In economics, the input made up of machines, equipment and buildings, and not money, is called capital.
Missing Word
capital
Capital is the stock of physical tools a firm uses to produce, such as ovens, computers and factories. Money is not capital in this sense; it is only a way to buy inputs.
Category: Factors of Production
Question 2
In the shorthand equation Q = f[L, K], which links output to inputs, the letter L stands for labor, the input a firm usually varies in the short run.
Missing Word
labor
Labor is the human physical and mental effort used in production. In the short-run version of the production function, K is held fixed and output changes as the firm adds or removes workers.
Category: Factors of Production
Question 3
Economists treat technology, meaning the processes used to combine inputs into finished goods, as a separate input.
Missing Word
technology
Technology refers to the methods a firm uses to turn inputs into output. Better processes let a firm produce more from the same labor and equipment.
Category: Factors of Production
Question 4
A mathematical expression showing how much output a firm can make from given amounts of inputs is called a production function.
Missing Word
production
A production function links inputs such as labor and capital to output. Each good has its own, because the inputs and processes differ from product to product.
Category: Production Functions
Question 5
Inputs that a firm cannot change quickly, such as a building it has leased for several years, are called fixed inputs.
Missing Word
fixed
Fixed inputs cannot be adjusted in the short run, and they set a limit on how much the firm can produce. Their presence is what defines the short run.
Category: Production Functions
Question 6
Inputs such as flour and hourly workers, which a firm can adjust quickly even in the short run, are called variable inputs.
Missing Word
variable
Variable inputs can be increased or decreased as the firm changes its output. Their costs rise and fall with production, unlike the costs of inputs that cannot be changed quickly.
Category: Production Functions
Question 7
Accounting profit equals total revenue minus only the explicit costs, the out-of-pocket payments a firm makes.
Missing Word
explicit
Explicit costs are actual payments such as wages, rent and materials. Accounting profit subtracts only these, while economic profit also subtracts implicit costs.
Category: Accounting and Economic Profit
Question 8
When the income an owner gives up by running her own firm is larger than the firm's accounting profit, its economic profit is negative.
Missing Word
negative
Economic profit equals accounting profit minus implicit costs. If implicit costs exceed accounting profit, the result is below zero, meaning the owner's resources would earn more in their best alternative use.
Category: Accounting and Economic Profit
Question 9
A cost that has already been paid and cannot be recovered, and so should be ignored when deciding what to do next, is a sunk cost.
Missing Word
sunk
A sunk cost is spent no matter what the firm chooses next, so it cannot change which choice is better. Good decisions compare only the future costs and benefits of each option.
Category: Sunk Costs
Question 10
On a graph of total cost against output, the point where the total cost curve meets the vertical axis, equal to the cost paid even when nothing is produced, is the curve's vertical intercept.
Missing Word
intercept
The vertical intercept of the total cost curve is total cost at zero output, which equals fixed cost. A firm with large fixed costs has a total cost curve that starts high on the vertical axis.
Category: Cost Curves
Question 11
Because marginal cost is the change in total cost divided by the change in output, it equals the slope of the total cost curve.
Missing Word
slope
The slope of a curve is its rise over its run, here the change in total cost over the change in quantity, which is the definition of marginal cost. A steeper total cost curve means a higher marginal cost.
Category: Cost Curves
Question 12
When every unit sells for the same amount, a firm's average revenue equals the good's price.
Missing Word
price
Average revenue is total revenue divided by quantity, and total revenue is price times quantity, so the quantity cancels and leaves the price. This is why average profit equals price minus average cost.
Category: Accounting and Economic Profit
Question 13
An implicit cost is the opportunity cost of using resources a firm already owns, such as the owner's unpaid time, so no cash changes hands.
Missing Word
implicit
An implicit cost is the value of what a firm's own resources could have earned in their next best use, like the salary an owner gives up to run the business. No payment is made, so accountants do not record it, but economists subtract it when computing economic profit.
Category: Accounting and Economic Profit
Question 14
When market demand is only a little larger than the output at which long-run average cost is lowest, the model predicts a few large firms, a structure called oligopoly.
Missing Word
oligopoly
An oligopoly is a market dominated by a small number of firms. If the market can absorb only a few plants of the lowest-cost size, only a few firms can produce at competitive costs.
Category: Market Size and Structure
Question 15
If the whole market buys fewer units than one plant must produce to reach its lowest long-run average cost, a single seller, or monopoly, is likely.
Missing Word
monopoly
A monopoly is a market with one seller. When even one firm cannot reach its lowest-cost size given total demand, a second firm would face higher costs, so a single firm tends to serve the market.
Category: Market Size and Structure