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What is marginal cost?
What is marginal cost?
The amount added to total cost when one more unit of output is produced.
Total revenue minus total economic cost equals zero means the firm is earning the normal profit rate.
Total revenue minus total economic cost equals zero means the firm is earning the normal profit rate.
True (A)
What are costs that a firm will incur even if it halts current production?
What are costs that a firm will incur even if it halts current production?
Fixed costs.
What is the opportunity cost associated with the use of resources owned by a firm?
What is the opportunity cost associated with the use of resources owned by a firm?
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What is defined as a time period sufficient to allow a firm to alter its plant size and capacity?
What is defined as a time period sufficient to allow a firm to alter its plant size and capacity?
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What is marginal cost defined as?
What is marginal cost defined as?
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What is the best definition of fixed costs?
What is the best definition of fixed costs?
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What characterizes the short run in economic terms?
What characterizes the short run in economic terms?
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What is economic profit?
What is economic profit?
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What defines the long run?
What defines the long run?
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When do long-run economies of scale exist?
When do long-run economies of scale exist?
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Average fixed costs will always decrease as output expands.
Average fixed costs will always decrease as output expands.
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Economic profits are greater than accounting profits.
Economic profits are greater than accounting profits.
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What is the major difference between accounting profit and economic profit?
What is the major difference between accounting profit and economic profit?
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What does it mean if doubling the quantity of inputs more than doubles the quantity of outputs?
What does it mean if doubling the quantity of inputs more than doubles the quantity of outputs?
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What does the law of diminishing marginal returns explain?
What does the law of diminishing marginal returns explain?
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What happens to a firm's ability during the short-run production process?
What happens to a firm's ability during the short-run production process?
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If average total costs are declining, marginal cost must be greater than average total cost.
If average total costs are declining, marginal cost must be greater than average total cost.
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Why are accounting costs often unsatisfactory from an economist's point of view?
Why are accounting costs often unsatisfactory from an economist's point of view?
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If most businesses in an industry are earning a 13 percent rate of return on their assets, but your firm is earning 23 percent, what is your rate of economic profit?
If most businesses in an industry are earning a 13 percent rate of return on their assets, but your firm is earning 23 percent, what is your rate of economic profit?
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Study Notes
Marginal Cost
- Marginal cost represents the increase in total cost from producing one additional unit of output.
Total Revenue and Profit
- When total revenue minus total economic cost equals zero, the firm achieves a normal profit rate.
Costs in Business
- Fixed costs are incurred by a firm even if it ceases production temporarily.
Opportunity Costs
- Implicit costs represent the opportunity cost tied to resources owned by a firm.
Short Run
- In the short run, firms can adjust their production but cannot change the size of their existing plant or build new facilities.
Economic Profit
- Economic profit is calculated by subtracting total costs from total revenues.
Long Run
- The long run allows firms to modify their plant size, capacity, and all factors of production.
Economies of Scale
- Long-run economies of scale occur when the long-run average cost curve declines.
Average Fixed Costs
- Average fixed costs decrease as production output increases.
Profit Differences
- Economic profits are typically lower than accounting profits due to the inclusion of opportunity costs in economic calculations.
Accounting vs. Economic Profit
- The primary difference between accounting and economic profit lies in the treatment of opportunity costs related to equity capital.
Returns to Scale
- A firm experiences increasing returns to scale if the output more than doubles when inputs are doubled.
Diminishing Marginal Returns
- The law of diminishing marginal returns impacts the shape of a firm's short-run cost curves.
Production Factor Variability
- During the short run, a firm can adjust only some of its production factors.
Average Total Costs
- If average total costs are decreasing, marginal cost must be less than average total cost.
Accounting Costs Concerns
- Economists often find accounting costs unsatisfactory because they usually ignore the opportunity costs associated with equity capital.
Economic Profit Calculation
- If majority firms in an industry have a 13% return on assets, but your firm earns 23%, your economic profit rate equates to 10%.
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Description
Test your knowledge on key concepts in Economics Chapter 8. This quiz covers definitions and principles such as marginal cost and normal profit. Perfect for reviewing the essentials of economic cost analysis.
