chapter 13
fixed costs
Costs that do not vary with the quantity of output produced
In the short run, a firm that produces and sells house pain can adjust A) how many workers to hire B) where to produce along its long-run average-total-cost curve. C) the location of its factory D) the size of its factories
How many workers to hire
explicit costs
Input costs that require an outlay of money by the firm (paying wages to workers)
The total cost is the A) amount a firm receives for the sale of its output B) quantity of output minus the quantity of inputs used to make a good C) fixed cost less variable cost D) market value of the inputs a firm uses in production
Market value of the inputs a firm uses in production
economies of scale
Often arise because higher production levels allow specialization among workers, which permits each worker to become better at a specific task
Total revenue equals A) output- input B) price/quantity C) (price X quantity)- total cost D) price X quantity
Price X quantity
Which of the following is an example of an implicit cost? A) The owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm B) interest paid on the firm's debt C)wages paid to workers D) rent paid by the firm to lease office space
The owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm
total cost
amount that the firm pays to buy inputs
economies of scope
by producing a number of products that are interdependent, firms are unable to produce and market these goods at lower costs
diseconomies of scale
can arise because of coordination problems that often ocur in large organizations
marginal cost
change in total cost/change in quantity
average cost
cost per unit of output
sunk costs
costs that have already been incurred and cannot be recovered
variable costs
costs that vary with the quantity of output produced
firm
economic institute that transforms resources (factors of production) into outputs
AVERAGE FIXED COSTS
fixed cost divided by the quantity of output
implicit costs
input costs that do not require an outlay of money by the firm (opportunity cost of the owner's time)
firms may experience diseconomies of scale when... A) there are too few employees, and managers do not have enough to do B) they are too small to take advantage of specialization C) average fixed costs begin to rise again D) large management structures are bureaucratic and inefficient
large management structures are bureaucratic and inefficient
diminishing marginal returns
marginal productivity slows down; output is still growing as you hire additional labor, but at a decreasing pace
normal profit
occurs when economic profit is equal to zero; also called a normal rate of return on capital
increasing marginal returns
output grown faster as you hire additional labor
average product
output per worker; calculated as total output divided by number of workers
total product
output that is produced by an existing plant and varies by the amount of labor employed
long-run
period of time over which a firm can adjust all factors of production
Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements? A) shoe polish and rent on the shoe stand B) rent on the shoe stand and interest that petes money was earning before he spent his savings to set up the shoe-shine business C) shoe polish and wages Pete could earn delivering newspapers D) wages Pete could earn delivering newspapers and interest that petes money was earning before he spent his savings to set up the shoe-shine business
shoe polish and rent on the shoe stand
economic costs
sum of explicit and implicit costs
total cost
sum of implicit and explicit costs
total revenue
the amount that the firm receives for the sale of its output
marginal product
the change in output that results from a change in labor input; calculated as change in output divided by change in labor
marginal product
the change in the quantity of output obtained from one additional unit of input
marginal cost
the increase in total cost that arises from an extra unit of production
short-run
the period of time during which at least one factor of production is fixed
economies of scale
the property whereby long-run average total cost falls as the quantity of output increases
diminishing marginal product
the property whereby the marginal product of an input declines as the quantity of the input increases
efficient scale
the quantity of output that minimizes average total cost
production function
the relationship between the quantity of inputs and the quantity of outputs
constant returns to scale
the situation in which a firm's long-run average costs remain unchanged as it increases output
diseconomies of scale
the situation in which a firm's long-run average costs rise as the firm increases output
industrial organization
the study of how firms' decisions about prices and quantities depend on the market conditions they face
average total cost
total cost divided by the quantity of output
economic profit
total revenue - all opportunity costs (explicit and implicit) of producing the goods and services sold
profit
total revenue minus total cost
accounting profit
total revenue-explicit costs
Average variable cost
variable cost divided by the quantity of output
