Chapter 6-7 Pindyck

Question 1

Practical way of describing how inputs can be transformed into outputs

Answer 1

Productive technology

Question 2

Firms must take into account the priecs of labor, capital, and other inputs

Answer 2

Cost constraints

Question 3

Firms must choose how much of each input to use in producing its output

Answer 3

Input choices

Question 4

Explanation of how a firm makes cost-minimizing production decisions and how its cost varies with its output.

Answer 4

Theory of the firm

Question 5

Inputs into the production
process

Answer 5

Factors of production

Question 6

Function showing the highest
output that a firm can produce
for every specified combination
of inputs.

Answer 6

Production function / q = F(K, L)

Question 7

Period of time in which quantities of one or more production factors cannot be
changed.

Answer 7

Short run

Question 8

Production factor that cannot be varied.

Answer 8

Fixed input

Question 9

Amount of time needed to make all production inputs variable.

Answer 9

Long run

Question 10

Output per unit of a particular input.

Answer 10

Average product

Question 11

Additioal ouptut produced as an input is increased by one unit

Answer 11

Marginal product

Question 12

Principle that as the use of an input increases with other inputs fixed, the
resulting additions to output will eventually decrease.

Answer 12

Law of diminishing marginal returns

Question 13

Average
product of labor for an entire
industry or for the economy as
a whole

Answer 13

labor productivity

Question 14

Total
amount of capital available for
use in production

Answer 14

Stock of capital

Question 15

Development of new
technologies allowing factors
of production to be used more
effectively

Answer 15

technological change

Question 16

Curve showing all
possible combinations of inputs
that yield the same output

Answer 16

isoquant

Question 17

Actual expenses plus depreciation
charges for capital equipment.

Answer 17

accounting cost

Question 18

Cost to a firm of utilizing economic
resources in production.

Answer 18

economic cost

Question 19

Cost
associated with opportunities
forgone when a firm’s resources
are not put to their best
alternative use

Answer 19

opportunity cost

Question 20

Expenditure that
has been made and cannot be
recovered.

Answer 20

sunk cost

Question 21

A cost that does not vary with the level of output and that can
be eliminated only by going out of business.

Answer 21

Fixed cost

Question 22

A cost that varies as output varies.

Answer 22

variable cost

Question 23

Total
economic cost of production,
consisting of fixed and variable
costs.

Answer 23

total cost

Question 24

Policy of
treating a one-time expenditure
as an annual cost spread out
over some number of years.

Answer 24

amortization

Question 25

Increase in cost resulting from the production of one extra unit of output.

Answer 25

marginal cost

Question 26

Firm’s total cost divided by its level of output.

Answer 26

average total cost (atc)

Question 27

Fixed cost divided by the level of output.

Answer 27

average fixed cost (afc)

Question 28

Variable cost divided by the level of output.

Answer 28

average variable cost (avc)

Question 29

Annual cost of owning and using a capital asset, equal to economic depreciation plus forgone interest.

Answer 29

user cots of capital

Question 30

formula of user cost of capital

Answer 30

user cost of capital= economic depreciation + (intereste rate) (value of capital) OR r= interest rate +depreciation rate

Question 31

Cost per year of renting one unit of capita

Answer 31

rental rate

Question 32

Graph showing all possible combinations of labor and capital that can be purchased for a given total cost.

Answer 32

isocost line

Question 33

Curve passing through points of tangency between a firm’s isocost lines and its isoquants.

Answer 33

extension path

Question 34

Curve relating average cost of production to output when all inputs, including capital, are variable.

Answer 34

long-run average cost curve (lac)

Question 35

Curve relating average cost of production to output when level of capital is fixed.

Answer 35

short-run average cost curve (sac)

Question 36

Curve showing the change in long-run total cost as output is increased incrementally by 1 unit.

Answer 36

long-run marginal cost curve (lmc)

Question 37

Situation in which output can be doubled for less than a doubling of cos

Answer 37

economies of scale

Question 38

Situation in which a doubling of output requires more than a doubling of cost.

Answer 38

diseconomies of scale

Question 39

Curve showing the various combinations of two different outputs (products) that can be produced with a given set of inputs.

Answer 39

product transformation curve

Question 40

Situation in which joint output of a single firm is greater than output that could be achieved by two different firms when each produces a single product

Answer 40

economies of scope

Question 41

Situation in which joint output of a single firm is less than could be achieved by separate firms when each produces a single product

Answer 41

diseconomies of scope

Question 42

Percentage of cost savings resulting when two or more products are produced jointly rather than individually

Answer 42

degree od economies of scope (sc)

Question 43

Graph relating amount of inputs needed by a firm to produce each unit of output to its cumulative output

Answer 43

learning curve

Question 44

Function relating cost of production to level of output and other variables that the firm can control.

Answer 44

cost function