Chapter 13 Class Review
Economies of Scale
The property whereby long-run average total cost falls as the quantity of output increases.
Efficient Scale
The quantity of output that minimizes average total cost.
Production Function
The relationship between quantity of inputs used to make a good and the quantity of output of that good.
Average Total Cost
Total Cost / Quantity of Output
Profit
Total Revenue - Total Cost
Economic Profit
Total Revenue - Total Cost (including explicit and implicit costs)
Accounting Profit
Total Revenue - Total Explicit Cost
Average total cost and marginal cost are merely ways to express information that is already contained in a firm's total cost.
True
Average variable cost is equal to total variable cost divided by quantity of output.
True
Diminishing marginal product exists when the production function becomes flatter as inputs increase.
True
Fixed costs are incurred even when a firm does not produce anything.
True
Implicit costs are costs that do not require an outlay of money by the firm.
True
Diseconomies of scale often arise because higher production levels allow specialization among workers.
False
Fixed costs are those costs that remain fixed no matter how long time the time horizon is.
False
If the marginal cost curve is rising, then so is the average total cost curve.
False
In the long run, a factory is usually considered a fixed input.
False
The fact that many inputs are fixed in the short run but variable in the long run has little impact on the firm's cost curves.
False
The shape of the total cost curve is unrelated to the shape of the production function.
False
When economists speak of a firm's costs, they are usually excluding the opportunity costs.
False
Average Fixed Cost
Fixed Cost / Quantity of Output
Implicit Costs
Input costs that do not require an outlay of money by the firm.
Explicit Costs
Input costs that require an outlay of money by the firm.
Total Revenue
The amount a firm receives for the sale of its output.
Marginal Product
The increase in output arises from an additional unit of output.
Marginal Cost
The increase in total cost that arises from an extra unit of production.
Total Cost
The market value of the inputs a firm uses in production.
Several related measures of cost can be derived from a firm's total cost.
True
The use of specialization to achieve economies of scale is one reason modern societies are as prosperous as they are.
True
Variable costs usually change as the firm alters the quantity of output produced.
True
When trying to understand the decision making process of different firms, economists assume that people think at the margin.
True
Average Variable Cost
Variable Cost / Quantity of Output
Fixed Costs
Costs that do not vary with the quantity of output produced.
Variable Costs
Costs that do vary with the quantity of output produced.