ASU ECN 212 Midterm Test Questions
and Answers.
Law of diminishing marginal return - Answer When successive equal amounts of a variable
resource are combined with a fixed amount of another resource, marginal increases in output
that can be attributed to each additional unit of the variable resource will decline. (example, too
many employees on the floor of a showroom)
ATC: Average Total Cost - Answer the per unit cost
ATC=TC/quantity of output
MC: Marginal Cos - Answer The change in cost caused by the change in output.
MC=TC/output
TC: Total cost - Answer expenses that a business has in supplying goods and services.
FC: Total fixed cost - Answer costs that do not change no matter what quantity is produced
VC: Total variable cost - Answer ayments for additional resources used as output increases.
Ex.) electricity, water, more workers
TC= FC+VC
AFC: Average Fixed Cost - Answer AFC=FC/ total output
AVC: Average Variable Cost - Answer AVC= VC/ total output
Short Run average total cost - Answer TOTAL COST/ TOTAL QUANTITY OF OUTPUT; this will
only happen when at least one resource is fixed.
In the long run everything is variable. which means the law of diminishing marginal return does
not apply when all resources are variable.
Optimal output level - Answer MR=MC (marginal return=marginal cost)
Economies of Scale - Answer The decrease in per unit costs as the quantity of production
increases and all resources are variable. Getting more efficient as it gets bigger.
, Diseconomies of Scale - Answer the increase in per unit cost as the quantity of production
increases and all resources are variable. Getting less efficient as it gets bigger.
Constant Returns to scale - Answer unit cost remain constant as the quantity of production is
increased and all resources are variable
Minimum Efficient Scale - Answer the minimum point of the long-run average total cost curve,
the output level at which the cost per unit of output is the lowest
TP: Total Physical Products - Answer The maximum output that can be produced when
successive units of a variable resource are added to the fixed amount of other resources.
TP Slope= X/ Y=Q/L
AP: Average physical product: - Answer total Output (TP)/ Number of Employees (L)
AP= TP/ L
MP: Marginal Physical Product: - Answer Additional quantity produced when 1 additional unit
of resource is used with the same quantity of other resources.
Change in Output (TP) / Change in the Number of Employees
MP= TP/ L
MR: Marginal Revenue - Answer Additional Revenue of producing one more unit of output.
*MR curve depends on demand
MR=TR/ Q
MC: Marginal Cost - Answer additional cost of producing one more unit of output
*MC curve is nike shaped
MC=TC/Q
Accounting Profit - Answer simply the net operating income, so whatever money is brought in
minus the cost it took to make that profit
Economic Profit - Answer economic profit is the same but minus the equity capital, or the
investments made by the investors and owners. includes all opportunity cost.
and Answers.
Law of diminishing marginal return - Answer When successive equal amounts of a variable
resource are combined with a fixed amount of another resource, marginal increases in output
that can be attributed to each additional unit of the variable resource will decline. (example, too
many employees on the floor of a showroom)
ATC: Average Total Cost - Answer the per unit cost
ATC=TC/quantity of output
MC: Marginal Cos - Answer The change in cost caused by the change in output.
MC=TC/output
TC: Total cost - Answer expenses that a business has in supplying goods and services.
FC: Total fixed cost - Answer costs that do not change no matter what quantity is produced
VC: Total variable cost - Answer ayments for additional resources used as output increases.
Ex.) electricity, water, more workers
TC= FC+VC
AFC: Average Fixed Cost - Answer AFC=FC/ total output
AVC: Average Variable Cost - Answer AVC= VC/ total output
Short Run average total cost - Answer TOTAL COST/ TOTAL QUANTITY OF OUTPUT; this will
only happen when at least one resource is fixed.
In the long run everything is variable. which means the law of diminishing marginal return does
not apply when all resources are variable.
Optimal output level - Answer MR=MC (marginal return=marginal cost)
Economies of Scale - Answer The decrease in per unit costs as the quantity of production
increases and all resources are variable. Getting more efficient as it gets bigger.
, Diseconomies of Scale - Answer the increase in per unit cost as the quantity of production
increases and all resources are variable. Getting less efficient as it gets bigger.
Constant Returns to scale - Answer unit cost remain constant as the quantity of production is
increased and all resources are variable
Minimum Efficient Scale - Answer the minimum point of the long-run average total cost curve,
the output level at which the cost per unit of output is the lowest
TP: Total Physical Products - Answer The maximum output that can be produced when
successive units of a variable resource are added to the fixed amount of other resources.
TP Slope= X/ Y=Q/L
AP: Average physical product: - Answer total Output (TP)/ Number of Employees (L)
AP= TP/ L
MP: Marginal Physical Product: - Answer Additional quantity produced when 1 additional unit
of resource is used with the same quantity of other resources.
Change in Output (TP) / Change in the Number of Employees
MP= TP/ L
MR: Marginal Revenue - Answer Additional Revenue of producing one more unit of output.
*MR curve depends on demand
MR=TR/ Q
MC: Marginal Cost - Answer additional cost of producing one more unit of output
*MC curve is nike shaped
MC=TC/Q
Accounting Profit - Answer simply the net operating income, so whatever money is brought in
minus the cost it took to make that profit
Economic Profit - Answer economic profit is the same but minus the equity capital, or the
investments made by the investors and owners. includes all opportunity cost.
