F1 - Definitions

Question 1

Firm

Answer 1

Organization that produces goods or services for sale
Transforms inputs into outputs

Question 2

Production function

Answer 2

The quantity of an output released by a firm depending on the quantity of inputs

Question 3

Fixed input

Answer 3

An input whose quantity is fixed for a period of time and cannot be varied

Question 4

Variable Input

Answer 4

An input whose quantity the firm can vary at any time

Question 5

Long run

Answer 5

Long period of time, most inputs can be adjusted

Question 6

Short run

Answer 6

The time period during which at least one input is fixed

Question 7

Total product curve

Answer 7

How the quantity of output depends on quantity of input, for a given quantity of the fixed input and given production technology

Question 8

Marginal product of labour

Answer 8

MPL
Change in quantity of output produced by one additional unit of labour

Question 9

Diminishing returns to an input

Answer 9

When an increase in the quantity of that input, holding the quantity of all other inputs fixed, reduces that input’s marginal product (negatively sloped MPL)

Question 10

Average product of labour

Answer 10

Amount of output produced per unit of input employed in the production process

Question 11

Average Marginal cost

Answer 11

Change in total cost generated by producing one more unit of output. Additional cost of each additional unit

Question 12

Average total cost

Answer 12

Total cost divided by the quantity of output produced (total cost per unit of output)

Question 13

Spreading effect

Answer 13

The larger the output, the greater quantity of output over which fixed cost is spread
(Lower AFC)

Question 14

Diminishing returns

Answer 14

The larger the output, the greater the quantity of variable inputs required to produce it
(Higher AVC)

Question 15

Minimum cost output

Answer 15

The quantity of output corresponding to minimum average total cost

Question 16

Specialization

Answer 16

Allowing workers to specialize in certain parts of the production process. Good at increasing efficiency up to a certain point

Question 17

Long-run average total curve

Answer 17

The relationship between output and ATC when fixed cost has been chosen to minimize average total cost for each level of output

Question 18

Price taking producers

Answer 18

When a producer’s actions cannot affect the market price

Question 19

Price taking consumer

Answer 19

A consumer who cannot influence the market price

Question 20

Market share

Answer 20

Fraction of the total industry output accounted for by a single producer’s output

Question 21

Entry

Answer 21

Arrival of new firms into an industry

Question 22

Exit

Answer 22

Departure of firms from an industry

Question 23

Marginal Revenue

Answer 23

Change in total revenue generated by one additional unit of output

Question 24

Break-even price

Answer 24

Earns 0 profit

Question 25

Industry supply curve

Answer 25

Relationship between the price and total output of an industry as a whole

Question 26

Externality

Answer 26

When individuals impose costs or deliver benefits to others, but don’t have an economic incentive to take those costs or benefits into account when making decision

Question 27

External Costs

Answer 27

Uncompensated cost that an individual or firm imposes on others (Negative externalities)

Question 28

External Benefits

Answer 28

Benefits that individuals or firms confer on others w/o compensation (Positive externalities)

Question 29

Marginal Social Cost (MSC)

Answer 29

Additional cost imposed on society as a whole by an additional unit of something, likely pollution (MPC + MEC)

Question 30

Marginal Private Cost (MPC)

Answer 30

Additional cost imposed on polluters if he creates another unit of pollution

Question 31

Marginal external cost (MEC)

Answer 31

Additional cost imposed on others if polluter creates more pollution

Question 32

Marginal Social Benefit (MSB)

Answer 32

Benefit to society from an additional unit of pollution (MPB + MEB)

Question 33

Marginal Private Benefit (MPB)

Answer 33

Additional benefit a polluter receives when creating another unit of pollution

Question 34

Marginal External Benefit (MEB)

Answer 34

Additional benefit others receive if the polluter creates more pollution

Question 35

Socially optimal point of production s

Answer 35

The quantity of something bad (ex, pollution) that society would choose if all the social costs and benefits were fully accounted for

Question 36

Coarse theorem

Answer 36

The economy can always reach an efficient solution, even with externalities, provided that the costs of making a deal are sufficiently low

Question 37

"Internalize the extrenality"

Answer 37

When producers or consumers take into account the externalities that they cause

Question 38

Environmental standards

Answer 38

Rules that protect the env. By specifying actions by producers and consumers

Question 39

Emissions Taxes

Answer 39

Taxes that force the producers to reduce their production of pollution

Question 40

Pigouvian Taxes

Answer 40

Taxes used to discourage from producing negative externalities