30 Questions
What is the primary reason economists begin their analysis of costs with the short-run?
Because the short-run is more relevant to economic analysis
What determines the nature of production decisions about the allocation and use of physical inputs?
The objectives of agents, technology, availability and quality of inputs
What must be known or understood in order to calculate or estimate all the cost relationships for each level of output?
The prices of the inputs and the production relationships
What is the ultimate goal of the production process?
To alter resources or inputs to satisfy more wants
Why is it necessary to relate decisions about physical units of inputs and outputs to the costs of production?
Because the objectives of agents are often pecuniary
What is a limitation of the decision maker in making decisions about production?
Having partial information about some of the costs
What is the primary condition for an expense to qualify as a production cost?
It must be directly connected to generating revenue for the company
What is the main difference between production costs and manufacturing costs?
Production costs include both direct and indirect costs, whereas manufacturing costs only include direct costs
What type of companies would incur production costs related to royalties owed?
Natural resource-extraction companies
How are total product costs typically determined?
By adding together total direct materials and labor costs as well as total manufacturing overhead costs
What type of costs are incurred by service industries in delivering their services?
Labor costs related to implementing and delivering the service
What is an example of an indirect cost that would be included in production costs?
General overhead costs
What is the primary implication of the law of diminishing returns on a firm's production?
The total output of the firm will eventually decrease with the addition of variable factors.
What is the difference between total fixed costs and total variable costs?
Total fixed costs are consistent, non-variable expenses, while total variable costs change based on the volume of production.
What is an example of a variable cost?
Raw materials
What is the formula for total cost?
Total cost = Total fixed costs + Total variable costs
What is the primary purpose of the assumptions in perfect competition in microeconomics?
To make the theories of consumer and producer behavior, supply and demand, and market price determination mathematically tractable
What is the range of production where the total output of a firm decreases with the addition of variable factors?
Uneconomic range of production
What is a characteristic of companies in a perfect competition environment?
They sell identical products with no product differentiation
What is the relationship between variable costs and the volume of production?
Variable costs change with the volume of production.
What is a condition that must be met in a perfect competition environment?
All transactions can be carried out with zero costs
What is a characteristic of an imperfect competition environment?
Companies sell different products and services
What is the role of consumers in a perfect competition environment?
They set the prices they are willing to pay
What is the purpose of perfect competition as a standard in welfare economics and applied economics?
To measure the effectiveness and efficiency of real-world markets
What is a characteristic of a monopolistically competitive industry?
Existence of pricing policies in firms
What is the main difference between the graphical analysis of a monopolistic competitive industry and a monopoly?
The demand curve is more elastic in a monopolistic competitive industry
Which of the following is NOT an assumption of a monopolistically competitive industry?
Free entry into the market
In which industry is the level of production typically higher than in a pure monopoly but lower than in a pure competition?
Monopolistic competition
What is the typical outcome of a monopolistic competitor in terms of price and quantity?
Higher price and lower quantity than a pure competitor
What is the primary difference between a monopolistic competitive industry and an oligopoly?
The number of sellers in the market
Learn about the law of diminishing returns, a concept in economics that explains how the total output of a firm changes when variable factors of production are added to a fixed factor.
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