BUS 207 Study Guide - Final Guide: Average Variable Cost, Average Cost, Diminishing Returns

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 207
• Professor: Bernie Maroney

Document Summary

Question 1: production function, implicit costs, capital; time, economic profits, short run; long run. Question 2: diminishing returns (to the variable factor, marginal product, above; below, maximum, fall; negative. Question 3: minimum, increase, increasing, increasing, capacity, marginal cost; average variable cost; average total cost. Question 4: hourly wages are an explicit cost. These are subtracted from revenues for computing both accounting and economic profits: depreciation of physical capital is an explicit cost. It is subtracted from revenues for computing both accounting and economic profits: the risk-free 2% return is part of the alternative return that investors could have earned if they did not invest in this firm. This is an implicit (opportunity) cost, and is subtracted from revenues to compute economic profit. It is ignored in the computation of accounting profit: rental payments for a production facility are an explicit cost.