Econ exam 3

Explain the difference between a firm's revenue and its profit. Which do firms maximize?

A firms revenue is the (price of the item multiplied by the number of items sold)

What is marginal product, and what does it mean if it is diminishing?

Marginal product is the increase in output that arises from an additional unit of input. Diminishing marginal product means that the marginal product of an input declines as the quantity of the input increases.

Define marginal cost.

Marginal cost is the cost of producing an additional unit of output and is equal to the change in total cost divided by the change in quantity.

What are the main characteristics of a competitive market?

-There are main buyers and sellers -it is easy to enter and exit the market -identical products -MC=MR

Give an example of an opportunity cost that an accountant would not count as a cost. Why would the accountant ignore this?

An accountant would not count the owner's opportunity cost of alternative employment as an accounting cost. This is ignored because money does not flow into or out of the firm.

Define Average total cost.

Average total cost I the cost of a typical unit of output and is equal to total cost divided by the quantity produced.

Define diseconomies of scale and explain why they might arise.

Diseconomies of scale exist when long-run average total cost rises as the quantity of output increases. Occurs because of coordination problems within a large organization.

Define economies of scale and explain why they might arise.

Economies of scale exist when long-run average total cost falls as the quantity of output increases. Occurs because of specialization among workers.

How and why does a firm's average- total-cost curve differ int the short run and in the long run?

In the long run a firm can adjust the factors of production that are fixed in the short run

What is the relationship between a firms total revenue, profit, and total cost?

The relationship between a firm's total revenue, profit, and total cost is profit = total revenue - total costs.

Define total cost.

Total cost consists of the costs of all inputs needed to produce a given quantity of output. It includes fixed costs and variable costs.