Review Questions for Unit 6 Flashcards
(10 cards)
What is the relationship between a firm’s total revenue, profit, and total cost?
Profit = Total Revenue - Total Cost
Give an example of an opportunity cost that an accountant might not count as a cost. Why would the accountant ignore this cost?
An opportunity cost that an acountant might ignore, would be a busniness owner having some type of other skill, which they have given up to pursue opening the firm. Such as, someone who can write software, giving up writing code to open a baker. An economist will include the opportunity cost of the lost wages related to writing software, but an accountant would ignore this.
What is marginal product, and what does it mean if it is diminishing?
A marginal product is the increase in output that arises from an additional unit of input.
Define total cost
Total costs are all the costs incurred during the production of a good or service. It includes fixed costs and variable costs.
Define average total cost
average total cost is the cost of a typical unit of output and is equal to total cost divided by the quantity produced.
Define marginal cost?
marginal cost is the cost of producing an additional unit
How are TC, ATC and MC related?
when MC is less than ATC, ATC is declining, when MC is greater than ATC, ATC is rising
How and why does a firm’s average-total-cost curve differ in the short run compared with the long run?
The short-run ATC reflects temporary constraints (fixed inputs), while the long-run ATC shows the minimum achievable cost when a firm can fully adjust all factors of production.
Define economies of scale and explain why they might arise. Define diseconomies of scale and explain why they might arise.
economies of scale occur when a firms ATC decreases as output increases in the long run. They can occur due to technological advantage, bulk purchasing of inputs and specialization of labour. diseconomies of scale are when a firms ATC increases as output increases in the long run. These can occur due to beaurocracy, managerial ineffecianly and employee disengagement.
what are the three determinants of demand for the labour curve?
product price, technological change, supply of other factors
