TEST 3 - Chapter 7 1. What is production? Who engages in...

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Chapter 7 1. What is production ? Who engages in production? 2. What three decisions must all competitive firms make? What do economists assume to be the firm’s objective when they make those decisions? 3. What is the economic definition of profit ? How does it differ from the accounting definition of profit?
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4. What is meant by the normal rate of profit or normal rate of return ? How does it relate to the opportunity cost of capital? 5. What distinguishes the short run from the long run ? What two things can firms do in the long run that they can’t do in the short run? 6. What are fixed and variable inputs? 7. What does the production function show?
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8. What is meant by total product ? What is the marginal product of an input? What is the average product of an input? 9. What is the law of diminishing returns ? Is it a short run concept or a long run concept? Why? Chapter 8 1. What are fixed costs ? What is average fixed cost ? How do they vary in response to changes in the level of output? Understand Figure 8.2
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2. What are variable costs ? What is average variable cost ? How do they vary in response to changes in the level of output? 3.
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TEST 3 - Chapter 7 1. What is production? Who engages in...

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