ECU ECON 2113 Exam 4 Study Guide | Economics Review, Key
Concepts & Practice Questions
industrial organization - correct answer ✔✔the study of how firms' decisions about prices and
quantities depend on the market conditions they face.
total revenue - correct answer ✔✔the quantity of output the firm produces * the price at which
it sells the output.
profit = total revenue - total cost - correct answer ✔✔the formula used by a firm as a goal to
maximize profits.
total cost - correct answer ✔✔the market value of the inputs a firm uses in production.
explicit costs - correct answer ✔✔input costs that require an outlay of money by the firm (raw
materials, wages and rent).
implicit costs - correct answer ✔✔input costs that do not require an outlay of money by the
firm (value of income forgone by owner of a firm plus capital) and does not pay rent.
economic profit - correct answer ✔✔total revenue - total cost, including both explicit and
implicit costs.
accounting profit - correct answer ✔✔total revenue - total explicit cost.
production function - correct answer ✔✔the relationship between quantity of inputs used to
make a good and the quantity of output of that good.
, marginal product - correct answer ✔✔the increase in output that arises from an additional unit
of input.
diminishing marginal product - correct answer ✔✔the property whereby the marginal product
of an input declines as the quantity of the input increases.
fixed costs - correct answer ✔✔costs that do not vary with the quantity of output produced.
variable costs - correct answer ✔✔costs that vary with the quantity of output produced.
average total cost - correct answer ✔✔total cost divided by output.
average fixed cost - correct answer ✔✔fixed cost divided by output.
average variable cost - correct answer ✔✔variable costs divided by output.
marginal cost - correct answer ✔✔change in total cost (larger cost- smaller cost) divided by
change in output (larger output- smaller output).
In addition, it is the increase in total cost that arises from an extra unit of production.
efficient scale - correct answer ✔✔the quantity of output that minimizes average total cost.
economies of scale - correct answer ✔✔property whereby long-run average total cost falls as
the quantity of output increases (low-levels of output).
diseconomies of scale - correct answer ✔✔property whereby long-run average total cost rises
as the quantity of output increases (high-levels of output).
Concepts & Practice Questions
industrial organization - correct answer ✔✔the study of how firms' decisions about prices and
quantities depend on the market conditions they face.
total revenue - correct answer ✔✔the quantity of output the firm produces * the price at which
it sells the output.
profit = total revenue - total cost - correct answer ✔✔the formula used by a firm as a goal to
maximize profits.
total cost - correct answer ✔✔the market value of the inputs a firm uses in production.
explicit costs - correct answer ✔✔input costs that require an outlay of money by the firm (raw
materials, wages and rent).
implicit costs - correct answer ✔✔input costs that do not require an outlay of money by the
firm (value of income forgone by owner of a firm plus capital) and does not pay rent.
economic profit - correct answer ✔✔total revenue - total cost, including both explicit and
implicit costs.
accounting profit - correct answer ✔✔total revenue - total explicit cost.
production function - correct answer ✔✔the relationship between quantity of inputs used to
make a good and the quantity of output of that good.
, marginal product - correct answer ✔✔the increase in output that arises from an additional unit
of input.
diminishing marginal product - correct answer ✔✔the property whereby the marginal product
of an input declines as the quantity of the input increases.
fixed costs - correct answer ✔✔costs that do not vary with the quantity of output produced.
variable costs - correct answer ✔✔costs that vary with the quantity of output produced.
average total cost - correct answer ✔✔total cost divided by output.
average fixed cost - correct answer ✔✔fixed cost divided by output.
average variable cost - correct answer ✔✔variable costs divided by output.
marginal cost - correct answer ✔✔change in total cost (larger cost- smaller cost) divided by
change in output (larger output- smaller output).
In addition, it is the increase in total cost that arises from an extra unit of production.
efficient scale - correct answer ✔✔the quantity of output that minimizes average total cost.
economies of scale - correct answer ✔✔property whereby long-run average total cost falls as
the quantity of output increases (low-levels of output).
diseconomies of scale - correct answer ✔✔property whereby long-run average total cost rises
as the quantity of output increases (high-levels of output).
