5.2/5.3 - Production and Cost, Revenue, Profit Maximization

Match the following terms with the correct definition.

• Short Run

• A period long enough for the firm to adjust the quantities of all productive resources.

• Long Run

• A period so brief that only the amount of the variable input can be changed.

• Production Function

• Total output produced by the firm.

• Total Product

• Figure that shows how total output changes when the amount of a single variable input changes while all others are constant.

Match the following terms with the correct definition.

• Marginal Product

• Stage where output increases at a diminishing rate as more variable inputs are added.

• Stages of Production

• Increasing returns, Diminishing returns, and negative returns.

• Diminishing Returns

• The extra output or change in total product caused by adding one more unit of variable input

Match the following terms with the correct definition.

• Overhead

• Sum of the fixed and variable costs.

• Marginal Cost

• The extra cost incurred when producing one more unit of output.

• Fixed Costs

• The costs that an organization incurs even if there is little or no activity.

• Variable Costs

• Total fixed costs can go by another name too.

• Total Cost

• Costs that change when the business's rate of operation or output changes.

Match the following terms with the correct definition.

• Profit-max. Quantity of Output

• Level of production that generates just enough revenue to cover total operating costs

• Break-even Point

• Is reached when marginal cost and marginal revenue are equal.

• E-commerce

• Electronic business conducted over the Internet

Match the following terms with the correct definition.

• Marginal Analysis

• A type of decision making that compares the extra benefits of an action to the extra costs of taking the action.

• Total Revenue

• All the revue a business receives.

• Marginal Revenue

• The extra revenue a business receives from the production and sale of one additional unit of output.

When looking at a production function, what is typically the single variable input that changes while others are constant?

• Labor

• Capital

• Substitues

• Demand

Choose the correct description for what is occurring in Stage II.

• Total output decreases

• Total output increase rapidly

• Total output still increases but at a slower/decreasing rate

• None of the above

In which stage is there a negative or marginal return for hiring more workers?

• Stage I

• Stage II

• Stage III

• The whole graph

Which of the following is NOT an example of a fixed cost?

• Interest Charges on Bonds

• State/Local Property taxes

• Depreciation of capital goods

• Electric power to run machines

Businesses use TWO key measures of revenue to find the amount of output that will produce the greatest profits. They are total revenue and ___________.

• Total Cost

• Break-Even Point

• Marginal Revenue

• Increasing Marginal Returns