Chapter 7 Microeconomics (Exam 3)

  1. Explicit costs
    The actual cash payments for resources purchased in resource markets
  2. Implicit Costs
    The opportunity costs for resources owned by the firm or provided by the firm's owners
  3. Accounting Profit
    total revenue minus explicit costs
  4. Economic Profit 
    accounting profit minus implicit costs
  5. When a firm makes zero economic profit...
    it is said to be making a normal profit because all relevant opportunity costs are exactly covered
  6. A firm will go out of business...
    if it cannot cover all relevant opportunity costs
  7. Fixed resource 
    is one that cannot be varied in the short run
  8. Short run 
    is defined as the period for which at least one resource is fixed
  9. Variable resource 
    is one that is easily varied. In the long run, all inputs are variable resources.
  10. In the short run the most important feature of production...
    is the law of diminishing marginal returns
  11. To increase output in the short run...
    the firm must change one or more of its variable inputs.
  12. As larger amounts of a variable resource are combined with the fixed resource...
    output increases
  13. Marginal product of that variable resource...
    The extra output produced when an additional unit of a variable resource is combined with a fixed resource
  14. The law of diminishing returns states... 
    that eventually marginal physical product will get smaller as additional units of the variable resource are combined with the fixed resource
  15. Fixed costs 
    obligations that exist even if the firm is not producing any output and that do not change as output increases.
  16. Variable costs are zero... 
    when output is zero and increase as output increases
  17. Total cost 
    is the sum of fixed and variable costs
  18. Marginal cost
    the change in total cost that results when output changes by one unit
  19. The key to decision making by the firm in the short run is...
    marginal cost. Since the firm can alter variable and total costs by changing output.
  20. Long run
    a planning period during which all inputs can be varied, a new firm can be started, or a firm can go out of business
  21. Long-run planning curve
    the envelope of the least-cost segments of the short-run average cost curves for each output level. 
  22.  In the long run, the firm can determine... 
    the best method of production for every possible rate of output and select the scale of plant that is best for the desired rate of output
  23. The long-run average cost curve (or planning curve) tends to be...
  24. A production function...
    identifies the maximum quantity of a good that can be produced by various combinations of resources.
  25. Isoquant 
    a curve defined by points that indicate various combinations of two inputs that yield the same quantity of output
  26. The slope of an isoquant indicates... 
    the marginal rate of technical substitution of one resource for the other, and also equals the negative of the ratio of the marginal physical products of the resources
  27. Isocost line
    It identifies all combinations of two resources the firm can buy for a given total cost. Its slope is minus the ratio of the prices of the resources.
  28. A change in the relative prices of resources generates...
    a new expansion path.
Card Set
Chapter 7 Microeconomics (Exam 3)
Chapter 7 Microeconomics (Exam 3)