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Economics 202 ch 20
Principles of Economics ch 20
| Question | Answer |
|---|---|
| Opportunity Cost | The value of the best alternative surrendered when a choice is made. |
| Explicit Cost | Actual expenditure of money. Examples are utilities expense, rent expense, and tax expense. |
| Implicit Cost | Cost without an expenditure of money. Example is the value of a business owner's labor devoted to the business. |
| Accounting Profit | The difference between total revenue and explicit costs. |
| Accounting Profit = | Total Revenue- Explicit Cost |
| Economic Profit | The difference between total revenue and total opportunity cost, including both explicit and implicit costs. |
| Economic Profit = | Total Revenue - Total Opportunity Costs (explicit and implicit) |
| Sunk Cost | A past cost that cannot be changed by current decisions. |
| Short Run | A period in which at least one input is fixed. |
| Inputs | Resources |
| Long Run | A period in which all inputs can be varied. |
| Marginal Physical Product (MPP) | The change in output with one additional unit of input. |
| Law of Diminishing Marginal Returns | As larger amounts of a variable input are combined with fixed inputs, eventually the marginal physical product of the variable input declines. |
| Marginal Costs (MC) | The change in total cost that result from producing an additional unit of output. |
| Fixed Costs (FC) | Costs that do not vary with output. |
| In short run production, at least one input is: | Fixed in amount. |
| As short run production is increased: | The amount of variable inputs used in production must be increased. Thus, the cost associated with inputs (variable costs) increase with output. |
| Variable Costs (VC) | Cost that vary with output. |
| Total Cost (TC) | The sum of fixed and variable cost. |
| Average Total Cost (ATC) = | Total Cost / Quantity of Output |
| Average Fixed Cost (AFC) = | Fixed Costs / Quantity of Output |
| Average Variable Cost (AVC) = | Variable Costs / Quantity of Output |
| Average Fixed Cost + Average Variable Cost = | Average Total Cost (ATC) |
| The sum of average fixed cost and average variable cost: | Equals average total cost. |
| The marginal cost curve intersects the ATC curve and the AVC curve at: | Their minimum points. |
| The average fixed cost decreases as: | Additional units of output are produced. This is because fixed costs are being spread over an increasing amount of output. |
| Total Revenue (TR) | Equals the selling price of the output multiplied by the quantity sold. |
| Marginal Revenue (MR) | The change in total revenue from selling an additional unit of output. |
| Break-Even Quantity | Occurs where total revenue and total cost are equal (where the TR curve and the TC curve intersect). |
| The profit-maximizing quantity occurs where: | Marginal revenue and marginal costs are equal (where the MR curve and the MC curve intersect. |
| The first step to complete a cost table is to: | Determine the fixed cost (FC). |
| The second step to complete a cost table is to: | Determine the average fixed cost for the different quantities by using the formula AFC = FC / Q. |
| The third step to complete a cost table is to: | Complete the table row by row. |
Created by:
dengler
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