Chapter 13 (The Cost of Production)

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The marginal product of labor can be defined as the change in

output divided by the change in labor.

Industrial organization is the study of how

firms’ decisions regarding prices and quantities depend on the market conditions they face.

The marginal product of any input is the

increase in total output obtained from one additional unit of that input.

A production function describes

how a firm turns inputs into output.

The difference between accounting profit and economic profit relates to

the manner in which costs are defined.

Total cost can be divided into two types of costs:

fixed costs and variable costs.

Which field of economics studies how the number of firms affects the prices in a market and the efficiency of market outcomes?

industrial organization

Economies of scale occur when

long-run average total costs fall as output increases.

Constant returns to scale occur when a firm’s

long-run average total costs do not vary as output increases.

The cost of producing the typical unit of output is the firm’s

average total cost.

Some costs do not vary with the quantity of output produced. Those costs are called

fixed costs.

Economists in the field of industrial organization study how

firms’ decisions about prices and quantities depend on market conditions.

Economic profit is equal to total revenue minus the

opportunity cost of producing goods and services.

Accounting profit is equal to

total revenue minus the explicit cost of producing goods and services.

Profit is defined as

total revenue minus total cost.

A firm’s opportunity costs of production are equal to its

explicit costs + implicit costs.

Total revenue minus only explicit costs is called

accounting profit.

Diseconomies of scale occur when

long-run average total costs rise as output increases.

Marginal cost is equal to

Change Total Cost DIVIDED by Change in Quantity

Which of the following measures of cost is best described as "the increase in total cost that arises from an extra unit of production?"

marginal cost

When calculating a firm’s profit, an economist will subtract only

the opportunity costs from total revenue because these include both the implicit and explicit costs of the firm.

For a firm, the relationship between the quantity of inputs and quantity of output is called the

production function.

The firm’s efficient scale is the quantity of output that minimizes

average total cost.

The efficient scale of the firm is the quantity of output that

minimizes average total cost.

A total-cost curve shows the relationship between the

quantity of output produced and the total cost of production.

Variable cost divided by quantity produced is

a. average variable cost. b. marginal cost. c. average total cost. None of the above is correct.

When a firm experiences constant returns to scale,

long-run average total cost is unchanged, even when output increases.

The difference between accounting profit and economic profit is

implicit costs.

Average total cost equals

(fixed costs + variable costs) divided by quantity produced.

The amount by which total cost rises when the firm produces one additional unit of output is called

marginal cost.

Marginal cost equals

(i) change in total cost divided by change in quantity produced. (ii) change in variable cost divided by change in quantity produced.

When the marginal product of an input declines as the quantity of that input increases, the production function exhibits

diminishing marginal product.

Economists normally assume that the goal of a firm is to

maximize its profit.

The amount of money that a firm receives from the sale of its output is called

total revenue.

Average total cost (ATC) is calculated as follows:

ATC = (total cost)/(quantity of output).

Constant returns to scale occur when the firm’s long-run

average total costs are constant as output increases.

To an economist, the field of industrial organization answers which of the following questions?

How does the number of firms affect prices and the efficiency of market outcomes?

Which of the following is not a property of a firm’s cost curves?

Average total cost will cross marginal cost at the minimum of marginal cost.

Total revenue minus both explicit and implicit costs is called

economic profit.

Which of these assumptions is often realistic for a firm in the short run?

The firm can vary the number of workers it employs but not the size of its factory.

The things that must be forgone to acquire a good are called

opportunity costs.

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