing marginal product, the corresponding marginal-cost curve will be U-shaped.

<p>True</p> Signup and view all the answers

The average-total-cost curve crosses the marginal-cost curve at the minimum of the marginal-cost curve.

<p>False</p> Signup and view all the answers

The average-total-cost curve in the long run is flatter than the average-total-cost curve in the short run.

<p>True</p> Signup and view all the answers

The efficient scale for a firm is the quantity of output that minimizes marginal cost.

<p>False</p> Signup and view all the answers

In the long run, as a firm expands its production facilities, it generally first experiences diseconomies of scale, then constant returns to scale, and finally economies of scale.

<p>False</p> Signup and view all the answers

Accounting profit is equal to total revenue minus what?

<p>explicit costs</p> Signup and view all the answers

Economic profit is equal to total revenue minus what?

<p>the sum of implicit and explicit costs</p> Signup and view all the answers

What is the accounting profit at Madelyn's pottery factory?

<p>$75,000</p> Signup and view all the answers

What is the economic profit at Madelyn's pottery factory?

<p>$30,000</p> Signup and view all the answers

If there are implicit costs of production, what will exceed what?

<p>accounting profit will exceed economic profit</p> Signup and view all the answers

If a production function exhibits diminishing marginal product, what happens to its slope?

<p>becomes flatter as the quantity of the input increases</p> Signup and view all the answers

If a production function exhibits diminishing marginal product, what happens to the slope of the corresponding total-cost curve?

<p>becomes steeper as the quantity of output increases</p> Signup and view all the answers

Which of the following is a variable cost in the short run?

<p>Utilities for running the factory</p> Signup and view all the answers

When marginal costs are below average total costs, what happens to average total costs?

<p>average total costs are falling</p> Signup and view all the answers

If, as the quantity produced increases, a production function first exhibits increasing marginal product and later diminishing marginal product, what shape will the corresponding marginal-cost curve have?

<p>be U-shaped</p> Signup and view all the answers

In the long run, if a very small factory were to expand its scale of operations, what is it likely to initially experience?

<p>economies of scale</p> Signup and view all the answers

The efficient scale of production minimizes what?

<p>average total cost</p> Signup and view all the answers

Which of the following statements is true? All costs are variable in the long run.

<p>True</p> Signup and view all the answers

If marginal costs equal average total costs, what happens to average total costs?

<p>average total costs are minimized</p> Signup and view all the answers

What is a representation of total revenue?

<p>The amount a firm receives for the sale of its output</p> Signup and view all the answers

What is total cost?

<p>The market value of the inputs a firm uses in production</p> Signup and view all the answers

What is profit?

<p>Total revenue minus total cost</p> Signup and view all the answers

What are explicit costs?

<p>Input costs that require an outlay of money by the firm</p> Signup and view all the answers

What are implicit costs?

<p>Input costs that do not require an outlay of money by the firm</p> Signup and view all the answers

What is economic profit?

<p>Total revenue minus total cost, including both explicit and implicit costs</p> Signup and view all the answers

What is accounting profit?

<p>Total revenue minus total explicit cost</p> Signup and view all the answers

What is a production function?

<p>The relationship between quantity of inputs used to make a good and the quantity of output of that good</p> Signup and view all the answers

What is marginal product?

<p>The increase in output that arises from an additional unit of input</p> Signup and view all the answers

What is diminishing marginal product?

<p>The property whereby the marginal product of an input declines as the quantity of the input increases</p> Signup and view all the answers

What are fixed costs?

<p>Costs that do not vary with the quantity of output produced</p> Signup and view all the answers

What are variable costs?

<p>Costs that vary with the quantity of output produced</p> Signup and view all the answers

What is average total cost?

<p>Total cost divided by the quantity of output</p> Signup and view all the answers

What is average fixed cost?

<p>Fixed cost divided by the quantity of output</p> Signup and view all the answers

What is average variable cost?

<p>Variable cost divided by the quantity of output</p> Signup and view all the answers

What is marginal cost?

<p>The increase in total cost that arises from an extra unit of production</p> Signup and view all the answers

What is efficient scale?

<p>The quantity of output that minimizes average total cost</p> Signup and view all the answers

Whenever marginal cost is less than average total cost, what happens?

