ECO 304K (Introduction to
Microeconomics) FINAL REVIEW - UT
Austin Questions and Answers (Solved
Papers).
absolute advantage - CORRECT ANSWERS the ability of a party (an individual, or firm, or
country) to produce a greater quantity of a good, product, or service than competitors, using the same
amount of resources.
average fixed cost (AFC) - CORRECT ANSWERS Total fixed cost divided by the number of units
of output; aper-unit measure of fixed costs
average product - CORRECT ANSWERS The average amount produced by each unit of a
variable factor of production
average total cost (ATC) - CORRECT ANSWERS Total cost divided by the number of units of
output
average variable cost (AVC) - CORRECT ANSWERS Total variable cost divided bythe number of
units of output
breaking even - CORRECT ANSWERS The situation in which a firm is earning exactly a normal
rate of return
capital-intensive technology - CORRECT ANSWERS Technology that relies heavily on capital
instead of human labor
,constant returns to scale - CORRECT ANSWERS An increase in a firm's scale of production has
no effect on costs per unit produced
decreasing returns to scale, or diseconomies of scale - CORRECT ANSWERS An increase in a
firm's scale of production leads to higher costs per unit produced
firm - CORRECT ANSWERS An organization that comes into being when a person or a group of
people decides to produce a good or service to meet a perceived demand
fixed cost - CORRECT ANSWERS Any cost that does not depend on the firms' level of output.
These costs are incurred even if the firm is producing nothing. There are no fixed costs in the long run
homogenous products - CORRECT ANSWERS Undifferentiated products; products that are
identical to, or indistinguishable from, one another
increasing returns to scale, or economies of scale - CORRECT ANSWERS An increase in a firm's
scale of production leads to lower costs per unit produced
labor-intensive technology - CORRECT ANSWERS Technology that relies heavily on human
labor instead of capital
law of diminishing returns - CORRECT ANSWERS When additional units of a variable input are
added to fixed inputs, after a certain point, the marginal product of the variable input declines
long run - CORRECT ANSWERS That period of time for which there are no fixed factors of
production: Firms can increase or decrease the scale of operation, and new firms can enter and existing
firms can exit the industry
long-run average cost curve (LRAC) - CORRECT ANSWERS The "envelope" of a series of short-
run cost curves
, long-run competitive equilibrium - CORRECT ANSWERS WhenP=SRMC =SRAC=LRACand profits
are zero
marginal cost (MC) - CORRECT ANSWERS Theincrease in total cost thatresults from producing
1 moreunit of output. Marginal costsreflect changes in variablecosts
marginal product - CORRECT ANSWERS The additional output that can be produced by adding
one more unit of a specific input, ceteris paribus
marginal revenue (MR) - CORRECT ANSWERS The additional revenue that a firm takes in when
it increases output by one additional unit. In perfect competition, P=MR
minimum efficient scale (MES) - CORRECT ANSWERS The smallest size at which the long-run
average cost curve is at its minimum
normal rate of return - CORRECT ANSWERS A rate of return on capital that is just sufficient to
keep owners and investors satisfied. For relatively risk-free firms, it should be nearly the same as the
interest rate on risk-free government bonds
optimal method of production - CORRECT ANSWERS The production method that minimizes
cost
optimal scale of plant - CORRECT ANSWERS The scale of plant that minimizes average cost
perfect competition - CORRECT ANSWERS An industry structure in which there are many firms,
each small relative to the industry, producing identical products and in which no firm is large enough to
have any control over prices. In perfectly competitive industries, new competitors can freely enter and
exit the market
Microeconomics) FINAL REVIEW - UT
Austin Questions and Answers (Solved
Papers).
absolute advantage - CORRECT ANSWERS the ability of a party (an individual, or firm, or
country) to produce a greater quantity of a good, product, or service than competitors, using the same
amount of resources.
average fixed cost (AFC) - CORRECT ANSWERS Total fixed cost divided by the number of units
of output; aper-unit measure of fixed costs
average product - CORRECT ANSWERS The average amount produced by each unit of a
variable factor of production
average total cost (ATC) - CORRECT ANSWERS Total cost divided by the number of units of
output
average variable cost (AVC) - CORRECT ANSWERS Total variable cost divided bythe number of
units of output
breaking even - CORRECT ANSWERS The situation in which a firm is earning exactly a normal
rate of return
capital-intensive technology - CORRECT ANSWERS Technology that relies heavily on capital
instead of human labor
,constant returns to scale - CORRECT ANSWERS An increase in a firm's scale of production has
no effect on costs per unit produced
decreasing returns to scale, or diseconomies of scale - CORRECT ANSWERS An increase in a
firm's scale of production leads to higher costs per unit produced
firm - CORRECT ANSWERS An organization that comes into being when a person or a group of
people decides to produce a good or service to meet a perceived demand
fixed cost - CORRECT ANSWERS Any cost that does not depend on the firms' level of output.
These costs are incurred even if the firm is producing nothing. There are no fixed costs in the long run
homogenous products - CORRECT ANSWERS Undifferentiated products; products that are
identical to, or indistinguishable from, one another
increasing returns to scale, or economies of scale - CORRECT ANSWERS An increase in a firm's
scale of production leads to lower costs per unit produced
labor-intensive technology - CORRECT ANSWERS Technology that relies heavily on human
labor instead of capital
law of diminishing returns - CORRECT ANSWERS When additional units of a variable input are
added to fixed inputs, after a certain point, the marginal product of the variable input declines
long run - CORRECT ANSWERS That period of time for which there are no fixed factors of
production: Firms can increase or decrease the scale of operation, and new firms can enter and existing
firms can exit the industry
long-run average cost curve (LRAC) - CORRECT ANSWERS The "envelope" of a series of short-
run cost curves
, long-run competitive equilibrium - CORRECT ANSWERS WhenP=SRMC =SRAC=LRACand profits
are zero
marginal cost (MC) - CORRECT ANSWERS Theincrease in total cost thatresults from producing
1 moreunit of output. Marginal costsreflect changes in variablecosts
marginal product - CORRECT ANSWERS The additional output that can be produced by adding
one more unit of a specific input, ceteris paribus
marginal revenue (MR) - CORRECT ANSWERS The additional revenue that a firm takes in when
it increases output by one additional unit. In perfect competition, P=MR
minimum efficient scale (MES) - CORRECT ANSWERS The smallest size at which the long-run
average cost curve is at its minimum
normal rate of return - CORRECT ANSWERS A rate of return on capital that is just sufficient to
keep owners and investors satisfied. For relatively risk-free firms, it should be nearly the same as the
interest rate on risk-free government bonds
optimal method of production - CORRECT ANSWERS The production method that minimizes
cost
optimal scale of plant - CORRECT ANSWERS The scale of plant that minimizes average cost
perfect competition - CORRECT ANSWERS An industry structure in which there are many firms,
each small relative to the industry, producing identical products and in which no firm is large enough to
have any control over prices. In perfectly competitive industries, new competitors can freely enter and
exit the market
