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Econ Chapter 13

QuestionAnswer
What is total revenue? Money received from selling output. TR = price × quantity.
What is an explicit cost? A cost requiring a money payment, such as wages, rent, or supplies.
What is an implicit cost? The value of an opportunity given up, such as the owner’s forgone salary.
What do economic opportunity costs include? Both explicit and implicit costs.
How do you calculate accounting profit? Total revenue − explicit costs.
How do you calculate economic profit? Total revenue − explicit costs − implicit costs.
Why is accounting profit higher when implicit costs are positive? Accounting profit leaves out implicit costs.
What does zero economic profit mean? The business covers all explicit and implicit costs, including the owner’s next-best opportunity.
What is a fixed cost (FC)? A cost that does not change with output in the short run, such as rent.
What is a variable cost (VC)? A cost that changes with output, such as ingredients or materials.
What is the total cost formula? TC = FC + VC.
If output is zero, what is total cost in the slides’ examples? Fixed cost. Variable cost is zero.
What is marginal cost (MC)? The additional cost per additional unit of output.
What is the MC formula? MC = ΔTC ÷ ΔQ.
Can you calculate MC using variable cost? Yes. MC = ΔVC ÷ ΔQ, because fixed cost does not change.
What is average fixed cost? AFC = FC ÷ Q.
What is average variable cost? AVC = VC ÷ Q.
What is average total cost? ATC = TC ÷ Q = AFC + AVC.
What does Δ mean? Change in: new value minus old value.
What is the difference between average and marginal cost? Average: cost per unit across all output. Marginal: cost of additional output.
What happens to AFC as output increases? It falls, because fixed cost spreads over more units.
Why does MC eventually rise? Diminishing marginal product makes additional output more expensive.
Why is ATC usually U-shaped? Initially, spreading fixed costs lowers ATC. Eventually, rising variable cost per unit pushes ATC up.
If MC < ATC, what happens to ATC? ATC falls.
If MC > ATC, what happens to ATC? ATC rises.
Where does MC cross ATC on the usual smooth graph? At ATC’s minimum.
What is efficient scale? The output quantity that minimizes ATC.
Which curve always slopes downward when fixed cost is positive? AFC.
Why is ATC above AVC? ATC includes AFC. The vertical gap equals AFC.
What defines the short run? At least one input is fixed.
What defines the long run? All inputs can change.
Can a firm change factory size in the short run? The slides assume no, but it can change the number of workers.
What does long-run ATC show? The lowest average cost available at each quantity when the firm can choose its scale and inputs.
What are economies of scale? Long-run ATC falls as output increases.
What can cause economies of scale? Greater specialization and more efficient production.
What are constant returns to scale? Long-run ATC stays the same as output increases.
What are diseconomies of scale? Long-run ATC rises as output increases.
What can cause diseconomies of scale? Coordination and management problems in a larger organization.
How do diminishing marginal product and diseconomies of scale differ? Diminishing marginal product: add an input while others stay fixed. Diseconomies: expand overall scale in the long run.
Revenue = $80,000; explicit costs = $50,000; implicit costs = $25,000. Accounting profit? $30,000.
Using those same amounts, economic profit? $5,000.
FC = $100; VC = $210; Q = 4. Find TC. $310.
Using those same amounts, find AFC, AVC, and ATC. AFC = $25; AVC = $52.50; ATC = $77.50.
TC rises from $260 to $310 as Q rises from 3 to 4. Find MC. $50 ÷ 1 = $50.
A $2,000 worker adds 800 bushels. Find the additional cost per bushel. $2,000 ÷ 800 = $2.50.
Created by: HoteboyMikyell
 

 



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