Chapter 13 Class Review

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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.


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