EKN 110 CHAPTER 6 CORRECT
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Economic cost / opportunity cost - ANSWER- Costs exit because resources are
scarce,
productive and have alternative uses.
- When society uses a combination of resources to produce a particular product, it
forgoes all alternative opportunities to use those resources for other purposes.
Total product (TP) - ANSWERTotal quantity or total output of a particular good or
service produced.
Marginal product (MP) - ANSWERThe extra output or added product associated with
adding a unit of a variable resource to the production process. MP= ΔΤP/ Δinput
Average product (AP) - ANSWEROutput per unit of input. AP= TP/input
Law of diminishing returns - ANSWERAs successive units of a variable resource are
added to a fixed resource, beyond some point the extra, or marginal, product that
can be attributed to each additional unit of the variable resource decline.
Explicit costs - ANSWERThe monetary payments (or cash expenditures) it makes to
those who supply labour services, materials, fuel, transportation services etc. Such
money payments are for the use of resources by others.
Implicit costs - ANSWEROpportunity costs of using its self-owned, self- employed
resources. To the firm, implicit costs are the money payments that self-employed
resources could have earned in their best alternative use
Normal profit - ANSWERThe payment made by a firm to obtain and retain
entrepreneurial ability or the minimum income entrepreneurial ability must receive to
induce it to perform entrepreneurial functions for a firm.
Economic or pure profit - ANSWERTotal revenue minus total costs (both explicit and
implicit, the latter including normal profit to the entrepreneur)
Short run - ANSWERPeriod too brief for a firm to alter its plant capacity, yet long
enough to permit a change in the degree to which the fixed plant is used.
Long run - ANSWERPeriod long enough for the firm to adjust the quantities of
all the resources that it employs, including plant capacity.
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Economic cost / opportunity cost - ANSWER- Costs exit because resources are
scarce,
productive and have alternative uses.
- When society uses a combination of resources to produce a particular product, it
forgoes all alternative opportunities to use those resources for other purposes.
Total product (TP) - ANSWERTotal quantity or total output of a particular good or
service produced.
Marginal product (MP) - ANSWERThe extra output or added product associated with
adding a unit of a variable resource to the production process. MP= ΔΤP/ Δinput
Average product (AP) - ANSWEROutput per unit of input. AP= TP/input
Law of diminishing returns - ANSWERAs successive units of a variable resource are
added to a fixed resource, beyond some point the extra, or marginal, product that
can be attributed to each additional unit of the variable resource decline.
Explicit costs - ANSWERThe monetary payments (or cash expenditures) it makes to
those who supply labour services, materials, fuel, transportation services etc. Such
money payments are for the use of resources by others.
Implicit costs - ANSWEROpportunity costs of using its self-owned, self- employed
resources. To the firm, implicit costs are the money payments that self-employed
resources could have earned in their best alternative use
Normal profit - ANSWERThe payment made by a firm to obtain and retain
entrepreneurial ability or the minimum income entrepreneurial ability must receive to
induce it to perform entrepreneurial functions for a firm.
Economic or pure profit - ANSWERTotal revenue minus total costs (both explicit and
implicit, the latter including normal profit to the entrepreneur)
Short run - ANSWERPeriod too brief for a firm to alter its plant capacity, yet long
enough to permit a change in the degree to which the fixed plant is used.
Long run - ANSWERPeriod long enough for the firm to adjust the quantities of
all the resources that it employs, including plant capacity.
