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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.
Total revenue equals the quantity of output the firm produces times the price at which it sells its output.
True (A)
Wages and salaries paid to workers are an example of implicit costs of production.
Wages and salaries paid to workers are an example of implicit costs of production.
False (B)
If total revenue is $100, explicit costs are $50, and implicit costs are $30, then accounting profit equals $50.
If total revenue is $100, explicit costs are $50, and implicit costs are $30, then accounting profit equals $50.
True (A)
If there are implicit costs of production, accounting profits will exceed economic profits.
If there are implicit costs of production, accounting profits will exceed economic profits.
When a production function gets flatter, the marginal product is increasing.
When a production function gets flatter, the marginal product is increasing.
If a firm continues to employ more workers within the same size factory, it will eventually experience diminishing marginal product.
If a firm continues to employ more workers within the same size factory, it will eventually experience diminishing marginal product.
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.
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.
Fixed costs plus variable costs equal total costs.
Fixed costs plus variable costs equal total costs.
Average total costs are total costs divided by marginal costs.
Average total costs are total costs divided by marginal costs.
When marginal costs are below average total costs, average total costs must be falling.
When marginal costs are below average total costs, average total costs must be falling.
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.
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.
The average-total-cost curve crosses the marginal-cost curve at the minimum of the marginal-cost curve.
The average-total-cost curve crosses the marginal-cost curve at the minimum of the marginal-cost curve.
The average-total-cost curve in the long run is flatter than the average-total-cost curve in the short run.
The average-total-cost curve in the long run is flatter than the average-total-cost curve in the short run.
The efficient scale for a firm is the quantity of output that minimizes marginal cost.
The efficient scale for a firm is the quantity of output that minimizes marginal cost.
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.
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.
Accounting profit is equal to total revenue minus what?
Accounting profit is equal to total revenue minus what?
Economic profit is equal to total revenue minus what?
Economic profit is equal to total revenue minus what?
What is the accounting profit at Madelyn's pottery factory?
What is the accounting profit at Madelyn's pottery factory?
What is the economic profit at Madelyn's pottery factory?
What is the economic profit at Madelyn's pottery factory?
If there are implicit costs of production, what will exceed what?
If there are implicit costs of production, what will exceed what?
If a production function exhibits diminishing marginal product, what happens to its slope?
If a production function exhibits diminishing marginal product, what happens to its slope?
If a production function exhibits diminishing marginal product, what happens to the slope of the corresponding total-cost curve?
If a production function exhibits diminishing marginal product, what happens to the slope of the corresponding total-cost curve?
Which of the following is a variable cost in the short run?
Which of the following is a variable cost in the short run?
When marginal costs are below average total costs, what happens to average total costs?
When marginal costs are below average total costs, what happens to average total costs?
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?
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?
In the long run, if a very small factory were to expand its scale of operations, what is it likely to initially experience?
In the long run, if a very small factory were to expand its scale of operations, what is it likely to initially experience?
The efficient scale of production minimizes what?
The efficient scale of production minimizes what?
Which of the following statements is true? All costs are variable in the long run.
Which of the following statements is true? All costs are variable in the long run.
If marginal costs equal average total costs, what happens to average total costs?
If marginal costs equal average total costs, what happens to average total costs?
What is a representation of total revenue?
What is a representation of total revenue?
What is total cost?
What is total cost?
What is profit?
What is profit?
What are explicit costs?
What are explicit costs?
What are implicit costs?
What are implicit costs?
What is economic profit?
What is economic profit?
What is accounting profit?
What is accounting profit?
What is a production function?
What is a production function?
What is marginal product?
What is marginal product?
What is diminishing marginal product?
What is diminishing marginal product?
What are fixed costs?
What are fixed costs?
What are variable costs?
What are variable costs?
What is average total cost?
What is average total cost?
What is average fixed cost?
What is average fixed cost?
What is average variable cost?
What is average variable cost?
What is marginal cost?
What is marginal cost?
What is efficient scale?
What is efficient scale?
Whenever marginal cost is less than average total cost, what happens?
Whenever marginal cost is less than average total cost, what happens?
Whenever marginal cost is greater than average total cost, what happens?
Whenever marginal cost is greater than average total cost, what happens?
The marginal-cost curve crosses the average-total-cost curve at its minimum. Why?
The marginal-cost curve crosses the average-total-cost curve at its minimum. Why?
What are the three important properties of cost curves?
What are the three important properties of cost curves?
Many decisions are?
Many decisions are?
What are economies of scale?
What are economies of scale?
What are diseconomies of scale?
What are diseconomies of scale?
What are constant returns to scale?
What are constant returns to scale?
What is an overview of explicit costs, implicit costs, fixed costs, and variable costs?
What is an overview of explicit costs, implicit costs, fixed costs, and variable costs?
What is a summary of firms' goals and cost considerations?
What is a summary of firms' goals and cost considerations?
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.
Studying That Suits You
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Description
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.
