CH 6

Question 1

Short run

Answer 1

A planning period over which the managers of a firm must consider one or more of their factors if production as a fixed quantity

Question 2

Fixed factor of production

Answer 2

A factor of production whose quantity cannot be changed during a particular period

Question 3

Variable factor of production

Answer 3

A factor of production whose quantity can be changed during a particular period

Question 4

Long run

Answer 4

The planning period over which a firm can consider all factors of production as variable

Question 5

Production function

Answer 5

The relationship between factors of production and the output of a firm

Question 6

A total product curve

Answer 6

Graph that shows the quantities of output that can be obtained from different amounts of a variable factor of production, assuming other factors of production are fixed

Question 7

Marginal product

Answer 7

The amount by which output rises with an additional unit of a variable factor

Question 8

Marginal product of labor

Answer 8

The amount by which output rises with an additional unit of labor

Question 9

Average Product

Answer 9

The output per unit of variable factor

Question 10

Average product of labor

Answer 10

The ratio of output to the number of units of labor

Question 11

Increasing marginal returns

Answer 11

The range over which each additional unit of a variable factor adds more to total output than the previous unit

Question 12

Diminishing marginal returns

Answer 12

The range over which each additional unit of a variable factor adds less to total output than the previous unit

Question 13

Negative marginal returns

Answer 13

The range over which additional units of a variable factor reduce total output, given constant quantities of all other factors

Question 14

Law of diminishing marginal returns

Answer 14

The marginal product of any variable factor of production will eventually decline, assuming the quantities of other factors of production are unchanged

Question 15

Variable costs

Answer 15

The costs associated with the use of variable factors of production

Question 16

Fixed costs

Answer 16

The costs associated with the use of fixed factors of production

Question 17

Total Variable cost

Answer 17

Cost that varies with the level of output

Question 18

Total fixed cost

Answer 18

Cost that does not vary with output

Question 19

Total cost

Answer 19

The sum of total variable cost and total fixed cost

Question 20

Average total cost

Answer 20

Total cost divided by quantity; it is the firms total cost per unit of output

Question 21

Average variable cost

Answer 21

Total variable cost divided by quantity; it is the firms total variable cost per unit of output

Question 22

Average fixed cost

Answer 22

Total fixed cost divided by quantity

Question 23

Capital intensive

Answer 23

Situation in which a firm has a high ratio of capital to labor

Question 24

Labor intensive

Answer 24

Situation in which a firm has a high ratio of labor to capital

Question 25

Economies of scale

Answer 25

Situation in which the long run average cost declines as the firm expands its output

Question 26

Diseconomies of scale

Answer 26

Situation in which the long run average cost increases as the firm expands its output

Question 27

Constant returns to scale

Answer 27

Situation in which the long run average cost stays the same over an output range

Question 28

Perfect competition

Answer 28

Model of the market based on the assumption that a large number of firms produce identical goods consumed by a large number of buyers

Question 29

Price takers

Answer 29

Individuals or firms who must take the market price as given

Question 30

Monopoly

Answer 30

A firm that is the only producer of a good or service for which there are no close substitutes and for which entry by potential rivals is prohibitively difficult

Question 31

Price setter

Answer 31

A firm that sets or picks price based on its output decision

Question 32

Imperfect competition

Answer 32

A market structure with more than one firm in an industry in which at least one firm is a price setter

Question 33

Monopolistic competition

Answer 33

A model characterized by many firms producing similar but differentiated products in a market with easy entry and exit

Question 34

Oligopoly

Answer 34

Situation in which a market is dominated by a few firms, each of which recognizes that its own actions will produce a response from its rivals and that those responses will affect it