ECO 251

Pre-Lecture Assignment #9

Chapter 13

Vocabulary

1.Total Revenue

2.Total Cost

3.Profit

4.Implicit/Explicit Costs

5.Economic/Accounting Profit

6.Production Function

7.Fixed/Variable Costs (Table 3 in your textbook is useful)

a.Average Total Cost (ATC)

b.Average Fixed Cost (AFC)

c.Average Variable Cost (AVC)

d.Marginal Cost (MC)

8.Economies/Diseconomies of Scale

Questions

1.What is the relationship between a firm's total revenue, profit, and total cost? Why is economic profit generally lower than accounting profit for businesses?

2.Draw the general shapes of the ATC, AFC, AVC, and MC curves for a firm.

a.Why is the AFC curve always decreasing?

b.Should ATC always be above AVC? Why?

c.The MC cost curve always intersects the AVC and ATC at their _____________.

3.Why do production functions generally exhibit diminishing marginal returns to labor?