Economics
Mr. Bekemeyer
Production and Costs
(Unit V Quizam -- Review Sheet)
Please read Krugman - Wells Chapter 9 (pages 225 - 239), and Chapter 12
Chapter 9 (pages 225 - 239)
(be sure to review the text problems, note sheets, and extra worksheets if available)
1. What is cost? What is opportunity cost? What are resources? What is scarcity? Why are
resources scarce?
2. Explain explicit cost. Implicit cost.
3. Which type of cost does not necessarily require an outlay of money?
4. Explain accounting profit, economic profit, and normal profit (Notes, pages 227 - 228).
5. What is depreciation? Why is depreciation calculated to determine accounting profit?
(Page 227)
6. What is capital? Explain opportunity cost of capital (notes) or (implicit cost of capital)? Do
you include your own former income in implicit cost of capital calculations?
7. Explain what has happened to New England farmers over the last century and a half as well as
the pressures these farmers face today. (Page 229)
8. Be sure you understand the "How much" decisions. (Page 230)
9. What is marginal cost? Can you determine marginal costs from total cost? Explain constant marginal cost. (Can you graph constant marginal cost? Is it possible to have decreasing
marginal costs? Explain. When does increasing marginal cost occur?
10. Explain marginal benefits. Can you graph a marginal benefits curve? Can you determine
marginal benefits from total benefits? When is marginal benefit decreasing?
12. Can you determine when marginal analysis might be an appropriate decision making tool?
(Pages 233 - 237)
13. Why do we set MB = MC? Explain why our decisions are "muddled at the middle"?
(page 236)
14. Can you graph the optimal quantity produced? (MC = MB) How do we determine the optimal
quantity? (Pages 233 - 236)
15. Explain sunk cost. Why don't we include sunk cost in our marginal analysis?
Chapter 12
(be sure to review the text problems, note sheets, and extra worksheets if available)
1. What is a firms production function?
2. What is a cost curve?
3. What is an input?
4. Explain a fixed input. Variable input.
5. Explain the difference between the long run and short run.
6. What is the short run rule with regards to fixed inputs?
7. Can you graph a total product curve? And, can you explain total product?
8. What is the marginal product of labor? Can you create the marginal product of labor equation?
9. What does the slope of the total product curve tell us?
10. Why does the marginal product of labor eventually decline? Explain this using phrases like
diminishing returns to input. Can you graph the MPL?
11. What's a unit? (Page 307)
12. Be sure to read "For Inquiring Minds" on page 308.
13. Explain fixed cost, variable cost, and total cost. What is the total cost formula? Can you graph
a total cost curve?
14. This review sheet is starting to get long! (Pages 225 - 239 and all of Chapter 12)
15. Can you explain the differences in the shape of the total product curve and the total cost curve?
(Pages 309 - 311)
16. Explain marginal cost. What is the marginal cost formula? Can you graph marginal cost? Why
does the marginal cost curve eventually slope upward?
17. What is the "typical" shape of the marginal cost curve? How does it arrive at this shape?
(Pages 317 - 318) (NIKE Swoosh)
18. Explain average total cost. Explain average fixed cost. Explain average variable cost. How do you calculate average fixed cost (AFC), average variable cost (AVC) and average total cost
(ATC)?
19. What is the general shape of the average total cost curve? Why does this curve have this
shape?
20. Why does average fixed cost fall as more output is produced?
21. Why does average variable cost rise as more output is produced? What is the general shape of
the average variable cost curve?
22. Explain the spreading effect. (Page 315) Explain the diminishing returns effect. (Page 315)
23. Explain the minimum cost output. Where is this point located on the average total cost curve?
24. Explain the relationship between marginal cost and average total cost. (Page 317)
25. Explain the long run average total cost curve (LRATC).
26. Explain the differences between short run average total cost and long run average total cost.
(Pages 319 - 322)
27. Can you graph the short run average total cost curve along with the long run average total cost
curve?
28. What are increasing returns to scale, decreasing returns to scale, and constant returns to scale. Why do these three phenomena occur? Can you create a long run average total cost curve which illustrates the three phenomena?