<p>average total cost is falling</p> Signup and view all the answers

Whenever marginal cost is greater than average total cost, what happens?

<p>average total cost is rising</p> Signup and view all the answers

The marginal-cost curve crosses the average-total-cost curve at its minimum. Why?

<p>This point of intersection is the minimum of average total cost</p> Signup and view all the answers

What are the three important properties of cost curves?

<p>Marginal cost eventually rises with the quantity of output, the average-total-cost curve is U-shaped, and the marginal-cost curve crosses the average-total-cost curve at the minimum of average total cost.</p> Signup and view all the answers

Many decisions are?

<p>fixed in the short run but variable in the long run</p> Signup and view all the answers

What are economies of scale?

<p>The property whereby long-run average total cost falls as the quantity of output increases</p> Signup and view all the answers

What are diseconomies of scale?

<p>The property whereby long-run average total cost rises as the quantity of output increases</p> Signup and view all the answers

What are constant returns to scale?

<p>The property whereby long-run average total cost stays the same as the quantity of output changes</p> Signup and view all the answers

What is an overview of explicit costs, implicit costs, fixed costs, and variable costs?

<p>Explicit costs require cash outlay, implicit costs do not; fixed costs remain constant, while variable costs change with output.</p> Signup and view all the answers

What is a summary of firms' goals and cost considerations?

<p>The goal of firms is to maximize profit; all opportunity costs should be included when analyzing firm behavior.</p> Signup and view all the answers

Study Notes

Total Revenue and Costs

  • Total revenue (TR) is calculated by multiplying the quantity of output produced by the selling price (TR = P x Q).
  • Total cost (TC) is the market value of all inputs used in production, consisting of fixed costs (FC) and variable costs (VC) where TC = FC + VC.
  • Accounting profit is the difference between total revenue and explicit costs, with explicit costs being monetary outlays required by the firm.
  • Economic profit accounts for both explicit and implicit costs, where implicit costs represent non-monetary opportunity costs.

Profit Analysis

  • If total revenue is $100, explicit costs are $50, and implicit costs are $30, accounting profit would be $50 (TR - EC).
  • Implicit costs lower economic profit, reflecting that accounting profits can exceed economic profits.

Production and Marginal Product

  • Diminishing marginal product occurs when adding more of a variable input (like labor) results in smaller increases in output.
  • As productivity decreases, the marginal product curve flattens, indicating efficiency changes as additional inputs are applied.
  • The U-shaped marginal-cost curve indicates that marginal costs first decrease with increased output due to efficiency gains through specialization, then rise when diminishing returns set in.

Cost Curves and Their Relationships

  • Average total costs (ATC) are minimized when marginal costs (MC) equal average total costs, and the MC curve intersects the ATC curve at its lowest point.
  • When marginal costs are below average total costs, average total costs are falling; conversely, when marginal costs exceed average total costs, average total costs are rising.
  • Average fixed costs (AFC) and average variable costs (AVC) are derived from total fixed and total variable costs respectively, calculated per unit of output.

Long-Run Considerations

  • In the long run, all costs are variable, allowing firms to adapt as they expand production.
  • Economies of scale occur as production increases, reducing average total costs due to increased operational efficiency.
  • Diseconomies of scale can arise with overexpansion, leading to higher average total costs due to management challenges.
  • Constant returns to scale maintain the same average total cost as production levels change.

Key Definitions

  • Marginal cost represents the increase in total cost resulting from producing one additional unit.
  • The efficient scale is the quantity of output that minimizes average total cost.
  • Explicit costs are direct monetary payments, while implicit costs include forgone opportunities.
  • Understanding production functions and cost curves is crucial for analyzing firm behavior and profitability over time.

Summary Insights

  • Firms aim to maximize profits while considering all opportunity costs involved in production.
  • A firm's production process and resulting costs must be carefully analyzed to determine optimal production levels and profitability.
  • As input levels increase, diminishing marginal returns can significantly impact cost management and overall firm efficiency.

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Test your knowledge of key concepts from Economics Chapter 13 with these flashcards. Each card presents a statement related to total revenue, costs of production, and accounting profit. Perfect for students looking to reinforce their understanding of economic principles.

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