Production And Cost Concepts: Study Guide

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Study Guide #4 Module 11. PRODUCTION & COST CONCEPTS 1. What is the relationship between a firm’s total revenue, profit, and total cost? The total profit of a firm is equal to total revenue minus total cost. In other words, total profit equal total revenue (the amount of a firm receive for the sale of its output) minus total cost( the market value of input a firm uses in production). 2. Give an example of an opportunity cost that an accountant might not count as a cost. Why would the accountant ignore this cost? An accountant would not count implicit cost (input costs that do not require an outlay of money by the firm) as a cost. It is not included/ ignored because no money flows in or out of the firm. Accountant normally only concerned with the firm’s flow of money, so they record only explicit cost. Economic profit takes both explicit and implicit costs into an account, whereas accounting profit considers only explicit cost. 3. What is marginal product, and what does it mean if it is diminishing? Marginal product is the increase in output that arises from …show more content…

How and why does a firm’s average total cost curve differ in the short run and in the long run? In the long run a firm can adjust the factors of production that are fixed in the short run. 7. Define economies of scale and explain why they might occur. Define diseconomies of scale and explain why they might occur. Economies of scale is the property whereby long-run average total cost fall as quantity of output increases. Economies of scale often occur because higher productive levels allow specialization among workers, which permits each worker to become a specific task. Diseconomies of scale is the property whereby long-run average total cost rise as the quantity of output increases. Diseconomies of scale can occur because of coordination problems that are inherent in any large organization. Module 12. PROFIT MAXIMIZATION & PERFECT COMPETITION 1. What are the main characteristics of a competitive

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