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13 Cards in this Set

  • Front
  • Back
What is “opportunity cost”?
p155
The value of a good or service in terms of what had to be sacrificed in order to obtain that item.
2.What are the differences between explicit costs and implicit costs?
p155
explicit-are the monetary payments (or cash expenditures it makes to those who supply labor, services, material, fuel,transportation services and the like. such money paymentsare for the use of resources owned by others.
implicit-are the opportunity costs of using its self owned, self employed resources
3.What are the differences between the economist’s definition of normal profits and economic profits?
p155-156
normal-is the cost of doing business
economic- it whats left over when you pay for explicit and implicit costs
4.What is the economist’s conceptual viewpoint of “short run” and “long run”?
p156
short run- at least one variable is fixed, wages, rent. "is a period too brief for a firm to alter its plant capacity

long run-evrything is a variable everything can be changed. You can change suppliers, location, etc
5.What is the difference between total product, marginal product, and average product?
p157
Total- the toal quanity, how many
marginal-how much more did you produce since you added one more resource, i.e worker, machine.
average-also called labor productivity, total product divided by units of labor.
6.Identify some of the basic assumptions of the Law of Diminishing Returns.
p157
assumes technology is fixed, production techniques do not change. As I produce more my cost per unit is down.
7.What distinguishes fixed costs from variable costs?
p159-161
fixed-are those costs that in total do not vary with chanes in output. example rent, interest on debt,
variable-are those cost that change with the level of output.
8.How are average fixed costs, average variable costs, and average total costs computed?
p162
average fixed cost-divided Total Fixed cost by that output

average variable cost- is calculated

average total cost-
9.What is marginal cost?
p163
is the extra, or additional cost of producing one more unit of output.
What is the relationship of MC to AVC and ATC?
p164
when the amount (marginal cost) added to the total cost is less than the current average total cost, ATC will fall. Conversely, when the marginal cost exceeds ATC, ATC will rise.
11.How do the concepts of economies of scale and diseconomies of scale differ?
p168
economies of scale- the more I can crank out the lower my cost.

diseconomies of scale-is the difficulty of efficiently controllling and coordinating a firm's operations as it becomes a large scale producer
12.What is the purpose of the minimum efficient scale?
p170
is the lowest level of output at which a firm can minimizelong run average cost.
THE LAST WORD: Don’t Cry Over Sunk Costs
•What is a “sunk cost”? Cite some examples.
•What is the economic significance of sunk costs?
p172
sunk cost-unrecoverable cost
-cost are irrelevant,