ECON 213/Liberty University - ECON 213 Latest Study Guide (Latest 2021) 100% Correct Study Guide, Download to Score A
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Course
ECON 213 (ECON213)
Institution
Liberty University
ECON 213/Liberty University - ECON 213 Latest Study Guide (Latest 2021) 100% Correct Study Guide, Download to Score A
ECON 213/Liberty University - ECON 213 Latest Study Guide (Latest 2021) 100% Correct Study Guide, Download to Score A
Profit Formula
TOTAL REVENUE - TOTAL COST = PROFIT
Explicit Cost
Accounting Cost
Expenses that are paid to another economic entity. Ex. Cost of Rent, wages, raw
materials and utilities.
those paid to some other economic entity.
Cost that can be documented by a receipt or an invoice.
Implicit Cost
Opportunity Cost of using resources in a business.
opportunity costs of the resources used by the firm.
Accounting Profit Formula
TOTAL REVENUE - EXPLICIT COST = ACCOUNTING PROFIT
ECONOMIC PROFIT
TOTAL REVENUE - EXPLICIT COST - IMPLICIT COST = ECONOMIC PROFIT
Zero Economic Profit
A business can stay in business if it has zero economic profit.
The firm is doing just as well if it used the best alternative of it resources.
All opportunity costs are covered.
Ex. A firm that is meeting its investors' minimum expectations and covering its
opportunity costs.
What are the types of costs that are measured in a cost analysis?
Fixed Costs
Sunk Costs
Marginal Costs
Variable Costs
Total Cost
Average Costs
Fixed Cost
expenses that does not change with the amount of output in the short run.
doesn't change with the level of output in the short run.
Ex. Lease payment
Sunk Cost
,a cost that can't be recovered.
Ex. Tuition payment (no refund)
Variable Cost
expenses that increase with the amount of production.
These include Raw materials, utilities, and labor wages because greater output requires
more resources to be used.
increase as the level of production increases.
Total Cost
The sum of Fixed and Variable costs.
Used in the Profit formula
Marginal Cost
The cost of producing one more unit of a good.
The additional cost of producing one more unit of a good
Average Cost
Used to determine the overall efficiency of a business. Includes average fixed cost,
average variable cost, and average total cost.
AVERAGE "VARIABLE" COST = "VARIABLE" COST/ OUTPUT
Profit-Maximizing Rule
Profit is maximized when marginal cost equals marginal revenue.
If a business has revenue of $100,000, explicit costs of $50,000, and implicit costs of
$60,000, it is earning an economic profit.
True or False
False
Because economic profit includes both explicit costs (paid to another economic entity)
and implicit costs (the opportunity cost, not otherwise captured, of resources supporting
the business), this example would produce a loss ($100,000 − $50,000 − $60,000 = −
$10,000).
When a business sells an excess factory, it is incurring a sunk cost.
True or False
False
Because this business is recovering at least a portion of its fixed costs by selling the
factory, the fixed costs associated with the factory are not a sunk cost. Sunk costs are
not recoverable.
If a firm's total cost increases by $25 when it produces an additional unit of output, an
economist would say that the marginal cost for that unit is $25.
True or false
,True
The marginal cost for a unit of output is the additional cost the firm incurs to produce
that additional unit.
How would a business owner use information about marginal revenue versus marginal
cost and price versus average total cost?
A business would use the information about marginal revenue vs marginal cost to
determine whether or not their profit is maximized.
A business would use the information regarding price vs average total cost to evaluate
whether or not the business is profitable.
The profit maximizing rule (marginal revenue equal to marginal cost) tells the business
owner the level of output and price that will maximize the firm's profits, though not its
level of profits (or losses). Price less average total cost indicates to the business owner
the level of profit (or loss) per unit of output the firm is realizing.
A firm that is generating zero economic profit after implicit costs are factored in is
earning:
implicit profits.
normal profits.
explicit profits.
economic profits.
normal profits.
A firm that is generating zero economic profit after implicit costs are factored in is
earning normal profits.
Total output divided by the number of workers is:
total product.
marginal product.
average product.
total cost.
average product.
Average product is calculated by dividing the total output by the number of workers.
What illustrates the lowest unit cost at which any particular output can be produced in
the long run?
, short-run average total cost
short-run average fixed cost
long-run average fixed cost
long-run average total cost
long-run average total cost
The long-run average total cost is the lowest unit cost at which any particular output can
be produced in the long run, when a firm is able to adjust all of the factors of production.
A corporation:
is subject to unlimited liability.
is a business in which stockholders' risk is limited to loss of their investment.
is a business in which stockholders' risk is not limited to loss of their investment.
has the same liability as a partnership.
is a business in which stockholders' risk is limited to loss of their investment.
A corporation is a business structure that has most of the legal rights of individuals and
can issue stock to raise capital. Its stockholders' risk is limited to loss of their investment
A company has diminishing marginal returns. If the third worker adds 7 units to total
production, how much does the fourth worker add to total production?
between 7 and 15 units
between 1 and 6 units
8 units
no units
between 1 and 6 units
Diminishing marginal returns occur when an additional worker adds to total output but at
a diminishing rate.
economies of scale
When a firm has economies of scale, its long-run average total costs decrease with
increased output. Economies of scale can result from specialization of labor and
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