Econ- - Econ Exam 2 Review sheet 1 1. What is a production...

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Econ Exam 2 Review sheet 1 1. What is a production function? a. A technological relationship expressing the maximum quantity of a good obtainable from different combinations of factor inputs. Ex: with one chair and one drill a dentist can fill 35 cavities a day but with 2 chairs, a drill, and an assistant he can fill 55 cavities a day. 2. What is the “law of diminishing returns”? a. With each additional variable input added, less output is produced 3. Define: a. Marginal Product-the extra output produced by one more unit of an input b. Marginal cost-change in total cost when the quantity changes by one unit c. Sunk cost-cost you have already incurred and therefore you have no control over i. If you have no control over the cost it should NOT be included in decision making d. Average total cost-total cost/number of units e. Opportunity cost-the cost of giving up one thing for the next best alternative f. Marginal physical product-change in total output associated with one additional unit of output g. Fixed cost-the costs that do not change as a result of having it. The costs you must incur no matter if a firm is producing a product of not. Examples: utilities cost of machinery, building rent, etc. h. Average variable cost-the total cost a firm can vary/total units of output i. Economies of scale-the cost advantages that firm obtains due to expansion and being a large firm. Example: buying bulk of materials through long term contracts to the materials are cheaper 4. Define and give an example of explicit cost and implicit cost a. Explicit cost-actual cost outlay i. Wages, taxes, utilities b. Implicit cost-the opportunity cost of using resources you already own i. By using a building you own you lose money by not renting it out
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c. Total cost=explicit+implicit
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Econ- - Econ Exam 2 Review sheet 1 1. What is a production...

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